Hidden Cost 1: Insurance
What’s one thing your neighbor’s 16-year-old son, the elderly woman you held the door for at the grocery store and your child’s baseball coach who drives a beat-up SUV all have in common? Probably not car insurance rates, that’s for sure.
This may seem like an obvious one, but the average cost of auto insurance is $1,700 in the U.S., and there are numerous factors that can raise that rate.
Some factors are immutable, such as:
Age: Younger drivers typically pay higher premiums because they are perceived to be more prone to accidents.
Gender: While some states don’t factor gender into insurance rates –– and the ones that do don’t raise your price too much –– young men might pay higher rates because they are statistically more likely to get into accidents.
Others are based on your personal experiences or decisions, such as:
Location: If you live in an urban area with high accident or theft rates, expect higher premiums.
Driving History: Traffic violation or past accidents will influence your rates.
Vehicle Type: Luxury cars, sports cars and cars with pricey repairs mean higher rates.
Credit Score: Credit scores can determine premiums in many states, so the higher your score the lower your cost.
Deductibles and Coverage Levels: Choosing lower deductibles and comprehensive coverage increases premiums.
So, how do you get the best insurance rates if you don’t fit a lot of this criteria?
Don’t snatch the first rate you find. Compare quotas from multiple different providers, and see which one is the most reasonable. It’s also helpful to find good home and auto bundles.
You can also enroll in telematics programs, which monitor your driving tendencies through GPS. Simply signing up for one, regardless of how you act on the road, can relieve your high rates.
Hidden Cost 2: Maintenance and Repairs
You’ve been staring at that mysterious warning light on your digital dash for weeks now, hoping the next time you get in your car it will magically disappear.
But it never does. And your car will pay the price.
Though we’ve all been there, pushing your car to its limit before bringing it in for repairs will cost you more money in the long run. It could cause permanent damage to the car that will lead to thousands in repairs.
So instead of procrastinating your repairs and paying more later, budget accordingly and consistently bring your car in for routine checkups.
You’ll need an oil change every 5,000-7,500 miles, which typically cost anywhere from $50-100. Other maintenance items to keep in mind are:
Tire Replacements: $500-1,000 every 3-5 years
Brake Pad Replacements: $250-400 per axle
Battery Replacement: $100-300 every 3-5 years
Air filter: $20-100, annually
This isn’t to say that you should blow your money on every little thing your dealership or mechanic points out, but understanding the essentials and reasonable fixes before you take your car in will help you prevent problems down the road.
Budgeting around $1,500 per year for car maintenance should give you lots of wiggle room to fit in repairs.
Hidden Cost 3: Refueling Your Bank Account
If there’s one expense you can’t escape or procrastinate, it’s gas.
There are ways to minimize the damage fueling does to your finances, however. One way starts at the dealership before you even purchase your car. Ensuring your car has efficient miles per gallon (MPG) can heavily reduce the price you pay at the pump. For example, a car with 30 MPG will cost you much less than one with 15 MPG.
You can also opt for an electric car. Although additional costs like home charging setups and public charging fees should be taken into consideration, those with electric vehicles spend about $500-600 a year compared to the $1,000-2,500 people spend on fuel.
If you’re already locked in with your car, adapting better driving habits can cut costs. Excessive idling and aggressive driving can drain your tank. That person driving slowly in front of you may be annoying to sit behind, but is speeding around them worth the extra dollars?
You can also use apps to find the cheapest gas stations near you, or carpool to cut down on your driving time.
Hidden Cost 4: Depreciation
When you buy your new car, you’re probably not even thinking about what it would sell for. But owning a car with a higher long-term value will help in the long run. Luxury cars tend to lose their value more quickly than reliable economy models like Toyota and Honda.
A car typically loses 20% of its value in the first year, and 60% after five years.
Beyond buying a car with a history of strong demand and reliability, purchasing a used car can minimize depreciation. A car that is 2-3 years old has likely absorbed most of its depreciation.
Maintaining your car’s repairs and needs can also help to preserve resale value.
Depreciation is something to always keep in mind if you plan to sell or trade in your vehicle.
Hidden Cost 5: Loan Payment and Interest
Financing your vehicle through loans is a slippery slope. While it’s very common and helps you pay off your car comfortably, the interest on those loans can be a costly invisible trap.
For example, a $30,000 car financed over five years can cost $4,800 in interest payments.
So, how do you avoid this trap and reduce your loan costs?
- Maintaining a higher credit score can qualify you for lower interest rates.
- Making a larger down payment reduces your interest paid over time.
- Choosing a shorter loan term may mean higher monthly payments, but you’ll pay less interest in the grand scheme of things.
Planning for interest payments can turn loans into a smart financial tool and help ease money-related stress.
Hidden Cost 6: Parking, Tolls and Registration Fee
Depending on where you live, fees like parking and tolls may not affect you too much. But if you live in a city or a highly populated area, parking is sparse and therefore expensive.
Tolls add up quickly too, especially if you take the same route to work daily.
While you can’t avoid paying $50 to a few hundred on state-mandated registration and licensing, there are ways to cut down on those pesky parking and toll costs.
Tolls: There’s an option on your GPS to find alternative routes that have no tolls, which may add a few more minutes to your trip but will ultimately save you hundreds of dollars over time.
Parking: Apps like SpotHero, ParkWhiz and BestParking can help you find the cheapest and most convenient parking spots in your area. You can also opt for public transit, like a metro or subway, if you live in a city. This will typically cost less than parking and gas and save you the hassle of finding a spot.
Once you start paying attention to parking and tolls, you’ll be amazed at how much you save over the course of just a couple of months.
Hidden Cost 7: Expect The Unexpected
You can budget for everything listed above and still feel like you didn’t save enough.
If you keep up with your car’s maintenance schedule, the next day you could get into an accident and spend thousands in unexpected repairs. Or you walk outside and find bird poop caked on your car. There’s money spent at the car wash that was going to go toward your lunch that day.
Unexpected costs can dig people into holes, and it can be hard to climb out of them if you’re not prepared. Whatever it may be, it’s always good to leave a little extra wiggle room for unexpected costs.
Calculating The True Cost
Considering all the factors listed above may feel overwhelming. Take a deep breath, pull out a calculator and do some math. You should budget:
- 10-15% of your annual income for total car expenses.
- $500-800 per month for ownership costs such as payments, insurance, fuel and maintenance.
- A separate emergency fund for unexpected repairs and depreciation losses.
Once you know how much to set aside, you should feel confident walking out of the dealership. The unexpected becomes the expected, and you won’t have to worry about the financial strain that comes with being unprepared.
Key Takeaways
Buying a new car can be exciting, but once these unexpected costs become a reality, that excitement can quickly wear off. By preparing for these hidden costs, you can enjoy the freedom and luxury of owning a car without financial surprises. Here’s a quick summary.
- Owning a car costs more than the sticker price when you factor in fuel, insurance, maintenance and depreciation.
- Depreciation can wipe out thousands in resale value.
- Budget around $1,000 per year for maintenance.
- Expect the unexpected and allot money for unanticipated repairs.
- Financing adds hidden expenses since interest can add thousands of dollars on top of a loan.
- Parking, tolls and registration fees are invisible traps and can add up quickly.
