It is well known that the cost of used car ownership extends well beyond the price paid for the vehicle. However, it is the extent of the costs that is the consideration. My almost 16-year-old daughter, who is saving for her first used car, realized quickly that she needs a steady source of income to feed her intended new pet. That might take a few years for her to accomplish -- years she can use to save and plan for the most desirable outcome. But she realizes, and is therefore ahead of the game, that she has fixed expenses such as the cost of the car and insurance -- expenses she'll be able to predict -- and a whole host of others that are dependent on her use of the vehicle, such as gas and repairs.
There are foreseen expenses and some surprises that come with used-car ownership. Expenses include: sales tax on the original purchase, license, registration and other governmental fees -- which are steep by themselves -- insurance, regular maintenance like tune-ups, unexpected repairs, cleaning, tires, fluids, towing, motorist services such as AAA, and possibly upgrades and enhancements like new seat covers or perhaps a child safety seat. There are a host of expenses to analyze before becoming a proud used-car owner. Understanding the extent of possible expense will enable you to budget for the inevitable so you don't end up driving to the poor house.
A shortcut through the evaluation of these factors may be to purchase a car through a program such as Volvo Certified Pre-Owned Car Program. Two- to four-year-old Volvos, with under 60,000 miles, undergo painstakingly thorough inspections and reconditioning. The vehicle then comes with a 24 month/24,000 mile Volvo Certified Limited Warranty with zero deductible; affordable financing options; two seventy-five dollar vouchers for service at a Volvo retailer; 24-hour On-Call Roadside Assistance; and the Tire Protection Plan. A comprehensive program makes budgeting significantly easier.
Locating The Best Vehicle
The trick is to find the used vehicle that has been well-maintained and has the fewest possible miles already on it. All vehicles break down eventually, so it is prudent to plan in advance for at least one major repair in the first year of ownership. Unless you buy a very recent pre-owned vehicle that still carries the manufacturer's warranty, buy from a dealership offering a warranty, or purchase a warranty yourself. Regardless, warranties have limited lives and by the second or third year repair costs will be inevitable. Begin to build a $500-$1,000 emergency car repair fund. This can be done by depositing $50 a month in a savings account dedicated to vehicle expenses. If the car doesn't start on a Monday morning, take it into the shop and catch a cab to the office without worrying about where to acquire money for the repair. If the repairs never materialize, then it's "bonus time." There's extra money to pay other bills or take a little vacation.
Most used-car buyers spend $1,000 within the first year fixing up the vehicle and making it their own. That can include buying new tires, repairing the transmission, tune-ups, oil changes, buying a better rear-view mirror, new seat covers or door fobs, repairing torn upholstery or other odds-and-ends that just need to be refreshed. The rule of thumb is that most used cars require some work to bring them up to speed and meet our expectations. It is worthwhile to pay for a professional detailing job. Detailing salons or "in-home" services charge from $80 to $200 to bring out the true beauty of a vehicle. And detailing really does improve the look of the car. The process involves removing chemicals picked up from daily driving and waxing the car to preserve its finish. Regular detailing -- once every 6 to 12 months -- can add years to the life of a vehicle's exterior while enhancing the car's value when it is resold. As an extra bonus, the vehicle will be in "cherry" condition while you own it. A vehicle's value is directly linked to its appearance -- inside and out.
Anticipating Repair Costs
Start with a superior product and anticipated repair costs will be more predictable. Though there are no "sure bets" in car buying, spending the time and making the effort to find the best possible car in your price range will pay off. Try to buy a vehicle that has received better than minimum maintenance. Ask the seller to see repair and maintenance records. Generally someone who has lovingly cared for their vehicle will have kept every receipt. Borrow or copy these documents and show them to your mechanic when he or she inspects the car. Be aware that owners might remove receipts that indicate major repairs or nagging problems. Often they don't, however, because they want to show they've taken care of the vehicle. A good mechanic can infer from other repair orders problems that may currently exist or those which have already been completed. If an owner does not have receipts for the car, be wary. Though dealerships almost never have any paper trail, proceed with the purchase if the car is in good shape and your mechanic gives the go-ahead.
