10 Expenses to Prepare for When You Buy Your First Car

Depending on where you live and the lifestyle you lead, you might need a car to get to work, run errands, and otherwise complete your daily activities. Unfortunately, owning a car isn't cheap, and if you've never owned one before, you might not be familiar with what expenses you should be ready to pay along the way.

Let's take a look at 10 things you'll need to remember (and potentially budget for) if you're contemplating taking out an auto loan and buying a vehicle.

1. A down payment

While you may be able to buy a car without a down payment, it's generally a good idea to put some amount of money down so you're not financing (and paying interest) on the whole purchase. Plus, you get to make fewer (or smaller) payments to eventually own the car outright. Autotrader notes that 20% is the recommended down payment for a new vehicle, but you may be able to get away with less down for a used car.

2. Monthly payments

Once you've purchased your vehicle, you'll have monthly payments to look forward to -- er, budget for -- every month. And a car payment could definitely ding your budget these days. A report from Edmunds found that for people buying a new car in Q4 2022, 15.7% signed on for car payments of more than $1,000 per month, while 5.4% of those buying used cars also wound up with payments in the four-figures range. Based on those numbers, the odds are better that you'll owe less per month by buying a used car.

3. Vehicle registration and taxes

To legally drive your car, you'll need to register it with your state's Department of Motor Vehicles (the agency's name will vary depending on your state) and get license plates for it. Registration costs could be charged annually or semi-annually. You may also owe sales tax when you buy it. Costs vary depending on the state where you live, and possibly even depending on your county.

In New York, for example, you'd pay a registration fee between $26 and $140, depending on the vehicle's weight. You'd also owe a license plate fee of $25, a title certificate fee of $50, and your aforementioned sales tax. Plus, there would be a county use tax that varies from county to county (and is higher in the counties that make up New York City).

4. Auto insurance premiums

Car insurance is a must-buy, and definitely not optional under any circumstances. Without it, you stand to be financially ruined by a car accident or other auto-related mishap, like expensive weather damage to your car. Drivers owe a car insurance premium payment on a monthly basis, or may be able to pay for six months or a year at a time. Thankfully, there are ways to get discounts on required coverage, such as by bundling a car policy with homeowners or renters insurance.

5. Auto insurance deductible

In addition to paying for your auto insurance premium, you'll also have to pay a deductible when you file a claim, and your insurer will then pick up the rest of the tab for the covered claim's costs. Drivers can often raise their deductible (say, from $500 to $1,000) and pay less per month for the premium as a result. It's a good idea to keep cash in a savings account at the ready in case your car sustains damage and you need to file a car insurance claim and pay that deductible.

6. Gas or charging expenses

What good is a car without the means to make it go? As such, car ownership also comes with the cost of fuel, whether that's gasoline or electric charging in the case of EVs. Gas prices were a major topic of discussion in 2022, and with good reason, as they were higher than usual. The average price of a gallon hit a peak of $5.016 in June 2022. As of this writing, the average price is $3.537, per AAA.

If you have a long commute, it pays to consider buying a smaller vehicle that sips on gas, or perhaps getting a credit card that offers rewards on gas purchases. You might also consider buying electric, if you can swing a higher purchase cost and want to save on fuel expenses. The cost to charge an EV will depend on how you charge as well as your vehicle's battery.

7. Maintenance costs

While you will eventually pay off your car loan, I'm sorry to report that the maintenance costs don't ever go away. I drive an elderly car that I made the last payment on nine years ago, and I have already shelled out over $1,200 on it this year, for an oil change, new tires, and new knock sensors. If you buy a new car, it'll likely come with a warranty that should cover at least some of your maintenance costs for a period of time. But once it expires (or if you buy used), you're on the hook for tuneups, oil changes, fresh tires and brakes, and whatever else your vehicle needs to keep it in good working order.

8. Depreciation (perhaps)

Depreciation of your car's value isn't a cost you'll pay per se, but if you end up wanting to sell the vehicle, it's something to be aware of. This is especially the case if you're underwater on your loan -- meaning you owe more than the car is worth. If you wanted to sell in this instance, you'd have to come up with more money to pay off your lender.

9. Parking (maybe)

Parking is another cost that may not touch you at all. If you live in a place with abundant free parking and hardly ever visit areas that require you to pay to leave your car, parking might be a tiny part of your car-owning budget indeed. But if you own a car in a big city, parking could cost you a pretty penny. SpotHero reports that the monthly cost to park a car in New York City is $570 a month. Ouch.

10. AAA membership (optional)

You can likely get roadside assistance through your auto insurer, but you might want to get a AAA membership anyway. It can save you money on hotel stays and other travel costs, and the towing services AAA offers might be more useful to you than those offered by your insurance company.

If you've never owned a car before, you may now be frantically updating your monthly budget to account for all these costs. Before taking the plunge on buying, it's a good idea to take a deep breath and ensure you can cover all the associated expenses you'll be taking on in the process.