Car Ownership Cost Goes Beyond the Purchase Price

by David Ning · 12 comments

z8.gifWould you rather own a brand new BMW 7-series instead of the car you are driving now if the purchase price is the same? What if I tell you that it will cost you $150 USD if you lose the key to the BMW? What about $6000 to fix a dent on your door? Would you still want to own one if you found out that you will spend twice as much on gas every month?
For many of us, the experience of buying a car consists of comparing the prices of the different vehicles that interests us. Very few of us will actually check out the mileage per gallon for those cars, and even fewer will compare the cost of repair, or to insure the vehicles. For the majority of us, we are just not paying enough attention to our finances this way. If you try to save money by clipping coupons but don’t do a full analysis when you purchase a car, you are being penny wise and pound foolish.

Here are some of the car related costs that you need to analyze before you jump into the purchase:

Different Gas Octane Levels – This is almost never a consideration, but there are some cars that required the premium type of gas because the engine is tuned that way. Unlike what some people believe, not putting the correct type of gas that the car owner’s manual recommend as the minimum will hurt the engine, shorting its life. The difference between being able to buy the regular octane gas vs premium gas could be 10%, which can add up.gaspump.jpg

Mileage Per Gallon (MPG) – This is getting much more attention these few years because of the rise in oil prices. However, most people use this information to pick a general brand of cars or one category with another. What we really should look at is the mileage per gallon of the different cars we are considering buying.

You also want to look at the highway and city MPG separately. There is no sense buying a car that is more efficient on highways when you mostly drive in stop-and-go traffic.

Repair and Maintenance Cost – Check out the average repair and maintenance cost on sites like Edmunds.com. This is especially important if you tend to go to the dealership for service they charge even more for maintenance. If you are buying a car with the latest technology, make sure you search online and find out whether or not a third party repair shop can even service or repair your car since some of the car companies are starting to sell cars that have proprietary electronics that are not repairable or serviceable outside of their dealerships.

When figuring out the maintenance cost, don’t look at just the service costs either. Make sure you figure out the cost like tires as well. To give you an example, I know someone who spent $6,000 on a set of 4 new tires for his range rover!

Car Insurance – Insurance for different cars can vary greatly. Don’t just assume that a higher priced car will have a high insurance premium. Everything from the type of car to the color will affect the monthly payment, so research thoroughly. Remember to ask lots of questions and getting real quotes on specific cars wouldn’t be a bad idea either.

Finance Options – Different car makers may have different deals on finance options, making the monthly payments vary significantly. Remember to check and ask about them when you are considering since a 0% APR loan and a 5% APR loan makes a world of difference.

Depreciation – You might be better off buying a car that is more expensive if the resell value of the car is also higher. You should factor in the difference between the purchase and selling price of the vehicle to see how much owning the car is costing you per year instead of just looking at the up front cost.

How many of these did you check when you bought your car? I for one did not check any of the above when I bought my 2004 RSX-S a few years ago, but now I know. Next time I buy a car, I wouldn’t be so ignorant.

Let me know if I’m missing anything and I will add it to the list.

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{ 12 comments… read them below or add one }

MoneyNing July 6, 2007 at 10:31 am

J2R: You just need to make sure you are happy with your decision. There is nothing wrong with spending money, but don’t “overdo” it.

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Arminius Aurelius September 7, 2013 at 3:15 pm

I always wanted to own a Rolls Royce , that was my dream . I spoke to a neighbor who owns one about the maintenance cost and found out it is astronomical . I could afford it but I am no FOOL . It is like a person who takes out a mortgage on a large mansion compared to an average size house . It is not the cost of the property as much as it is the endless maintenance of the house , landscape , property tax , air conditioning , heating , insurance , etc. I had a Queen Ann Victorian house and a large carriage house in the early 1990’s . It had to be painted every 6 years or so . The last time I had it painted was in 1992 and it cost me about $ 15,000.00 . That was 20 years . ago . You say, ” there is nothing wrong with spending money ” , the problem is that a high percentage of the lumpen masses are pretending they can afford to buy the biggest and the best in order to impress their friends and neighbors . Just like back in the 2000 to 2006 time frame when there were MANY ” Hummers ” on the streets . Again a large military style vehicle
that must have cost at least $ 50,000.00 + . I wondered at the time how many were bought with minimum down and then pay it off over the next 5 or more years [ plus interest ] As it turned out once the stock market crashed and the price of gas went sky high , suddenly the Hummers disappeared from the streets . These FOOLS could not even afford the price of gas. These very same FOOLS who want the biggest and the best to impress their friends and girlfriends will within X X X years suddenly find when they are ready to retire have no savings and many still have DEBT to pay off. Figuring the average life on this earth is 80 to 85 years , the last 25 % of your life [ 65 to 85 years old ] , they will live like common white trash , impoverished.
What Fools Ye Mortals Be .

