Understanding Costs of Owning a Vehicle


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If you buy a vehicle, you will pay some additional costs upfront such as financing fees, registration, and taxes. Unless you qualify to receive zero-percent financing, you will pay interest over the loan term if you borrow. Interest expense is usually the main financing cost of an auto loan. If you lease, the entire lease payment is a financing cost.

In addition to financing costs, vehicle ownership has other costs. These costs include insurance, operating costs and registration fees. Insurance premiums can easily exceed $1,000, or even $2,000, a year, depending on the vehicle. Insurers base your auto-insurance premium on your age and driving record. Insurers also determine a base-level premium for the type of vehicle you are insuring. Generally, vehicles with a record of high theft or involvement in accidents have higher base-level premiums.

Operating costs of a vehicle are perhaps the highest component of ownership costs. You need fuel and oil to run your vehicle, new tires, replacement bulbs and fuses, and other parts associated with the normal wear and tear of a vehicle. Yearly operating costs are related to how much you drive. For example, a person who drives 10,000 miles a year will generally pay less in operating costs than a person who drives 30,000 miles a year. (As a lessee, you generally aren't responsible for operating costs outside of fuel.)

You will owe annual registration fees and have your vehicle inspected periodically to ensure it is compliant with pollution-emissions standards. Depending on the weight, age, and condition of the vehicle, these costs can exceed $500 or $1,000 a year.

Finally, depreciation affects the value of your auto when you seek to resell it. An auto that "holds its value" depreciates at a slower rate. Thus, a slowly depreciating vehicle tends to have a higher blue-book value than a vehicle of the same age that depreciates more quickly.

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