Now may be a great time to get into a car! The 2010’s are heading off the lot, and the 2011 models are starting to arrive. Also, car sales have been sluggish, so you may be able to get some good deals before the economy really recovers. However, you should be aware of these common cost pitfalls when it comes to buying a car.
First is depreciation. If you buy a new car, you lose about 50% of the value over the first 5 years of ownership. If you are the type of buyer who drives their car until it can’t go any farther, this doesn’t really matter. But for the typical buyer, who purchases a car every 3-5 years, this is a huge loss. The best way to avoid this is to buy used. You can usually find one that is 2-3 years old, with low miles, and get a great deal on it. These cars are usually lease trade-ins, and so they have been taken care of pretty well.
However, if you insist on buying new, check out Edmunds.com and Kelly Blue Book to look at the estimated resale value of your vehicle. Some makes and models hold their value well, while others don’t. If you’re going to buy, at least you will be armed with the right information.
The next biggest expense you will have on your vehicle is gas! If you drive 12,000 miles per year at the current rate of about $3 per gallon and you car gets 25 MPG, you’re going to spend about $7,200 over the first five years of your car’s life on fuel. However, if you boost those MPGs up to 30, you would drop that down to about $6,000, saving you almost $1,200!
It’s almost guaranteed that gas prices will continue to rise over time, so make sure that you can afford to continue to fill your car up even with higher gas prices or longer communtes.
Maintenance can be a huge expense for cars, especially if you have a car with unique parts that requires a lot of maintenance. The good news is that most cars these days can go even longer without needing oil changes or other maintenance – some up to 10,000 miles. Also, many car companies are trying to prove their cars are reliable by offering maintenance packages with new vehicle purchases.
If you’re looking to buy a car, read the reviews and get one that is maintenance free. That will save you time and money down the road.
Readers, what other costs of car ownership are there? Any advice to minimize it?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.