Understanding the True Cost of Owning a Car

When considering car ownership, it’s essential to look beyond just the purchase price. The ongoing costs associated with operating a car, such as insurance, gas mileage, fuel costs, and maintenance expenses, can significantly impact the total cost of ownership.

Car Insurance

Whether your car is leased or owned, you do need insurance. The cost of insurance should be accounted for when evaluating the affordability of buying or leasing a car. Car insurance is meant to cover costs associated with accidents involving cars. 

Fortunately, insurance companies and brokers will make sure your insurance is sufficient for your state and will warn you if you try to not meet the requirements. Of course, they may offer more than what is sufficient, so it is your responsibility to determine how much coverage you want, as long as the minimum insurance requirements are met. 

Leasing or owning makes no difference to the insurance company you choose, because they are insuring you based on what you are driving, your driving record, and other information about you including where you live and your age. These insurance policies have many components that address different costs that can come from auto accidents. This may make details confusing, and you may not realize what you are paying for until you must use it.

Here is a brief outline of the different components of auto insurance, many of which are required by the state that issues your driver’s license.

• Liability insurance is mandatory coverage in most states. Liability insurance covers property damage and injuries to others should you be found legally responsible for an accident. You are required to have the minimum amount of coverage, as determined by your state, in both areas.
• Collision insurance is insurance covering the damage caused to your car if involved in an accident with another vehicle.
• Comprehensive insurance is an extra level of coverage if involved in an accident with another vehicle and covers other things like theft, vandalism, fire, or weather events as outlined in your policy. There is a deductible assigned to each type of insurance, an amount that you pay out of pocket before your comprehensive coverage takes effect. Comprehensive insurance is often required if you lease or finance the purchase of a vehicle.
• Uninsured or underinsured motorist insurance: If you are hit by an uninsured or underinsured motorist, this insurance will help pay medical bills and damage to your car.
• Medical payments insurance is mandatory in some states and helps pay for medical costs associated with an accident, regardless of who is at fault.
• Personal injury protection insurance is coverage for certain medical bills and other expenses due to a car accident. Other covered expenses may include loss of income or childcare, depending on your policy.
• Gap insurance is designed to cover the gap between what is owed on the car and what the car is worth in the event your car is a total loss.
• Rental reimbursement insurance is coverage for a rental car while your car is under repair resulting from an accident.

You can also purchase other special insurance policies, such as classic car insurance, new car replacement insurance, and sound system replacement insurance, to name a few. It is important that you determine exactly what you need, as insurance policies can be expensive and vary according to your age, driving history, and where you live.

Maintaining a Car

Cars are not a buy it and forget it item. They require upkeep, which adds to the cost of owning the car.

When thinking about maintaining a car we all know we have to pay for gas but there are other costs you might not be considering. Beyond fuel, maintaining a car involves additional costs, such as replacing tires, brakes, oil, and wipers. Furthermore, some states mandate annual vehicle inspections which comes at an additional fee.

Below is a list of some maintenance requirements for cars, along with cost and roughly how often they should happen.

When designing a budget, these expected costs should be accounted for. Extra money per month should be saved in addition to this budget category, to handle unanticipated, and perhaps very costly, repairs.

Fuel Costs

Fuel efficiency, often referred to as gas mileage, is a measurement of how far a vehicle can travel on a specific amount of fuel, typically measured in miles per gallon (MPG) in the United States. The more efficient a vehicle is, the less fuel it uses to travel a particular distance, leading to lower fuel costs over time.

Several factors can influence a car’s fuel efficiency. Some of these are inherent to the vehicle itself, such as its size, weight, and engine type. Others are influenced by how and where you drive. City driving with lots of stop-and-go traffic can lower fuel efficiency, as can carrying heavy loads or using roof racks, which increase wind resistance.

When buying a car, you’ll often see an EPA (Environmental Protection Agency) rating for fuel efficiency. This rating gives an estimated MPG for city driving, highway driving, and a combined average. These numbers can be helpful when comparing different cars, but remember, your actual MPG may vary based on your specific driving conditions and habits.

Once you know your car’s typical MPG you can calculate your annual fuel cost.