The Financial Reality of Owning a Car

by Julie Bowen

Buying your own car for the first time can be an exciting experience, but it is also an expensive one, so you should make sure that you are prepared for the financial reality of owning and running a vehicle before you commit to this major new responsibility. The AAA estimates the average cost of running a car is $9211 a year, a figure that has increased by almost 2% over the last year. You can reduce some of the costs involved by choosing your car carefully, but some expenses will be higher simply because you are a young driver.

Standing Costs and Running Costs

The costs involved with owning a car can be divided into those that you will have to pay, regardless of how far or often you drive it, and those that will depend on how much driving you do. You will have to pay the standing costs even if you never take your new vehicle out on the road, but the running costs are usually given per mile since they will only begin to build up when you start driving your car.

Standing Costs

1. Buying Your Car

The largest and most obvious expense will be the cost of the car itself, even if you are going for a cheaper, second hand vehicle rather than a brand new car. It is sensible to save as much as you can before you buy, since you will need a deposit of 10-20% even if you are not buying outright. Financing can be expensive, particularly for young people lacking credit histories, so if you can avoid borrowing or borrow from a family member instead, you will save a lot on interest. The money you spend on your car can sometimes be recovered by reselling or trading in when you are ready to move on to your next vehicle, but you should remember that the value of your car will decline with age. This is known as depreciation. If you resold your car the day after you bought it, you would be able to recoup most, if not all, of the original cost, but after a few years of wear and tear, your car might not be worth much of its original price. Some cars have better resale value than others, and choosing the right car can also help to keep other costs down. Smaller, less powerful cars can be much cheaper to register, insure and run, and maintenance costs can also vary. Check consumer reports before you buy to find the right make and model for you.

2. Title, Tax and Tags

The purchase price for your car may not include sales tax, which can add a substantial amount to the total cost. You will also need to budget about $400-500 for the costs of the title, which transfers ownership of the vehicle to you, car registration and a license plate. The title and license fees will only need to be paid once, and you will also need to pay a one-off initial registration fee. You will also need to budget for an annual registration tax, which will be about $75-80 a year, although it will depend on where you live, and what type of vehicle you own. Choosing a smaller car will save you a little on your registration fee, as well as making your gas and insurance costs cheaper.

3. Insurance and Breakdown Cover

The cost of insurance can be high for a young driver, but you have to be insured before you can obtain financing or register your own vehicle. Basic auto insurance should cover:

 – Liability: covers damage you might cause to other people’s property, and is usually required by law

 – Collision: covers damage to your own car in an accident.

 – Comprehensive: covers damage due to other causes, such as theft, vandalism or fire

Additional coverage is available for personal injury, collisions with underinsured drivers, or to cover the remainder of what you owe on your car loan.

The average cost of insurance for a driver with a clean record is $1029, but younger drivers will pay more. According to, a teen driver can be up to seven times more likely to have an accident than a middle-aged driver, for every mile that is driven. You can reduce your insurance premiums by choosing a smaller and less powerful car, and driving safely to avoid traffic violations and start building up a no-claims bonus. You might also want to select a policy with higher deductibles, which are the portion of the costs that you will have to pay out of your own pocket before the insurer will pay out, but remember that setting it too high will be a false saving if you find yourself unable to cover it if something does happen to your car. In addition to your auto insurance, you should also consider taking out breakdown cover from a company like AAA to ensure that help will be available if something goes wrong while you are driving.

Running Costs

1. Maintenance and Repairs

In order to keep your car running, you will need to perform some regular maintenance. It is a good idea to get into the habit of performing regular checks of the air filters, fluid levels and tire tread and pressure. How often you need to replace parts will depend on how much driving you do. You should budget for:

 – Oil changes, every 3000 miles, usually cost at least $25

 – Brake pad replacement, every 30,000 miles, usually cost about $250 each end

 – Tire alignment, if you notice the car drifting to one side, usually about $80

 – Tune up, if your car is not running right, usually about $130-280

 – Tire replacements, every 25,000 miles, usually $100-200 per tire

The AAA estimates that basic maintenance will cost about 4.6 cents per mile, but you should also allow some room in your budget for any unexpected repairs that might be needed.

2. Gas and Parking Charges

Gas, parking charges and tolls can add up to form a significant part of your car budget. The average driver travels 12,000-15,000 miles a year, so choosing a car that is more fuel-efficient can result in significant savings. A smaller engine with fewer cylinders will use less gas per mile, and it will also be cheaper to insure.

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