The cost of car ownership
What is the true cost of car ownership?
Believe it or not, owning a car is expensive. You probably already know that but do you know what’s the real cost of car ownership?
An article from MSN shed light on the average cost of a car. Car gurus estimate the average cost to operate and maintain a car is $9,576 per year.
But that is not all, you have to add dealer costs, insurance, gas, parking fees in the big city, and repairs.
The list can go on and on. It is not surprising that an increasing number of individuals in the financial independence community are advocating for walking or riding a bike to cut costs and save money.
Cost of Parking
My family and I recently vacationed in Seatle, Washington and I can personally attest to the amount of money I have to fork out for parking fees. Parking fees in a big city like Seattle can range from $4 dollars an hour to $10 plus for daily rates.
Not to mention the difficulty of finding a spot to park! Maybe because I am a tourist in a foreign city?
While I didn’t tally the exact monetary value, I am guesstimating that we paid approximated $100 for parking for a one week stay.
In fact, INRIX conducted a study to find out how much drivers pay for parking in the cities across the country. The looked at factors such as the cost of spaces, time spent looking for parking, fuel costs and emissions. The figure came out to be $345 per year.
New York City is the most expensive, coming in at $2,243. As a whole, Americans paid $72.7 billion for parking-related fees!
In addition to parking fees, certain states require an emission test or smog test. The test measures the amounts and types of pollutants emitted by the vehicle as well as checking that all parts related to emissions control are working properly.
Emissions tests cost: $20 to $90
Sales tax on a new car: 11.5 percent
According to Edmunds, an online resource for car information. Sales taxes can range from zero in places like New Hamshire, but up to 11.5 percent in Oklahoma.
So a car with a cost of $30,000 can cost up to $2,700 in sales tax.
Liberty Mutual Insurance estimated that car owners can expect to pay $1,400 in maintenance fees for the car’s first 25,000 miles.
For every block of 25,000 miles thereafter, costs are expected to continue to grow.
On average, it cost about $817 a year to maintain two cars. Which is approximately $409 per car. As the car ages, the cost is expected to be higher.
Documentation fee: up to $799
Car dealers charge up to $799 to cover the costs of preparing the sales contract and other related paperwork.
Gas and motor oil
According to a report released in 2017, the average gasoline and motor oil expenses are $1,968.
Maybe it is time to buy that Tesla or hybrid you’ve been dreaming about?
Vehicle registration fee
Dependent on where you live, vehicle registration fees can go as high as $2,465.
|State||State auto sales tax rate||Average DMV fees||Average taxes and fees on new cars||Average taxes and fees on used cars|
|51. Nevada||7 %||$550||$3,097||$1,937|
|50. Maine||6 %||$550||$2,918||$1,987|
|49. Minnesota||7 %||$464||$2,881||$1,780|
|48. Washington, D.C||7||124||2,727||1,541|
|47. New Jersey||7||133||2,691||1,526|
|45. Rhode Island||7||32||2,635||1,449|
|20. North Dakota||5||103||1,962||1,115|
|18. West Virginia||5||40||1,899||1,052|
|17. South Carolina||5||39||1,898||1,051|
|10. New York||4||86||1,573||896|
|9. North Carolina||3||88||1,204||695|
|8. New Mexico||3||65||1,181||672|
|7. South Dakota||3||65||1,164||655|
|1. New Hampshire||None||60||60||60|
Dealers are notoriously known to increase the price of cars by adding fees.
These fees are attributed to charges for shipping, dealer preparations, and other fees to recover advertising costs, among other reasons. Road and Travel Magazine estimated that dealers may add as much as $3,000 to the price of the car in fees.
Car gurus recommend for you to ask dealerships about the fees they charge and use this information as a negotiating tool
Cost to replace four tires
When it’s time to replace tires, owners might be in for a surprise. prices are dependent on the tire size, manufacturer and performance level.
The average cost of a new tire is around $100 for an average car, $175 for an SUV and $200 for a pickup truck. Therefore, a set of four tires can range from $400 to $1,800 or higher.
Winter tires are required if you live in an area where there is snow, like Minnesota! Winter tires prevent skidding on icy roads. But it’ll be from $250 to $600 for a set of four tires.
According to Live about, the cost of 4 Bridgestone Ecopias tires replacements are breaking down like this:
Mounting and Balancing: $60
Valve Stems: $12
Tire Disposal: $16
Protection Plan: $48
So you have to take these other costs into consideration together with the actual cost of a set of four tires.
The average cost of car insurance
Insurance averages $118.63 per month, $713 for six-month, or $1,426 per year. This is just an estimate, your actual premium may vary according to your age, sex, driving record, type of vehicle owned and where you live.
Car gurus attributed the variations to differing premiums attributed to the weather in your state, your driving habits, gender, marital status, or even your credit score.
Bankrate, a popular personal finance website compiled a list of best cheap car insurance companies worth taking a look. It’s always best to do shopping to find a good insurance company that offer the most bang for your buck!
Depreciation of a car’s value
Carfax found that after you drive a car off the lot, it depreciates in value by 10 percent in the first month, 20 percent within the first year and 10 percent every year after that.
The depreciation is dependent on how much you drive, how well you maintain your vehicle and other factors.
My own confession
This is where I confess that I currently own 2016 Lexus Rx 350. Last time I checked, the value of my car is only $32,000. For a depreciation value of 36 percent from my original purchase price.
Now I truly understand why a used beater Honda is a much better value.
The good thing is that I own both! My 2003 Honda Civic still gets me to and from work every day with a few maintenance needs.
My Lexus stays in the garage most of the time. However, I have to admit, I don’t particularly feel guilty about this purchase because of this:
Spend extravagantly on the things you love – as long as you cut costs mercilessly on the things you don’t.Ramit Sethi
Buying new vs. used car
According to NerdWallet, buying a used car can save as much as $13,000 in your lifetime. This figure came from the fact that the average person owns 13 cars in a lifetime.
Roadside assistance: $40 to $420 per year
Other premium services such as OnStar for GM vehicles may cost from $20 to $35 a month
Cost of a fatal crash: $6 million
The average claim for bodily injury resulting from car accidents is $15,443, and $3,231 for property damage.
Leasing a car versus buying new and buying used
According to Edmunds, the cost of leasing a car is $27,386, buying a new car $23,882 and buying used $18,996.
Based on these figures, it’s most economical to buy a used car rather than buying or leasing.
Other costs to consider:
Extended warranties: $1,800 to $4,000 on average.
Interest in auto loans: Depending on your credit score and other factors, car financing can be as little as 0.9%, 1.9% or as high as 17.73%.
Final thoughts on the true cost of car ownership
Owning a car is expensive. However, due to each person’s circumstances, like commuting to work for example, sometimes a car is necessary.
Is owning a car worth it? It makes more sense to purchase a slightly used car than to buy new. It is more economical to buy a car rather than leasing.
As with index funds, buying a car should be the same, adhering to the buying and holding strategy.
I am a Honda fan so I am planning on driving my 2003 Honda Civic until it falls apart.
There you have it. All the costs mentioned above added together are the true cost of car ownership. No wonder why, I am increasingly seeing more bikes on the road!
The take-home point is this, the cost of car ownership can set you back as much as $9,500 per year in maintenance costs and other related fees.
What are your car-buying habits? Buying new, buying used, or leasing? Please leave a comment below!