What does owning a car really cost?

We all know owning a car can be expensive. In fact, buying a car is often the second biggest investment after property a person will make in their lifetime. Though, apart from the initial outlay of buying a car, few Australians pay attention to auxiliary costs with owning a car.

Buying a new car is exciting, and while it’s easy to overlook the costs of maintaining a vehicle, it’s vital you completely understand what you’re getting in to; a cheap car might be expensive to look after, and if it’s not maintained properly, it could cost you even more in the long run.

Everyone knows you should negotiate when buying a car, however there will usually be asymmetrical information in that the seller will usually be well aware of the cars long-term expense. To help level the playing field, here’s some things you should know before you buy a car.

What costs do i consider?

There are several key expenses that need to be maintained in order to keep your car on the road. They are:

  • Car loans (if not bought outright)
  • Insurance (This does not cover CTP)
  • Registration (including CTP)
  • Tyres
  • Servicing
  • Fuel and day-to-day expenses

How much do car loans cost?

If you’re looking to finance your car via a loan, don’t just sign up for the first deal you’re offered. CANSTAR analyses 280 car and personal loan products from over 73 Australian financial institutions and at the moment advises that car loan interest rates for a typical $25,000 loan vary from a low of 5% to 22% or more. That’s going to make a huge difference to the lifetime cost of your loan!

While Reserve Bank interest rates have been on a downward trend in the past few years, taking out a loan can still be expensive and cost you hundreds a month. The loan is often the first expense you are likely to wince over, but unfortunately, there are only more expenses to come. Read below:

How much is insurance?

The cost of insurance will depend on the type of car you buy, where you live and your own driving record, but as an example of the potential savings, the table below shows the minimum, maximum and average cost of comprehensive car insurance for a Nissan X-Trail from state to state, based on CANSTAR’s database:

State Minimum Maximum Average
NSW $    564.75  $  2,719.99  $     1,177.58
VIC $    488.25  $  1,538.96  $         938.47
QLD $    363.94  $  1,309.65  $         739.29
SA $    460.14  $  1,190.00  $         797.53
WA $    346.05  $  1,688.63  $         793.18
TAS $    423.74  $  1,213.00  $         723.24

Source: Canstar Car Insurance star ratings research, 2014

Customers should be way of paying month-by-month. Often insurers like to slap a loading fee on top of the premium, which can cost you a little extra per month.  This means you have to assess whether you’d rather even the burden by paying over the year, or set and forget (and pocket the extra money for yourself!).

Another thing to consider is your age. Quite simply – and understandably – younger drivers are often slammed when it comes to insurance. Often, not only are the premiums higher, but the age excess in the case of a crash is another expense you will have to deal with. So, if you’re under 25, stay away from the sporty or overly powerful cars, tempting as they may be.

How much is rego?

The registration costs of your vehicle will depend on the type of car you have. Registration is a state-based cost; you can find links to each state authority here.

Recently, State Governments have been criticised for increasing registration costs faster than the rate of inflation. Cars with eight or more cylinders are simply a lot more expensive to register than six and four cylinders. Consider the type of driving you do, and whether you need or can afford an eight cylinder vehicle.

How much for a service?

Ah servicing! This one especially can be easy to forget or think ‘Oh I’ll just do it at the next interval’. Your car’s not blowing smoke, so out of sight, out of mind, right? Wrong; many things a service addresses is in the ‘preventative maintenance’ zone, which is fixing things before they’re a big issue.

A Canstar study found that when it comes to car servicing, Aussies are slugged on average $380 when they roll into a mechanic! Now, given that most cars are required to be serviced twice a year that is a significant outlay. It can be tempting to do your own services. This saves money on mechanic labour costs, but can hurt your resale value in the future, plus it takes up your time.

While things like oil and fluid changes can be easy, you have to know when the bigger ticket items are due, like timing belts, brakes and suspension.

The day-to-day stuff

This final category is thankfully one that you can more easily control, and is easier to swallow, but the costs can still add up.

Fuel is perhaps the biggest ongoing cost. In a lot of cases, your right foot determines how much you pay for fuel in a given time period – How you drive affects how much your car burns through fuel. If you hoon around town, with fast acceleration and hard braking, you will use more fuel than if you drove in a controlled manner. The type of car you drive in a particular environment also affects fuel use. While a big V8 engine may be smooth, economical and comfortable on the open highway, around town they can be a nightmare. Assess the type of driving you do, and pick a car to suit.

What money can I save using alternative transport?

It might not be ideal, as it means venturing out from the comfort of your car, but you can save considerable amounts commuting by bike or public transport. The Federal Government rebate on car usage for work purposes is 66c a kilometre. It likely doesn’t cost that much to drive to work, though it is a useful metric to have in mind.

Compare the costs of 66c per kilometre, versus catching a train, or buying a bicycle and you can immediately save on things like fuel and tolls. It may even be worth moving closer to the city, because you’ve saved so much in car expenses you can pay more rent and walk to work!  Registration, loans and insurance still have to be paid though, but you can stem the cost of servicing and tyres by using alternative transport.

Overall, it seems like car maintenance bills always come at the wrong time. We know they can be expensive, but there are ways to reduce or even the burden of your bills. So don’t fret, and try to enjoy yourself the next time you hop in the car.

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