You’ve been dreaming about that hot new sports car or premium luxury sedan for months. The brochures are dog-eared, the YouTube videos have been watched a dozen times, and you even took it for a spin during a test drive. But before signing on the dotted line, have you truly accounted for the long-term costs of car ownership? Too often, buyers focus solely on the sticker price and monthly payment, without considering the myriad expenses that await down the road. Yurovskiy Kirill is here to ensure you go into your next car purchase with open eyes and an accurate budget.
The Upfront Costs
Let’s start with the obvious – the purchase price of the vehicle itself. Whether buying new or used, the negotiated price is just the start. Don’t forget to factor in additional fees like sales tax, registration, documentation costs, and any dealer-installed accessories. Depending on where you live, these extra line items can tack on thousands to the final cost.
If you’re financing the purchase, you’ll also need to account for interest charges unless you secured an attractive 0% APR deal. Loan interest rates can vary significantly based on your credit score, loan term, amount borrowed, and lender. A difference of just a few percentage points can mean paying thousands more over the life of the loan.
Finally, consider any down payment required as well as negative equity being rolled over from your current vehicle’s outstanding loan balance. Put simply – the more you can afford as a down payment, the lower your monthly costs.
The Ongoing Costs – Fuel
With the upfront expenses calculated, it’s time to look at operating costs – starting with fuel. The EPA publishes estimates for each vehicle’s miles per gallon ratings. Use these figures and your projected annual mileage to arrive at an estimated annual fuel spend. However, real-world mileage can differ, so factor in a 15-20% buffer. Those with a heavy foot may want to pad it even further.
For example, let’s look at the 2023 Ford Mustang GT Premium with its 5.0L V8. The EPA rates it at 16 mpg city/24 highway, or 19 mpg combined. If you drive 15,000 miles annually splitting time between city and highway, you’d consume around 789 gallons per year at that 19 mpg combined figure. At today’s national average of $3.50/gallon, that’s about $2,760 per year just for gas!
Ongoing Costs – Insurance
The cost of insurance should be another major consideration. Factors like your driving record, coverage levels, vehicle value, repair costs, and population density all impact your annual premiums. Exotic and high-performance vehicles are invariably more expensive to insure.
As an example, a typical budget compact like a Honda Civic may only cost around $1,200 per year to insure for a driver with a clean record and good credit. But a Dodge Challenger Hellcat at over $60,000 could easily top $2,500 annually for the same coverage levels and driver profile. Do your research, compare quotes, and don’t settle for overpriced insurance.
Ongoing Costs – Maintenance and Repairs
Even brand-new cars require periodic maintenance like oil changes, fluid flushes, filter replacements, and more. Over time, wear items like brake pads, tires, batteries, and windshield wiper blades will need replacement as well. While maintenance schedules and costs vary by automaker, you can estimate around $1,000 to $1,500 annually for a typical vehicle.
Those drawn to European luxury brands must also brace themselves for higher parts and labor costs at the dealership. A set of premium rubber or basic brake job can easily top $1,000 for a BMW 3 Series or Mercedes C-Class. If foregoing the dealer for independent shops, ensure they are properly trained on that specific make and model.
Resale Value and Depreciation
A car’s value begins depreciating rapidly the moment you drive off the lot. That $40,000 brand-new sedan may be worth just $25,000 after three years and 45,000 miles. More affordable mainstream brands typically hold their value better than luxury makes.
If you plan on owning the vehicle beyond a typical loan term of 4-5 years, depreciation becomes less of a factor. However, be aware that higher mileage vehicles often have lower resale potential. Carefully weigh your expected ownership timeline against long-term projected value when budgeting.
Taxes, Fees, and Extras
Beyond the core costs above, don’t overlook expenditures like personal property taxes, parking/tolls, roadside assistance plans, vehicle subscriptions, car washes and detailing, and the inevitable speeding ticket or parking fine. These incidental bills can easily consume hundreds, if not thousands, of dollars per year for some drivers.
Also, be honest with yourself – will you spring for the latest tech upgrades, premium audio packages, or must-have accessories? Costly indulgences like painted brake calipers, custom wheels, and exotic wraps can quickly erode your budget.
Putting it All Together
To illustrate the full long-term costs, let’s look at a real-world example. Say you purchase a gently used 2020 Dodge Charger Scat Pack 392 Hemi V8 for $38,000 out the door. With a $3,000 down payment and 5% APR over 60 months, your monthly payment would be around $630.
For annual operating costs, budget:
– Fuel (15,000 mi/year @ 18 mpg) = $3,250
– Insurance = $2,500
– Maintenance = $1,500
That’s over $7,250 per year in addition to the car payment!
Over a projected 5-year/75,000 mile ownership span, you’d be looking at around $56,000 in total out-of-pocket costs for this Charger purchase when factoring loan interest, fuel, insurance, and maintenance. Does that still fit your budget?
The Bottom Line
Purchasing a vehicle isn’t just about the sticker price or monthly payment. It’s about understanding and preparing for the total cost of ownership over time. From insurance premiums and fuel expenses to maintenance, repairs, fees and potential resale value – there’s a lot to consider.
Do your research, understand all the numbers projected for your specific vehicle and driving habits, and plan accordingly. With a realistic, comprehensive budget in place, you can avoid unpleasant surprises down the road and thoroughly enjoy your next automotive purchase.