Sadly, the sheer expense of buying a new car is only the start of it. There’s a lot more you need to think about, too, which will have a bearing on the amount you pay for the vehicle in the first place. However, some people don’t realise exactly how much those running costs can add up to.
In these scenarios, it’s often the case that they will be left with a car they can’t afford to run. And, even worse, they lose out entirely when they have to sell it for much less than they paid for it. So, if you’re thinking about buying a new set of wheels, don’t rush into it. And, most importantly, don’t forget about these hidden costs.
Depreciation is just one of those things we have to deal with when it comes to cars. It’s especially important for new vehicles. Why? Because as soon as you drive your new motor off the dealer’s forecourt, it loses value. Sometimes, that can be up to 20%.
In fact, after two years, depending on the model you buy, you could lose up to 50% of the value. So, unless you plan on driving it for ten years or so, it’s better to buy a used car instead. And preferably one that is over two years old.
Let’s assume you have just bought a ten thousand dollar car on a finance package, which you intend to pay back over five years. You will usually have to pay a 10% deposit up front, which leaves you with a debt of around $9,000.
Now let’s assume that you are paying interest of around 10% on that amount – although that’s an expensive rate, it’s not uncommon. So, you will have to pay an extra $900 every year until the end of your loan period, making your final payment $4,500 more than the car’s original value.
Now, let’s say that you bought a brand new car. Over five years, you can expect the value to drop by anything up to 50%. So, in effect, you have lost all of your money within five years. Still thinking about finance?
Now we can start to look at the maintenance costs of running a car. These will vary on a car by car basis, but if you buy an expensive vehicle in the first place, you can bet that spare parts will cost a small fortune, too.
Even if you can guarantee that you won’t have an accident, or that somebody will steal your hubcaps or wing mirrors, there are still big costs. You’ll need to book your car in for a service at an auto repair store at least two or three times a year. You will need to spend a lot of money on fuel. And, if you plan on driving a powerful car as a new driver, your insurance costs are going to be eye-watering.
So, to conclude, if you have $20,000 to burn on a new vehicle, it might be worth being more financially prudent. Because, unfortunately, the costs of that car won’t stop when you drive it off the forecourt. Instead, why not go for the $15,000 model and save the rest to pay for everything else?