3 Hidden Car Costs That Every College Grad (And First-Time Buyer) Should Know

Any first-time car buyer could use a bit of education.

According to a recent survey conducted by auto pricing site CarGurus, almost one-third of this year's college graduates plan to buy a car, with 57% planning to pay for it entirely on their own. Meanwhile, 46% of those getting a car will spend as much as $15,000. Consider that the average new vehicle sold in May went for $33,845, according Kelley Blue Book. That's not only up 2.2% since the same time last year, but it bottoms out at an average $20,146 for a compact car.

According to Edmunds.com, there were only a dozen new cars whose price fell below $15,000. Those cars range from the $11,900 Nissan Versa sedan to the $14,995 Hyundai Accent hatchback. Even the tiny Smart Fortwo two-seater goes for $14,650.

"Continuously growing demand for SUVs and trucks helped push overall average transaction prices up," said Tim Fleming, analyst for Kelley Blue Book. "The Detroit automakers are benefitting most from this trend, as their transaction prices are up between 4% to 6%."

This is going to drive a whole lot of people, especially young people, to used or certified-pre-owned cars. The folks at Manheim Consulting note that used vehicle prices have come down from their peak in 2011, when automaker bankruptcies and a lack of leasing diminished supply as the recession increased demand. However, those prices are still fairly high for what you're getting. Used vehicle sales are up 6% from a year ago, but even the prices at auction sales have risen 3% during that time.

Taking $5,000 to auction back in 2003 could get you a car with 70,000 miles on it, on average. That same $5,000 today, however, will get you a car with more than 120,000 miles on it, according to Manheim.

But let's say that a buyer lucks out and gets the $15,000 econobox of his dreams. If he wants to finance that vehicle, he'll put down at least 20% (in this case, $3,000) of total cost in cash. The rest will contribute to the $1.07 trillion in auto loan debt that the Federal Reserve Bank of New York says U.S. vehicle owners have amassed through May. That's up $103 billion since the same time last year and trails only student loan debt ($1.26 trillion) and mortgage debt ($8.37 trillion).

Meanwhile, a car buyer's credit rating is going to dictate how much that $15,000 car will actually cost. The average financing rate is 3.69%, which would tack more than $850 onto the cost of a car over three years of financing. However, if you have bad credit history -- and financial advice site Edvisors.com notes that 70.9% of all college graduates carry $35,051 in average student loan debt for a bachelor's degree --- that rate could jump as high as 7.69%, with the three-year cost of that $15,000 car jumping to nearly $17,000.

Lenders are aware that 3.4% of all auto loans are past due -- compared to just 2.2% of all mortgages or home equity loans -- so you aren't going to get a tremendous break if you have bad credit. Even if you have sparkling credit, however, that isn't going to save you from taxes and fees. Dealers can charge you for a documentation fee for your sales contract, a fee for the costs for advertising your vehicle, another for extended warranties and even another for credit insurance (which is something your regular insurance may cover anyway). We'd love to enumerate these taxes and fees for you, but with every state's levies being incredibly distinct, it's best for you to dig into those layers on your own. In Illinois, for example, $15,000 just happens to be the dividing line between the $25 to $390 used-car tax and the $750 base new-car tax.

You typically don't want to spend more than 20% of your monthly salary on your car, but that $15,000 doesn't include gas, maintenance or insurance. Used cars will typically require a little bit more money set aside for insurance, but there are sites including OpenBay that can provide vehicle reliability history while plotting out a maintenance schedule. Meanwhile, the folks at the Environmental Protection Agency's FuelEconomy.gov have figured out the average annual fuel cost of just about every vehicle that's hit U.S. roads within the last 30 years or so. That'll help take away some of the surprises, though CarGurus notes that 53% of younger drivers believed that auto insurance would cost less than $500 a year. It typically costs upwards of $2,000 for their age group.

Perhaps, a result of all of this, the share of new cars being bought by Americans between 18 and 34 is down 30% in the last five years, according to auto pricing site Edmunds.com. A Pew Research Center study notes that people under 35 bought 12% fewer cars than they did in 2010. The Department of Transportation notes that just 28% of 16-year-olds had driver's licenses in 2010, with just 45% of 17-year-olds claiming the same. That's plummeted from 50% and 66% respectively in 1978. While the number of 16-year-olds with driver's licenses peaked at 1.72 million in 2009, it dropped to 1.08 million by 2014.

A car's sticker price only tells part of the story. It's up to the buyer to piece the rest together, even if that increases a rock-bottom price a bit.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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