In many places, public transportation is inadequate to get us where we need to be, making car ownership necessary. In the United States at least, car ownership can also be a status symbol. Some families even maintain multiple vehicles for different purposes.
But owning and maintaining a vehicle can be costly. According to AAA, in 2017 the average cost of owning and maintaining a new car was about $8500 per year. The survey done by AAA included interest on a car loan, maintenance, repairs, fuel cost, and depreciation.
Sure, you could decrease this ownership cost by buying a used car without incurring a loan. But don’t overlook the cost to insure your vehicle, as well as any property tax and registration fees you will have to pay.
The point is this: cars are expensive to own, so some strategy is in order. Here are some things to do to reduce the cost of car ownership.
Buy used: This is one you have heard before. Exercise caution when buying used, however. Knowing the fair value for the type of car you wish to buy is important, but so is making sure the car was maintained properly. A used car is not much of a deal if it turns out to be a repair nightmare.
Buy new and own for a long time: Buying used isn’t for everyone. Some people don’t have the knowledge of cars to be able to spot issues when buying used. Buying a new car with a warranty provides peace of mind during the early years of car ownership. The key to making a new car purchase work out financially is to maintain the car diligently and drive that sucker forever.
Compare the total cost of ownership carefully: Some cars are more expensive to drive when it comes to insurance, fuel, and the cost of repairs. The more specialized the type of car, the more it is likely to cost when it comes to repair it. New cars cost far more to insure than cars with a few years on them. And some car models require premium fuel, which will drive up the cost of ownership.
Carefully consider your needs before choosing a car: Do you need a four-wheel drive car to get around in winter? Do you need a spacious backseat for your large family? How safe is the vehicle you are considering? This sounds like an obvious thing to do, but I will admit that I made a dreadful car choice once. Having an electric car was very appealing to me. But I neglected to test drive it up our steep, rugged driveway. The short story is that I only owned that car for a year. I was sad to let it go, and I was mad at myself for being so short-sighted when car shopping.
Keep your car longer and keep it maintained: The longer you can drive one car, the better your average annual cost of driving will be. The caveat is that you keep it maintained. A car that is constantly in need of repair is unreliable, but it also drives up the cost of ownership.
After your car is paid off, keep making payments: Once you have paid off your car, continue making the car payment to a savings account for future car expenses. If you didn’t have a car payment in the first place, figure out how much you can afford to direct to a car fund. Preparing in advance will help you reduce costs in the future.
Reduce borrowing costs: If you have no choice but to take out a loan for your car, try to take the shortest duration loan you can manage. Stretching the loan out for more years increases the amount of interest you will pay. Once you have a loan, pay extra each month to reduce the principal as fast as you can.
Buy within your budget: Don’t buy more car than you need simply because you can afford the payments. Ideally, you should take a loan for no more than four years for a vehicle. Agreeing to stretch a loan into five or six years gives you the false sense of being able to afford a more expensive car. The average time someone owns a car is just under seven years (source). Therefore, if you could finance for four or fewer years, that gives you a few years to accumulate principal for your next vehicle.
Do you even need a car? Does your family need to have more than one? This is also where careful consideration and diligent research comes in. Depending on where you live and your ability to utilize public transportation, you might be a renegade and just say no to car ownership.
What are your strategies for reducing the cost of car ownership? Share below! Or if you want to start a discussion with some like-minded friends, join the free SimpleMoney Community on Facebook to share your thoughts!
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