Would 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.
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.