A Carload of Expense

The True Cost of Automobile Ownership and Operation

By: Patricia Woodside, Debt.com Financial Fitness Trainer

SUVs. Convertibles. Sedans. Gas. Electric. Hybrids. Family-oriented. Sporty. Classic.

Automobiles come in a myriad of styles and colors with a host of features designed to make driving everything from necessary transportation to image-boosting luxury.  Many drivers, however, underestimate the true cost of owning and operating a car. Factors like the weight of the vehicle, insurance costs and the condition of frequently traveled roads all contribute to total operating cost.

It all begins with price. New cars come with a manufacturer’s suggested retail price (MSRP), a function of the cost to produce and transport the car to your local dealership. The dealer tacks on fees and a profit margin.  For used cars, savvy buyers and sellers consider the Kelly Blue Book value, a trusted source for used car value estimates, based on its age, mileage and condition.

Buy or lease?  Leasing may put you into a nicer car for less money, but keep in mind a lease is simply a long-term rental. You won’t own the car, and you may have additional end-of-lease costs based on car mileage and condition.  Conversely, although you’re likely to keep a purchased car longer, be aware that operating costs increase as the car ages.

Every state requires auto insurance and sets the required minimum coverage. Exceeding the minimum is a measure of your risk tolerance relative to possible vehicle loss as well as liability for injury or property loss.

States also require registration, and of course, you must be a licensed driver. Driver’s license and car registration fees are renewed periodically. Fuel costs can be downright depressing as gas prices rise. Bigger, heavier cars get fewer miles to the gallon. Some electric cars now boast twice as many miles per gallon as the average gasoline-fueled car. Cars offering alternative and hybrid fuel options will increase in number in the years to come.

Price, fees, auto insurance and fuel. What more could there be?

Much more.

Forgotten costs include depreciation, interest and taxes. Depreciation is the decreased value of your car over time, a factor when it’s time to sell.  Loan interest influences your monthly payment. Just a half percentage point adds up over the life of your loan. Taxes vary by state.  For some cars, a federal tax credit may be available.

Cars need maintenance. Oil changes, tire rotation and replacement, heating and cooling system maintenance, fluid refills, wiper and batteries replacement, car washes—all these things factor into the cost of auto ownership.  If you do not budget for these costs, they typically will be neglected.  Your car will fall into disrepair, potentially putting you and others at risk and increasing your operating costs.

Finally, there’s the cost of citations related to poor driving choices, such as parking in violation of local ordinances, speeding and other unsafe driving behavior.

Before purchasing or leasing a car, consider the total cost of owning and operating that car. Use the manufacturer’s published data as well as third-party industry sites to comparison shop.  You may decide a different car or a different mode of transportation presents a better option, or stick with the car you love.  Either way, do so with full knowledge of the cost of owning your car.