Owning a car can be expensive. The costs don’t stop even after your last loan payment. You still have to pay for taxes, repairs, fuel and insurance. If you’ve narrowed down your choices to say, a car and an SUV, it’s always a good idea to dive in deeper and do a little bit more research on what it really costs to own that car on a yearly basis.
Sometimes choosing a cheaper car will cost you more in the long run. There’s also the “bigger isn’t always necessarily better” rule when it comes to yearly ownership costs. There are so many variables to consider and compute that I put together a few guidelines to give you an idea of what really goes on in a five year car ownership period.
When you own a car, you have to take into consideration the following:
- Depreciation Value: Age before Beauty
I’ll go out and say it: depreciation sucks. Your car loses value the minute it rolls out of the factory floor or showroom. But this is a reality we all have to accept. On average, depreciation amounts to about 48% of total ownership costs for a period of five years. Some vehicles depreciate faster than others due to limited appeal, rebates on similar new models or oversupply. Some brands also depreciate faster than others, so look for cars that age well.
- Financing Interest: Are you interested?
Interest is calculated based on a five-year loan with a 15% down payment, the average DP most people pay when buying a new car. This is also directly affected by the vehicles’ sticker price, so the more expensive the car, the higher the interest rate. Look for dealerships that offer the best rates on their vehicles. The market average interest rates are at 6.0%.
- Repair and Maintenance: Body Shop Blues
Repair and maintenance make up about 4% of ownership costs over a five year period. Most cars carry a five year warranty, so the bulk of the costs (excluding tires, batteries, etc) are absorbed by this. When I bought my first car, it only came with a 3 year warranty and I was so disappointed when I had to buy my own set of tires. Look for car manufacturers that offer five year warranties and dealers that offer discounts and maintenance freebies so you can save money in the long run.
- Taxes plus other fees: Pay the Piper
Taxes and other fees almost costs car owners as much as maintenance and repair and comes in at 3% – 4%.
- Insurance premiums: Fast and Furious
According to the Highway Loss and Data Institute, insurance premiums make up about 10% of total ownership costs over a five year period. Insurance cost vary depending on an assortment of factors like driving record, age, location and what type of vehicle is being insured. Sports cars have higher premiums than regular sedans due to a myriad of risk factors involved when driving them.
- Fuel Costs: The Gasman Cometh
This can really be a major issue, especially when you drive an SUV. Hummers are notorious for guzzling gas, so be wary when choosing your next car. Ask other car owners and read forums on fuel consumption so you can better get a handle on it. A 5.2 liter V8 will always consume more fuel as compared to a 1.6 liter four-banger. Do the math to find out what car you really need. Fuel costs on the average, is the second-largest cost of vehicle ownership, clocking in at 24% over a five year period.
Don’t worry; there is a bright side to all of this. Owner costs decrease significantly as cars age (in most cases) so let your car age gracefully and let time handle the rest. Who knows, maybe you currently own a soon to be classic. You just have to wait a few decades.