Finance Globe

U.S. financial and economic topics from several finance writers.
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Consider the True Cost of Vehicle Ownership

Owning a vehicle costs much more than just the dollar amount of the sticker price. Yes, the down payment and then the monthly payment are the two big numbers to take into consideration when buying a car or truck.

But before you make the purchase, consider the other costs involved in owning each particular vehicle you're considering. Here's a few things to think about, research, and add up to get a true cost of ownership for the set of wheels that caught your eye.

Purchase price
This is the sometimes misleading sticker price that you see painted on the windshield of the vehicle, or on the little information sheet in the window of the vehicle. This is the price of the auto if you pay in full, in cash (or check). I call it "sometimes misleading" simply because that's the number we get stuck in our heads when we're trying to figure out if we can afford the vehicle, forgetting to consider all of the following:

Interest
If you'll be financing all or any portion of the purchase price, the interest charges can add a significant amount to the total cost of purchasing the vehicle. For example, let's look at taking a $20,000 loan for four years. I'm going to use an interest rate just under the current average used car loan rate at 6.5%. The payments will be $474.30 per month. Multiply that by the 48 months it'll take to pay it off and you will have paid a total of $22,766.40 to pay off a $20,000 loan.

Taxes and Vehicle Registration
This varies by state. Some states only charge tax on new car sales, and some charge tax on both used and new vehicles. Some states include a property tax when you register your vehicle each year. If you purchase the vehicle from a dealership, the taxes may be added to the amount of the loan when you purchase the vehicle. Typically, the higher the price of the automobile, the higher the tax and registration will be. Contact your local Department/Bureau of Motor Vehicles to get further details.

Insurance
There are several categories of auto insurance. What you are required to carry will be dictated by the laws of the state you live in, and will depend on whether or not you finance the vehicle you purchase.

Liability insurance is required by most states - it covers injury to others or damage to other people's property caused by an accident that is your fault. Collision insurance covers damage to your own property - your car - due to an accident no matter who is as fault. The comprehensive portion covers damage that is not caused by an accident - usually things like cracked windshields, hail damage, theft, vandalism, hitting a deer.

There is a break-even point where you could only carry liability as required by your state (or depending on the personal assets you want to protect) and just skip the comprehensive and collision coverage, especially if you pay in cash for an old beater. It's probably safest to keep comprehensive and collision on a nicer car - especially if you'd have a hard time replacing if something where to happen to it, but you could raise your deductibles to save on the premium.

But if you finance a car, keep in mind that the lender - who is the true owner until you pay the loan off - is likely to require that you carry a comprehensive and collision package with a low deductible for as long as you owe on the loan.

When you find a make and model or two that interest you, give your insurance company a call to get some quotes even before you purchase so that you have a fair idea of what it'll cost to insure the vehicle you choose. All else being equal, the cost of insurance may help you decide on which vehicle is right for you.

Maintenance and Repairs
All vehicles are going to require some maintenance - oil changes, tune-ups, tires - that's a given when you own a car or truck. But as far as repairs, newer vehicles, of course, are likely to need less work than a used vehicle with high mileage. When buying a used auto, take it to a mechanic for a thorough evaluation and add the cost of necessary repairs to the price to get an accurate cost - you may find you're not really saving as much as you thought by buying used.

There's a big difference between buying a used car and a used-up car. Be sure to know which type you're getting before shelling out the cash, or be prepared for the expected repairs by knowing what you're getting into before you buy.

Fuel
And finally, fuel is the one cost that going to eat into your budget every week or so. It may not always be a top consideration when fuel prices are low, but you can bet all those big SUV-owners were cursing their autos when gas was over four dollars a gallon a couple of summers ago. And while the owners of small four-cylinder economy cars were paying more too, they weren't having to choose between filling the tank or feeding the family.

You can look up the expected fuel mileage on the web for any vehicle you're interest in. But keep in mind that you may get a couple miles less per gallon than the manufacturer claims. They do their testing in a controlled environment - not in stormy windy weather, not in stop-and-go traffic, and not loaded down with a family of four and gear. It also depends on the driver - a lead foot is going to get worse fuel mileage than a driver who gradually accelerates.

Regardless, even if it's not exactly the fuel mileage you'll get, comparing the different models will give you an idea of what to expect for fuel economy. This often overlooked cost is a big deal since you'll be filling up the tank more often than any other expense for your auto.
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Thursday, 22 August 2019

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