Wednesday, 28 August 2013

Understanding The True Cost Of Auto Ownership

The true cost of ownership for an auto is much more involved than just the sticker price in the window. When understanding what owning an auto will cost both today and for the life of the vehicle, a range of factors come into play. Making the right decision when shopping for an auto requires that you understand how these factors will affect your expenses. Some autos with an attractive sticker price might end up costing you more over the lifetime of the vehicle.

Let's take a look at the top four components of the total cost of ownership.

Auto Depreciation And What It Means For You

Depreciation is defined as an auto's loss in value over time. Now this isn't a cost that you pay up front, rather, you see its effects when you go to sell or trade in the auto. Looking at two vehicles, if you buy one at $20,000 and sell it for $5,000 and the other at $25,000 and sell it for $12,500, the first car suffers from a higher depreciation cost. While you paid more up front for the second car, you got a better value when you sold it or traded it in.

Depreciation typically accounts for about half of the total cost of ownership. It is primarily affected by how popular a vehicle is on the used market and how reliable the auto runs.

You can also minimise this cost by holding on to your vehicle longer because depreciation occurs faster earlier in the vehicle's lifetime.

Paying At The Pump: Fuel Costs Add Up

The next largest factor at about 25% of the total cost of ownership is fuel costs. Your kms will dictate how much money you pay at the pump over the years. Since fuel costs are a small but frequent payment, some people don't realise how much it adds up over time. You can easily spend $10,000 dollars on fuel over the course of 5 years.

The best ways to reduce this cost is to purchase vehicles with good economy and high kms. In addition, practice good driving habits to further decrease your fuel consumption. These habits include steady acceleration, leaving sufficient following distance between other cars, keeping the tyres inflated, and staying up to date on preventative maintenance.

Financing Costs

The interest costs associated with financing a vehicle accounts for about 15% of the total cost of ownership. You don't have to understand the intricacies of the credit market to help reduce your interest payments. The best way to reduce this cost is to put more money down when you first buy an auto, to pay more than the minimum monthly amount, and to shop around with a few different lenders for the best rate.

Auto Insurance

Insurance can account for another 10% of the cost of ownership. However, this factor can be more difficult to control since it is primarily calculated based on your age, gender, location, and driving record. You can control the cost by shopping with multiple insurance providers. Plus, insurance costs do vary by vehicle; sports cars are more costly to insure than an SUV packed with safety features.

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