Hidden Expenses - the Cost Of Ownership - Tax - Registration - Maintenance - Depreciation - Interest

The median price of a new car is  $25,500.  By median I mean 50% of all new cars cost more ($26,000 - $70,000) and 50% cost less ($10,000 - $25,000).  Price is the most important contributing factor to the cost of ownership as it directly affects the amount of your ongoing expenses: monthly payment, interest, sales tax, and insurance.  And remember to budget for the additional costs of fuel, maintenance, and repairs - see below.

Tax & Tags - Right after the purchase comes the state sales tax, which is about $2000 on your average $25,500 vehicle in most states.  Don't forget to budget your registration, tag, and emissions fees, which can range from $40 to $600 annually, depending on where you live and what you drive.

Insurance - The next hidden cost is one that reflects directly on you and your family's driving history.  Liability insurance is required to register a vehicle, while collision and comprehensive are mandatory with bank or dealer financing.  See Shopping for Insurance for more details on auto insurance.  Between $50 and $500 a month may need to be budgeted depending on your zip code, age, gender, marital status, your driving record and your family's (tickets & accidents), and finally the year, make, model, and type of vehicle you're insuring.  Before you settle on a specific model check with your insurance agent to see how much you'll need to insure it.

Fuel - The US Department of Transportation reports that most new vehicles are driven 15,000 miles per year, while the average used car is driven 13,500 miles.  Combine that with an average mileage of 20 mpg, with fuel at $1.50 per gallon, and your monthly new car fuel bill should average about $95. Beware, an SUV or large pick-up can double your fuel expenditure.  Used cars will be about $5 less per month.  Don't forget your tolls.  I spend about $50 per month on the NYS Thruway for non-business-related travel.  If you work in an urban area, remember to add in your parking fees as well.  Off-street parking in a city can range anywhere from $80 to $600 per month.

Maintenance -The final hidden costs are maintenance (oil changes, tune-ups, tires, brakes, exhaust, car washes), and repairs (heating, air conditioning, cooling system, engine, transmission, and driveline).  Some new cars come with free maintenance for the original warranty period, but with most new cars you're on your own.  Figure on $30 per month for the first few years of a new car's life.  With a used vehicle, figure a little more, about $50 per month.  Repair costs are easy to budget on a new car.  You won't have any repair costs until the factory warranty runs out (in three years or 36,000 miles, typically).  Used cars are another matter entirely.  A smart motorist will budget $50 a month for repairs on a late-model used car (less than 5 years old, less than 80,000 miles).  A good extended warranty will cost about the same amount of money, but I prefer to manage my own auto expenses. With luck you won't  have any for a while, but make sure the money (or warranty) is there.  Older used cars (more than 5 years old, more than 80,000 miles) will need a little more money set aside, say $75 per month.  Remember, add the maintenance and repair totals together: budget new autos at $30 per month, late-model used cars at $100 per month (less if it has a warranty), older used vehicles at $125 per month.  Any money budgeted but not used can go towards a down payment on your next vehicle. 

Repairs - This March, go to a newsstand and buy the April issue of Consumer Reports.  This is their annual Auto Buying Guide and contains useful information for any car shopper.  In addition to their buying recommendations, the issue contains valuable "Frequency Of Repair" charts for used vehicles.  Look up any prospective purchases to see how they measure up.  Intellichoice is another source of vehicle operating-cost reports.  Beware: low frequency of repair does not mean your maintenance and repair costs will be less expensive.  Expensive European and Japanese models rate well, but are very expensive to work on.  Find out from your mechanic if you need to budget more for maintenance or repairs on these vehicles.  For example, in order to pass state inspection last month, my father-in-law had to shell out $2000 on his three-year-old Audi A4.  The only things replaced were front brake pads, front brake rotors, and two small front suspension parts.  If his car had been a '96 Ford Taurus, the same work would have cost about $600.  And Audi isn't the only brand that's costly to maintain; many other high-end European and Japanese manufacturers have equally expensive parts and labor.  Double your maintenance and parts budgets if you plan on buying any high-end models.  There are a few exceptions: in particular, ask your mechanic about older Volvo and Mercedes-Benz models.

Depreciation - Motor vehicles depreciate faster than any other purchase you'll ever make.  The first-year depreciation on a new automobile can exceed 35%.  On most vehicles it levels out to between 7% & 10% per annum after the first three years.  Some models (Jeep Grand Cherokee, Ford Explorer, Ford Taurus, Lincoln Continental, Infiniti Q45) lose value quicker than others (Honda Accord, Lexus, Mercedes-Benz).  This can work to your advantage if you're in the used-car market: the older Q45 in particular is a bargain, in my opinion.  If you're buying new, on the other hand, low depreciation will give you a better price when it's time to get rid of this car.  It's also crucial to getting a good deal on a lease (see Leasing Explained).

How do you find out a car's depreciation?  It's the difference in the Manufacturer's Suggested Retail Price (MSRP) and its price at a later time, or residual value.  It's usually expressed as a percentage, and it can change from year to year.  For the cars you're considering, consult the Depreciation section in Using Internet Resources.

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