Car Ownership Costs Beyond the Price Tag: What to Expect

Key Takeaways

  • Depreciation is one of the biggest hidden costs of owning a car.
  • Maintenance and insurance costs can vary greatly depending on the vehicle type and driving history, making it important to budget for these.
  • Financing a car increases the total cost of ownership due to interest, especially with longer loan terms.
car ownership costs

When buying a car, most people focus on the sticker price, but the total cost of owning a car goes far beyond that initial figure. While the purchase price is a major consideration, ongoing costs like insurance, maintenance, depreciation, and financing can add up quickly. Understanding these hidden expenses is crucial for making a smart financial decision. Whether you’re buying new or used, being aware of the true cost of owning a vehicle can save you from unexpected financial strain down the road.

Depreciation

Depreciation represents the value loss of a vehicle from the moment it’s purchased. A car’s value often drops as soon as it’s driven off the lot, and this affects both new and used vehicles. While you don’t pay depreciation directly, it’s important to account for it if you plan to sell your vehicle in the future.

Luckily, calculating depreciation is straightforward. At the CarEdge Research Hub, we provide updated depreciation data to give you a clear picture of your car’s value over time. Check out depreciation rates for your car to make more informed decisions.

In rare cases, vehicles may increase in value due to high demand, such as collector cars. But for the majority of cars, depreciation is inevitable.

Insurance Premiums

When you purchase a vehicle, you will be required to purchase insurance. If you are financing a vehicle, it will be mandatory that you get full coverage insurance. If you purchase a car and pay it in full, you can choose to get liability insurance. Full coverage is going to cost more due to the comprehensive coverage that you get compared to liability insurance. Insurance policies can cost anywhere from $50 up to $300+ per month depending on the vehicle, the type of coverage you get, and your recent driving history. 

For those with speeding tickets or accidents on their record, insurance costs may be higher. Always get insurance quotes before purchasing a vehicle to ensure you can afford both the car payment and the insurance premium.

Maintenance & Repairs

Maintenance and repairs are inevitable parts of car ownership, and these costs can vary depending on the make, model, and age of your vehicle. Regular maintenance like oil changes, tire rotations, and brake checks are essential for keeping your car in top condition and can help you avoid costly repairs down the road.

To reduce long-term costs, follow your vehicle’s maintenance schedule and consider setting aside an emergency fund for unexpected repairs, such as transmission or suspension work. Some repairs are unavoidable, but taking proactive steps can minimize expensive breakdowns.

See average maintenance costs for your car at the CarEdge Research Hub

Financing

When financing a car, interest can significantly increase the total cost of ownership. The longer the loan term and the higher the interest rate, the more you’ll end up paying. Let’s break it down with an example:

Imagine you finance a car for $30,000 with a 5% annual percentage rate (APR) over 60 months. Over the course of the loan, you would pay about $3,968 in interest, bringing the total cost of the car to $33,968. If you extend the loan term to 72 months, you’ll pay an additional $1,043 in interest.

To minimize the cost of interest, consider opting for a shorter loan term and shop around for the lowest APR. If possible, improve your credit score to qualify for better rates. Additionally, making a larger down payment can reduce the total loan amount, helping you save on interest over time.

Compare refinancing rates all in one spot

Other Costs of Vehicle Ownership

There are a few other expenses that you should take into consideration when it comes to owning a car. State registration fees are a great example of a yearly fee you can count on paying each year you register your vehicle. This will vary state by state, so check with your local DMV to see what your current state registration fees are. Many states levy ‘property taxes’ on vehicles based on the value of the car. These vehicle property taxes can add up to a few thousand dollars per year for luxury vehicles and expensive trucks.

Tires are another maintenance item that can add up over the years. These days, a set of four quality tires can cost $1,000 with installation and disposal fees. Tires increase in cost with larger and more uncommon sizes. 

A Car’s Total Cost of Ownership Can Vary Widely

In conclusion, the total cost of owning a car goes far beyond the initial purchase price. Key factors like depreciation, insurance, maintenance, and financing charges can significantly impact your overall expenses. Some cars depreciate faster, others come with higher maintenance costs, and interest rates on car loans can add up over time. Be sure to evaluate all these variables when determining whether a vehicle is the right financial decision for you. By understanding the true cost of ownership, you can make smarter, more informed choices.

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Last updated Oct 31, 2024

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