It is always a good idea, regardless of your automotive expertise, to research the background of a vehicle. Though some states require by law that the new purchaser be given the name of the previous owner, title searches through the local DMV are always a good idea and will tell you the lineage of owners and if the vehicle was ever salvaged . On the Internet there is a very convenient service called Car Fax at http://www.carfax.com. Car Fax collects the background data for vehicles manufactured after 1981. Get the 17-digit VIN (vehicle identification number) and submit it to Car Fax. For $14.95, Car Fax delivers a report of the car's mileage history and whether it has been totaled or salvaged. The information is based on DMV and auto auction data. The reports have limitations though, as they do not cover all states.
Additionally,
purchase,
borrow from the library or access the Web version of Consumer
Report's annual buying guide. The guides contain "frequency of
repair"
charts. There is a fee for the use of this site. In order to gain the
desired information, ask lots of questions. If the seller makes claims
-- like they've put a new engine in the car
-- make sure everything
they
say is included in the bill
of sale
Annual Operating Costs
Understand that annual operating costs involve determining operating expenses which include fuel, oil maintenance and tires for one year. To get an idea of operating expenses for a specific car, visit the Runzheimer web site. They do not offer reports on specific vehicles but their archive of press releases often provides costs for operating vehicles of different types. For example, in one press release they discuss typical annual fuel and oil expense for a 4-year-old, 6-cylinder, 4-door sedan. It averaged around $860. Repairs, maintenance and tires ran $800 to $1,200 per year depending on the mileage driven and the condition of the vehicle.
Another place to view used-vehicle operating-cost reports is on the Intellichoice web site. Reports on vehicle costs are available. A report can be downloaded or ordered from the 1-800-227-2665 customer service line.
Maintenance
Maintenance is an on-going process. Get comfortable reading the owner's manual. Whatever the owner's manual recommends for maintenance, do it and a little more. Do what they recommend -- just a little more frequently. When purchasing a vehicle from Volvo Certified Pre-Owned Car Program, for instance, two seventy-five dollar vouchers for service at a Volvo retailer are included in the warranty. Maintenance schedules and advice about taking care of cars are listed in many books. One that is superior is Robert Sikorsky's "Drive It Forever . . . your key to long automobile life." The longer a vehicle can be kept in good running order, the greater the value of the investment. For more about maintenance, read "Maintaining Your Used Car" by Joanne Brickman.
License, Registration, Taxes and Interest
License, registration and taxes on a typical car vary from state to state and can run from just a few dollars to many hundreds. Some states have other fees. For example, in Washington State an excise tax is levied on every vehicle based on 8.6% of its value in addition to a license fee, filing fee, clean air fee, plate fee, trauma and agent fee. A 1994 Honda Accord DX worth $14,000 when new has a grand total of $360 in fees each year. Check with the Department of Motor Vehicle's licensing agent for the amount of the fees and their due dates in your state. That way, when they come due, they won't be a surprise.
Unless you pay cash for the car, the payment will include interest. Make sure to get a good rate. Credit unions offer some of the most competitive rates -- often lower than banks. Used-car loans often have a higher interest rate than those for a new car -- generally 1% to 2% higher. Used-car loans have shorter terms than those for new cars because a portion of the useful life of the vehicle is already gone. Used-car loans generally span three years, while those for new cars can last five years and sometimes longer. If the interest rate is uncomfortably high, consider borrowing the money from a relative at a lower rate. Some people take out home loans to finance car purchases because the rates are often lower and the interest can be written off as a deduction. For more information on used car financing, read the article "Buying and Leasing: Securing the Money To Make Your Tires Spin."
Insurance Costs
Last but not least, insurance is a necessity. Not only is it responsible behavior, but in most states the law requires carrying a predetermined minimum amount of automobile coverage. Failing to show proof of insurance can incur huge fines, to say nothing of the life-ruining experience of being involved in a crash with no coverage. Shop for insurance the way you shop for any other service. Call several local agents and get a half dozen quotes from different firms before committing to one. Agents often sell insurance from several different companies, so make sure to get a number of different quotes to compare.
