Taking This One Cost into Consideration Might Save You From Financial Disaster When Buying a Car
Your first car might be one of the biggest purchases you’ll ever make – apart from getting a house – so you want to make sure that you’re making the right decision when it comes to choosing between different brands, deciding whether you need to save up or take a loan, and whether it makes sense to invest in a new car or buy a used one. In other words, you may need to do a ton of research before checking out the dealerships in your area.
Cost of Owning a Car
Probably, the most crucial, yet overlooked aspect of buying a car is keeping the total cost of the vehicle into consideration.
Justin Perez, a fresh college graduation from Colorado didn’t think about it when he bought his first car. Before making the big purchase, Perez did everything by the book. He did his homework on the car options that were available to him and conducted thorough investigation into the car’s history and its dealer.
After evaluating his options, Justin finally settled on a used car that was going to cost him $350 per month including a sizable down payment. At the time, that didn’t seem like a terribly large sum to fork out, but as time passed, the cost of owning a car quickly began to add up.
Besides the monthly $350, Perez also found himself paying a rather steep insurance bill which, along with other car expenses, brought him at an average of $700 per month. He knew that he would incur some additional expenses apart from the monthly payments, but he didn’t expect it to be this much. In order to make up the difference, he decided to get a side gig as an Uber driver.
Calculating the Monthly Payments
When most people talk about the cost of owning a car, they actually mean the price you pay upfront to acquire the vehicle, when, in reality, it’s much more complicated than that. To get to the bottom of the expense, let’s take Honda Accord as an example, which is a perennial best-seller among new car buyers.
Taking the repair, fuel, upkeep and insurance payments into consideration, the driver can incur a lot more expenses in the first three years than they expected.
One study calculated the average cost of owning a Honda Accord, using a professional Edmunds True Cost to Own (TCO) tool. The researchers took transaction date from over 13,500 automotive purchases during the year 2018 including cars that were purchased new, old or leased. The final cost also included the taxes and dealership fees associated with the car purchases.
According to the report, buying a new Honda Accord costs an average of $494 per month excluding other expense. Once you take all the other ownership costs into consideration, the monthly expenses shoot up to $728.
On the other hand, the monthly payment for buying a used Honda Accord only tallies up to $340, but once you add in gas, maintenance, repairs and insurance, the monthly cost grows to an astronomical $670.
The leasing option is the cheapest one by far, with monthly cost coming in at a total of $596 including the lease payments as well as other ownership costs.
How to Minimize Car Expenses
Buying a car already costs a lot, and the last thing you want is to confront more expenses after the deal is done, putting you at the risk of financial loss. Here are a few tips to lower the cost of owning a car and help you prevent a budget scramble in the future.
If you’re planning to spend $250 in monthly car payments, it’s wise to double your budget to cover extra expenses like insurance and maintenance. Check the car’s gas mileage before making the purchase to keep the fuel cost low. When buying a used car, invest in a vehicle that is still in warranty, which can drastically reduce your monthly insurance payments.
Most seasoned drivers know that the car payments don’t reflect the real cost of car ownership, but first-time buyers need to do extensive research before going vehicle shopping so that their dream car doesn’t turn into a nightmare on wheels.
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