How to avoid the hidden costs of a new car

How to avoid the hidden costs of buying a new car

Here’s what you need to know about the costs that can add thousands to the price of your new car – and how to avoid them.

A salesperson demonstrates a car's features to a prospective buyer

Buying a new car is one of the largest purchases most of us make, so it’s natural to focus on the biggest upfront cost – the price tag.

But that figure tells only part of the story.

Once you’ve driven your shiny new car out of the dealership, you’ll still need to pay for fuel or electricity, insurance, servicing, registration and tyres. And there’s one cost that’s often much bigger than all of these combined: depreciation.

That’s why the cheapest car to buy isn’t necessarily the cheapest car to own in the long run.

Our recent Open Road Best Value Car Awards put more than 120 vehicles through the same five-year ownership-cost calculation, revealing some enormous differences between cars that compete for the same buyers.

In some cases, choosing the right car could save you more than $15,000 over five years.

Here’s what to look for before signing on the dotted line.

Don’t confuse purchase price with value

The first trap is also the most obvious: assuming the cheapest car is the best-value car. Our Best Value Car Awards showed just how misleading that can be. Ownership costs can vary dramatically, even for cars with similar purchase prices, so it pays to do your homework.

And be sure to watch out for on-road and dealer delivery costs. These costs can also vary substantially and mean the advertised price isn’t necessarily the amount you’ll pay. Some brands will offer sharp drive-away deals, but others can add more than $7000 to the ‘sticker price’ in on-roads costs.

Depreciation could be your biggest expense

Depreciation is the biggest cost of owning a car, yet the one that most buyers think about the least.

Our calculations show depreciation typically accounts for 40 to 50 per cent of a vehicle’s five-year ownership cost. Yet just 22 per cent of NRMA members surveyed said they consider depreciation when buying a new car.

And depreciation can vary dramatically between otherwise comparable vehicles.

In our EV category, for example, the BYD Atto 1 was projected to lose $13,915 over five years, while the Leapmotor C10 was projected to lose $29,409.

That’s a $15,000-plus difference before you’ve even considered fuel, insurance or servicing.

Get an insurance quote before you buy

Insurance premiums can vary surprisingly widely between cars – and the difference can quickly wipe out a seemingly attractive purchase price.

Insurance can especially be a trap with some newer brands and EVs, so it’s worthwhile getting a quote before handing over your cash.

Fuel savings add up

Fuel is another cost that’s easy to underestimate because you pay it in small amounts rather than one large bill.

But over five years, the numbers become significant.

Our Best Value Car Awards calculations found that most petrol small cars accumulated around $5000-$7000 in fuel costs over five years, while EVs generally landed around $2400-$3000 in electricity costs.

For larger SUVs and utes, fuel bills can climb to $10,000-$15,000 or more.

Of course, your actual costs will depend on how far you drive, where you refuel or charge, and prevailing fuel and electricity prices.

EVs can save you money – but they’re not automatically cheaper

One of the clearest findings from the Best Value Car Awards was that EVs are becoming genuine contenders on cost, not just emissions.

The BYD Atto 1 was the second-cheapest vehicle overall in our small-car category and won our EV category outright.

EVs generally have lower energy and servicing costs, with the 16 EVs we analysed typically requiring considerably less servicing expenditure than their petrol counterparts.

But there are trade-offs.

Higher purchase prices, depreciation, insurance premiums and tyre costs can eat into those savings.

For more on how costs can differ between petrol, hybrid and electric vehicles, read this article.

Don’t overlook tyres

Tyres are one of those costs that rarely come up in the showroom conversation but can add hundreds or thousands to the ownership bill.

We included the cost of one replacement set of factory-spec tyres in our Best Value Car Awards calculations.

The results showed big differences.

A replacement set for the MG3 Vibe cost $636 in our calculations, compared with $1184 for the MG4 Urban and up to $1948 for other rivals in the same segment.

Larger wheels, heavier vehicles and EV-specific tyres can all contribute to higher replacement costs.

Be wary of dealer add-ons

Once you’ve agreed on a car, you may be offered a range of additional products designed to make the vehicle more appealing – or the finance package more comprehensive.

These can include:

Paint protection
Fabric and interior protection
Window tinting
Extended warranties
Roadside assistance packages
Dash cameras
Floor mats and other accessories
Loan protection and other finance products

These aren’t necessarily bad products, but it’s important to understand what you’re paying for and whether you actually need it.

Tip: Ask for every optional product to be itemised separately and compare each price with what’s on offer elsewhere.

Don’t be fooled by a low monthly repayment

If you’re financing your car, the monthly repayment can become the number you focus on – but it isn’t necessarily the most important one.

A longer loan term can make repayments appear more affordable while increasing the total amount of interest you pay.

Finance offers can also include establishment fees, monthly account fees, balloon payments, and optional insurance products.

Tip: Ask for the total amount payable over the life of the loan, not just the monthly repayment.