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The Real Costs of Owning a New Vehicle: Your Monthly Payments are Just the Beginning

We've gathered all the costs that you need to consider when purchasing a new vehicle.

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Don’t for a minute think the monthly payments are where your expenses end when you buy a new vehicle. Several other factors are involved with the real cost of ownership, some not so obvious. Most important: By knowing these cost-to-own expenses, you can save yourself thousands over your ownership period. Here’s a look at the expenses that make up the real costs of owning a new vehicle.  

 

Depreciation 

This is the biggest expense, the decline in the market value of your new vehicle over time. The moment you drive off the lot, the clock starts ticking—and the value starts declining. Typically, the reality is that the more expensive the car, the bigger the hit. If your vehicle goes down in value so much that you end up owing more money on your loan than the vehicle is worth, you are said to be underwater — not a good thing. 

How do you avoid going underwater? The best way is to pay cash for a new car, something that’s not practical for all but a few well-heeled buyers. The alternative is to make a big down payment and reduce the term of the loan. If that’s not possible, put as much down as you can and keep your car long after the loan period has ended; every month you don’t have to make a payment is like making money. 

Not all vehicles depreciate in value at the same rate. Knowing the vehicle’s depreciation rate is critical to understanding what the overall long-term costs of ownership will be. One $30,000 compact SUV may be worth several thousands of dollars less than a similarly priced competitor after only a few years after driving it off the lot. Shopping for the best value helps, but sometimes the less expensive car may cost you more over time. 

 

Insurance 

Canadian drivers are legally obligated to carry basic auto insurance coverage on their vehicles. But because each province and territory has its legislation and rules, auto insurance can look much different from one region to the next. And its price varies widely, depending on countless factors such as the type and level of coverage, the make, model and year of the vehicle insured, the driving record, the age and gender of the primary driver, plus the area in which the car primarily is driven. The one constant here: Almost all of us must have insurance, and it’s a significant expense that’s one of the highest real costs of owning a new car. 

A few tips to keep insurance costs down: 1) Shop around. All major companies are competing for business, and it’s remarkably easy to get quotes over the phone or via the internet. 2) Bundle all your insurance needs (car, homeowner, life) with one company. 3) Raise your deductible (what you pay out of pocket for a claim). By doing so, your rates will come down considerably, assuming you’re able to maintain a clean driving record. 

 

Maintenance 

As much as we like to think of modern cars as appliances that need no maintenance, they still require some, even if it’s far less than before (when was the last time your mechanic needed to re-grease your car’s wheel bearings?). In the owner’s manual, you’ll see that oil changes, tire rotations, routine maintenance and various other inspections are mandatory at recommended service intervals to keep your warranty intact. 

Although several manufacturers have plans that take care of all required maintenance for the first few years of vehicle ownership, maintenance fees can still add up. 

 

Fuel 

As the auto industry trends toward smaller displacement and turbocharged engines in the continual quest to hit higher fuel economy standards, your gasoline bill still can be quite substantial if you drive a lot or if you need to own a large and thirsty vehicle for work or family. 

The easiest way to check a vehicle’s fuel economy is to review the Natural Resources Canada EnerGuide label affixed in the window of all new cars for sale. Or go online and investigate the NRCan Fuel Consumption Guide. There, in plain print, are the city, highway and combined fuel economy ratings for that vehicle, plus its annual fuel costs. This number is calculated by automakers using the 5-cycle testing procedure, where the vehicle is driven about 6,000 km before testing. Then the test vehicle is placed on a machine called a chassis dynamometer, which is like a treadmill for cars. The dynamometer is adjusted for things like the weight and aerodynamics of the specific vehicle. A driver runs the vehicle through standardized driving cycles that simulate trips in the city and on the highway. City and highway fuel consumption ratings come from the emissions generated during the five laboratory driving cycles. 

Remember, the lower the litres per 100 kilometres (L/100 km) rating, the better the fuel consumption. And the higher the miles per gallon (mpg) rating, the better the fuel use. 

 

What This All Means 

When you factor in the costs above, plus other expenses such as taxes, license and registration — and the price of the financing itself — this much is clear: It’s not inexpensive to own a new car, and over the course of many years the various other costs can add up to more than the purchase price of the vehicle. 

While most buyers, truth be told, will remain focused almost exclusively on their monthly payments, smart shoppers will make better decisions — and potentially save thousands of dollars — when they understand and consider all of the other real costs related to owning a new car. 

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