Be prepared to tell the insurance company the make, model, year of vehicle, your age, zip code, marital status, whether you own a home and a bit about your driving history. Insurance rates are based on the the amount of risk (or likelihood) you pose for future accidents for which the company would have to pay. One ticket can increase rates by a few hundred dollars and an accident you caused can cost hundreds more. Take driving seriously. Avoid getting tickets and having accidents as insurance rates can be prohibitive with just a few mistakes on your record. And, of course, never drive intoxicated. The agent may also ask questions about the car's safety features -- such as airbags, anti-lock brakes, or an alarm system. Discounts (though generally nominal) are sometimes available for security devices and students with an exceptional level of personal achievement so the agent may ask about these things as well. Organizations such as the American Association of Retired Persons (AARP) or the military sometimes offer good insurance rates if you are affiliated with the group. It is an option worth checking into.
There are three levels of insurance risk -- low, average and nonstandard (or high risk). Companies determine rates on mathematical calculations that are based on the historical costs of accidents (actuarial charts) to the industry. For example, drivers under 25 have a higher percentage of accidents than those over 25. The younger the driver, the higher the rate. Statistically men, particularly those that are young and single, have more accidents and pay the highest rates because they present the largest historical risk. Young women drivers clearly have an advantage here. It will cost much less to add your teenager to your insurance policy than to purchase one of their own.
The insurance industry keeps a real-world index of theft, injury, collision and driver death rate statistics on every make and model. The Highway Loss Data Institute at http://www.hwysafety.org makes this information available to the public. It is called "Injury, Collision & Theft Losses." Looking at this information can give you an idea of which kinds of cars will carry the lowest insurance rates based on the likelihood the car will be stolen or crashed and the severity of the damage. Buying a car with a large engine or one viewed as a high-theft risk will cause insurance rates to escalate.
The standard level of insurance coverage is $100,000 in personal property, $100,000 per person in an accident, $300,000 total per accident (100/100/300), and $10,000 in medical. The best rates are generally on policies with $500 deductibles. However, adding additional coverage costs very little extra. Consider your personal worth and income when deciding to buy extra coverage. If you own a lot of possessions that could become part of a legal settlement because you lacked sufficient coverage, raise your insurance limits. I carry 500/500/2,000 ($500,000 for personal property, $500,000 per person per accident and 2 million total). It costs only a few dollars more and is well worth the investment given how litigious people and companies are these days.
As an example of insurance rates, a married couple, between 35- and 45-years-old, buying a two- to three-year-old Honda Accord DX would receive a quote for an insurance premium of around $924 per year. For the top-of-the-line EX version built in the same year, the quote would be about $1,115. Insurance companies allow premiums to be broken up by month, quarter or paid yearly to fit people's budgets. Paying annually offers a modest discount. Runzheimer's gives the insurance cost of a typical 4-year-old, 4-door sedan, 6-cylinder from $837 to $864 per year. Begin insurance research early in the car purchase process to avoid spending time considering high-insurance vehicles.
SUV insurance rates are a lot higher than for passenger cars because of their rollover problem. Ask your insurance agent which SUVs have the worst accident records and avoid purchasing them.
Miscellaneous Costs
Parking and garage fees are often ignored in the financial equation of car shoppers. In large cities, a garage fee can run $300 per month. If there is a garage fee at both work and home, it will be even higher. Big city garages can cost $8 to $30 per day. And don't forget about parking fees when you go to the movies, dinner or the doctor. If the car will be parked on the street, having an alarm system or a safety device like "the Club" for protection against thieves is critical. Car theft is rampant. If you store your car on the outside, consider investing in a decent car cover to protect against weather. They cost $50 to $300, but last only a year or two and are targets for thieves as well.
Take Care of Your Investment
Taking care of the investment in your car enhances personal safety as well. There is not a person alive who wants to be stranded on the side of a freeway with a "car problem," exposed to all kinds of hazards with "victim" written all over one's face. Take preventive measures like regular service to keep your car in good working order. Regular maintenance will not only keep the car running but help to identify problems before they become expensive major repairs. By not spending every last penny on the purchase of a used car, there will be something to put away toward repairs, maintenance and any other extraneous expenses.
Annual ownership costs above the purchase price will include an insurance rate of roughly $850 plus gas, maintenance, and repairs at $860 -- nearly $2,000 per year. Perhaps we should call it a habit. That's right, habit. Cars are addictive because they enable us to make our own choices about where we go and what we do that would otherwise not be available. Park that car and walk when you can. You'll stay healthier. So will your pocketbook and the environment.
