The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
How to Calculate a Car's True Cost
When it comes to buying a new car, some models are more expensive than others, and we’re not talking about the sticker price. Consumer Reports estimated that it costs about $7,750 to own a Lexus CT 200h for five years, but about $13,250 to own a BMW 535i. Here are the key factors that can be used to calculate your new car’s true cost.
Factor #1 – Depreciation: Defined as how much value is lost each year, depreciation is the largest cost factor of a new car. Depreciation averages about 48 percent of the total ownership costs over five years. If there is an oversupply of your car, it has limited appeal or if there are rebates on similar new models, your new purchase may depreciate faster than other models.
Factor #2 – Interest on financing: Researching car financing options can pay off in the long run since most buyers opt for a 60-month loan. Credit unions offer car loans, which can be, on average, 1 to 2 percent lower than financing from conventional banks.
Factor #3 – Fuel costs: The sedan may win out over the SUV, if you commute regularly or live in an area with higher gas prices. In Arizona, the price of a gallon of gas in 2014 varied as much as $3.09 in Gilbert to $3.94 in Scottsdale. Most fuel efficiency ratings are based on driving 15,000 miles a year.
Factor #4 – Insurance: Sports cars can cost more to insure than other vehicle types, but insurance companies also figure in your age, gender, driving record, credit rating and even the city and state you live in to determine your premiums. Arizona, for example, has high rates of vehicle thefts. Despite this, it ranks 38 out of the 50 states for highest insurance premiums, according to Insure.com.
Factor #5 – Repairs and maintenance: Automobile websites make it easier to equate how much it costs to maintain and repair a BMW versus a Mercedes. Kelley Blue Book and Edmunds.com have cost comparison tools, in addition to expert reviews, which identify the cars that will have you putting your mechanic on speed dial.
Factor #6 – Taxes and fees: Arizona‘s sales tax for cars is 5.6%. Some counties charge an additional percentage of tax, and still, select Arizona cities charge another tax on top of those two. Sales tax amounts are calculated based on the car’s value, so the more expensive the car, the more taxes you’ll owe. Arizonans also pay a title tax, plate transfer tax and a registration tax. If you’re in the market for an electric or hybrid car, there is good news. In Arizona, you are eligible for tax deductions for purchasing an EV and hybrid, and for installing EV-charging outlets in your home.
By looking past the immediate expense and down the road five years, you can add up the ongoing costs of your dream car and determine if it’s truly a ride you can afford.