When you decide to purchase a new or pre-owned vehicle, you often begin by looking at pricing. Many people finance their vehicles, so the first concern is how the payments fit in their budget. The monthly payments are the main measurement of whether they can afford a certain model, but they fail to consider the true cost of ownership.
What is the True Cost of Ownership?
This term covers more than just the finance payments. It also includes maintenance costs and insurance premiums. While the money doesn’t come out all at once, it must be accounted for in your budget. You have to maintain your vehicle to ensure it continues to work well for you. Insurance is mandated by law, which means you must carry a policy or risk the consequences.
According to Consumer Reports, the cost of ownership for a median car is $9100. You can find many vehicles with a much lower dollar amount if you know how to shop around. This number is calculated, using five years as the time you will own the vehicle. The longer you choose to keep a model, the lower the costs.
Maintenance can vary somewhat among the various models, but it is necessary for all vehicles. Some of the newer cars allow you to go longer between oil changes, which can reduce your costs. Others may have lower pricing on tires and other parts.
It pays to get an estimate of what you’ll have to pay for maintenance before you purchase a vehicle. While you probably won’t have these costs on a monthly basis while the vehicle is somewhat new, it’s a good idea to budget in a portion of the money and put it in savings, so you don’t have to come up with the total amount at once. Also included in this cost is the amount of fuel you’ll use on average.
The Cost of Car Insurance
One of the easiest ways to reduce the total cost of ownership for a vehicle is by shopping around for car insurance. Many people just switch the policy to the new vehicle from their same insurance provider without comparing rates at other companies. Switching to a new company can save you hundreds of dollars each year.
A common misconception is that all new vehicles will increase the insurance premiums over what they’ve been paying. This isn’t true, and your monthly premiums can even go down, depending on the type of vehicle you purchase. A newer model can have more safety features and a better crash test rating, which will reduce the rates.
If you are shopping for a new vehicle, you should talk to your insurance agent to find out what you can expect to pay for various models. It’s also a good time to shop around at other insurance companies to discover if you can save money on a new policy. When purchasing a new vehicle, don’t forget to consider the true cost of owning it for the long term.
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