You’ve probably heard it before. Budgeting is all about making sure you can afford what you have to pay for, well into the future, right? When you’re making a budget to buy a used car, you not only have to consider the up front cost of it, but what it takes to maintain it, license it, power it, and generally keep it going into the future. Making a big purchase like a house or a car, is never a one-and-done payment. You’ll have bills that come in monthly that will need to be covered. When you’re thinking about buying a new-to-you car you may not think to consider these costs, when in reality, the price tag on the window is just the tip of the automotive ownership iceberg.
Your reasoning will likely go something like this: “It’s a used car so it won’t need as much maintenance and I wont take any depreciation hit. Because it won’t need as much maintenance, and someone else ate the big depreciation when they drove it off the lot the first time, I won’t need to budget as much per month, as say I would if I decided to buy a new car.” Sounds like solid reasoning doesn’t it? That’s where you might need to take a step back and reconsider.
Meet the true cost of ownership.
The true cost of ownership is essentially taxes, fees, gas, maintenance, depreciation costs, and insurance all rolled into one monthly number. This number is what it will cost you, above and beyond your monthly payment on the car, to maintain and run it. In some cases, as Consumer Reports points out, it can make sense to pay more for a car initially, and take on less in the long run. In others it doesn’t make sense to pay a premium for a used car, because it’s going to cost you as much or more to maintain it. While it sounds complex, it’s really just a matter of a few simple calculations to figure out what the true cost of ownership of a new-to-you car may be.
Digital media content producer/consultant & former CNN senior producer, now running CN'TRL : Cars, Tech, Real Estate & Luxury.