Introduction
The cost of buying a car is not only the price or the loan amount and the monthly payment, but there are many more costs that are associated with car ownership. There are many costs that are associated with the ownership of a car ranging from insurance costs to the cost of maintaining the car.
At Automatic Car Credit, we think that buyers should know all the aspects of owning a car to make the right decisions. This guide will also give a detailed account of all the costs so that you can be financially ready for any other expense apart from the price of the car you are driving home.
Why It’s Important to Calculate the Total Cost of Car Ownership
It is important to know the total cost of owning a car so as to avoid spending too much money. This is because when buyers are only focused on the monthly loan payment they are likely to be surprised by the total cost of the car in the long run. In this way, you will be able to include all the costs that are connected with the car and choose the one that is suitable for your budget and further life plan.
Other Car Expenses Apart from Your Car Finance
Although your car loan is one of the largest expenses, several other costs may add up and make a huge difference. Now let’s look at the most significant ones.
- Insurance Premiums
Insurance is compulsory and the amount you are likely to pay as premium will depend on factors such as the type of car you own, your record as a driver and your residential area. If you are leasing or taking a loan for the car, you will be compelled to take comprehensive and collision insurance, which is more costly than the basic liability coverage.
- How to Manage Insurance Costs:
Compare the prices of various insurance companies and try to get your auto insurance in conjunction with other insurances, for instance homeowner’s insurance at a cheaper rate. There are also other things like safe driver discounts that you can take advantage of or opting for a higher deductible to help reduce the monthly premiums.
- Fuel Costs
Fuel is another ongoing expense that fluctuates depending on gas prices and how often you drive. The type of car you own plays a huge role in determining how much you’ll spend on fuel each month. For instance, SUVs and trucks generally consume more fuel than compact cars or hybrids.
- How to Manage Fuel Costs:
Opt for a fuel-efficient vehicle or consider electric or hybrid options if you’re concerned about fuel prices. You can also adopt fuel-saving driving habits, such as maintaining a steady speed and avoiding rapid acceleration.
- Routine Maintenance and Repairs
Even new cars require routine maintenance such as oil changes, tire rotations, and brake checks. As your vehicle ages, repair costs will increase, especially if major parts like the transmission or engine need replacement. Failing to budget for these expenses can lead to financial strain down the line.
- How to Manage Maintenance Costs:
Regularly service your car to prevent costly repairs in the future. Keep an emergency fund for unexpected repairs or consider purchasing an extended warranty to cover major repairs after the manufacturer’s warranty expires.
- Depreciation
Depreciation is the loss in value that occurs as soon as you drive your new car off the lot. On average, a vehicle loses around 15-20% of its value in the first year and continues to depreciate over time. While this isn’t an out-of-pocket cost, it’s important to consider when assessing the long-term financial impact of your car.
- How to Manage Depreciation:
Buying a used car or certified pre-owned vehicle can reduce the impact of depreciation, as much of the value loss occurs within the first few years of ownership. Additionally, cars with higher resale values, like certain makes and models, can help you recover some of your initial investment when you sell or trade in the vehicle.
- Taxes and Fees
When purchasing a vehicle, you’ll encounter additional costs like sales tax, registration fees, and dealer documentation fees. These can vary based on your location and the cost of the vehicle.
- How to Manage Taxes and Fees:
Check with your local Department of Motor Vehicles (DMV) for exact tax rates and registration fees to budget accordingly. Also, be aware of dealer fees and negotiate them when possible.
- License and Registration
Every year or two, you’ll need to renew your vehicle registration, which comes with a fee. Additionally, your license plates may need to be replaced after a certain period. These are minor costs compared to others, but they still contribute to the overall expenses of car ownership.
- How to Manage License and Registration Costs:
Make sure to include these recurring costs in your budget. Keep in mind that luxury cars or larger vehicles may have higher registration fees based on their value or weight.
- Tires
Tires are a critical component of your vehicle’s performance and safety, and they wear out over time. Depending on your driving habits and the terrain you frequently drive on, you may need to replace your tires every few years.
- How to Manage Tire Costs:
Regular tire rotations and proper inflation can extend the lifespan of your tires. Additionally, shop around for discounts or promotions on new tires when it’s time to replace them.
- Loan Interest
The interest on your car loan is an added expense which many buyers do not consider when determining the total cost of the car. This is because the interest rates which depend on your credit score as well as the loan terms can push the total cost of the car much higher.
- How to Manage Loan Interest Costs:
As for the interest costs, you may try to increase the down payment, choose a shorter loan term, or refinance your loan if the interest rate is lower. The rates offered to our clients at Automatic Car Credit are relatively low to ensure that clients are not charged a lot of money in the future.
- Extended warranties and service contracts.
There are some dealers who provide warranty or service agreements which include the protection for the car after the manufacturer’s warranty has expired. These can be useful in giving one a sense of security but they are also extra expenses that one has to incur when owning a car.
- How to Manage Warranty Costs:
Before you decide to buy an extended warranty, evaluate your car’s dependability and the chances that you will need extensive repairs. If you do decide to opt for a service contract, then ensure that it is for the parts that are likely to go bad.
- Parking and Tolls
Especially if you live in a city or often drive on toll roads, parking fees and tolls will cost you a pretty penny. These may appear to be small costs, but if not taken into consideration, they may add up to the total cost.
- How to Manage Parking and Toll Costs:
Avoid using toll parking lots or seek other parking lots and try to use toll free roads where possible. If you take your car through the toll roads often, it will be wise to purchase a transponder that will grant you a better deal for a regular user.
Bottom Line
Having a car is not only paying monthly installments on the car loan but also a lot more. Starting from insurance fees to fuel costs, maintenance and depreciation of the car, the overall cost of owning a car can be steep. These costs are actually real and should be factored when making a decision so that you do not end up being surprised later on.
At Automatic Car Credit, we’re here to help you navigate the car-buying process and ensure that you’re fully prepared for the financial commitment of owning a vehicle. Ready to take the next step? Contact us today to explore your financing options and get expert guidance on managing the true cost of car ownership.