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Baz L July 6, 2007 at 6:39 pm

You have to admit though, the RSX is a sweet car, ain’t it?

But you’re right. It’s all about happiness, well at least how much happiness you can afford at the time.

Baz L

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MoneyNing July 6, 2007 at 10:19 pm

Baz: Of course I agree with the RSX part since I own one…

I think happiness doesn’t have to be totally tied to money. There are many ways to make yourself happy without spending a dime, so no worries :)

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CarFan March 11, 2008 at 7:08 pm

Great post. There’s definitely a lot too look into before buying a car if you want to keep your long term cost down to a reasonable level. When I bought my last car I pretty much looked into all of this including all the latest safety and crash test.

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LTC Tony November 13, 2011 at 5:19 pm

They all lose 20% before you leave the lot, I am sure those BMW’s lose more. I would love to see an Index on every vehicle with lets say an instant depreciation value sticker on it. It would force this charade to stop! Then again as tax payers we are in the business of selling cars so some of you might not!

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Randal November 17, 2011 at 9:12 am

Do the math on the “total cost of ownership” comparing Leasing vs. Financing.
The out-of-pocket cost can be very similar. Then make your own decision on what’s best for you.

With leasing though, you have the “first right of refusal” at the end of the lease. If the end lease value is higher than the current market price near the end of your lease, you can profit by buying out and selling the vehicle privately or getting bids from dealers to purchase the vehicle. If the market value is lower than the current market value, you can hand it back to the leasing company. If you sell it for more, you pocket the difference.

Also, if you’ve had an accident during the term of the lease, and it significantly devalues the vehicle, it will be better to hand it back to the leasing company & let them take the lump on the resale value of the vehicle. (If you financed the same vehicle, you’ll personally feel the pain of the lowered value when you sell it).

With leasing, you’re also only paying the tax component on the “monthly payment”, and NOT on the entire vehicle… (in Canada anyway), and finally,… I’ve leased and then used (invested) the difference between the cost of a lower lease payment and a higher finance payment – again I’ve invested the difference in a small real estate syndication, and made enough with a good ROI to pay for the entire vehicle…

PS… Don’t get into an Open End lease… where the leasing company can determine the end lease value,… base on “their” perception of the current market value. You should only ever participate in a “closed” lease, where the residual or end lease value (buy-out) amount is determined at the beginning of the lease.
Kind regards,
Randal in Canada

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Frank Tomei September 5, 2013 at 12:02 pm

On the issue of fuel economy you show it as expressed as miles per gallon.
We should have the cost per unit distance driven i.e. gal/100 miles.
I know very well that the conversion can be made but miles per gallon does not indicate the cost of driving as easily as gallons per 100 miles i.e. $/100 miles.
of course if we ever adopt the SI system of measurement (instead of this archaic system that US only uses) then this would be pretty standard.

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Arminius Aurelius July 4, 2014 at 4:57 pm

I am a retired business man and can afford the best BUT …………to this day I always have bought low mileage used cars [ Lincoln Town cars ] and still do. The money I saved was cautiously invested and I made a ton of money just on my savings. I take more pride in my money in assorted Bank accounts than having a NEW expensive car or a LARGE screen T.V. in order to impress friends. Money makes money. Used cars or T.V.’s do not.

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fredjohnson October 16, 2014 at 2:39 pm

Yeah, I’ve done the math on depreciation, gas, maintenance, insurance, etc. So what? I have 3 brand new cars. One of them being a summer car only convertible. Life is short. Drive happy.

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Charles October 16, 2014 at 9:47 pm

Although I love my BMW 550, which I got used at a Nissan dealership at a good price, I will never buy another one. As the article says, it requires premium gas, the repairs are expensive, like a new battery for $500 but I’ve found a private mechanic that charges half the price of the BMW “stealership.” I am researching Hondas for when the BMW goes.

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Jen Bonanno October 17, 2014 at 10:18 am

I completely agree that we need to consider more than just the sticker price when buying a vehicle. One of the things you didn’t mention under financing options is how the length of a loan can make a big difference as well. I think it’s something important to consider for instance, a short loan term will mean you pay less in interest, but you will have higher monthly payments.

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