A car with a low price tag isn’t always a great value. Buying a car is the first of many costs associated with owning one. You will have to pay for expenses like gas, maintenance, insurance and taxes. And when you go to sell your car, you might find that its value is less than what you expected because of depreciation, which is the value your car loses as it ages. When it comes to value, a car’s price tag is just the starting point.
If you want to find a car that won’t cost you an arm and a leg during the time you own it, look at the car’s total ownership costs. Companies like IntelliChoice track this data. Using ownership cost data makes it easier for you to find a car that’s less expensive to own compared with others.
What’s included in total ownership costs?
Total ownership cost data gives you an idea of how much you’ll spend on everything associated with keeping your car on the road: state fees and insurance costs, financing, fuel, maintenance, repairs, taxes and depreciation. Depreciation, which tends to be the biggest cost, is the value your car loses simply because you own it. As soon as you drive a new car home from the dealership, its value drops immediately. The depreciation cost included in five-year cost of ownership data reflects the expected drop in the price of a car after five years of use.
When evaluating ownership costs, most companies will compare a car’s ownership cost to the class average. That puts the data in context for you and helps you make a better buying decision. For instance, IntelliChoice gives cars ratings like Excellent or Below Average when determining how valuable a car will be over the long haul.
Another important thing to remember about ownership costs is that they’re just estimates. To calculate them, the companies make assumptions about how many miles you drive, the price of gas, your insurance costs and the cost to register the car. All of these factors can vary. Gas prices go up and down, you may qualify for lower or higher insurance rates than typical, or your state may have lower-than-average registration fees. Your five-year ownership costs are impacted by all of these factors.
How to lower your ownership costs
Even though ownership costs data are just estimates, there are things you can do to lower your ownership costs in the real world. Getting a car with great fuel economy, adjusting your driving habits to save fuel and limiting how much you drive are three things that will bring your annual fuel costs down. Keeping the miles off your car will also help keep your vehicle from losing too much of its value. Also, buying a new car with a long warranty will help bring down your repair costs since the carmaker will be responsible for covering some of the repairs your vehicle may need.
Before you buy, you can do a few things that will keep your long-term costs down. Keep your credit clean so you can qualify for a lower financing rate. Saving up for a larger down payment will cut the amount that you’ll have to finance, so you’ll save on interest. Also, check to see if you can get any discounts on insurance.
Vehicles with low ownership costs
Finding a car with low ownership costs isn’t hard. IntelliChoice gives awards each year to the cars with the lowest ownership costs in their classes. The Honda Civic has lower costs than other cars in its class. It can cost about $1,700 less to own over five years compared with similar vehicles. The Toyota Venza also does well, costing about $1,140 less to own over five years versus similar crossovers. IntelliChoice says the Chevrolet Equinox also beats out its competitors, with some trims costing between about $1,700 and $2,700 less to own than similar vehicles over five years.
You can even get a car that has low five-year ownership costs, is fun-to-drive and has fairly good fuel economy. Regardless of whether you get the two- or four-door version, the Volkswagen Golf TDI can cost almost $2,500 less to own over five years compared with other small cars, depending on the model. Saving that money gives you a good start toward a down payment on your next car, or it can be used to tack on optional features.
When shopping for a new car, it’s important to pay attention to the sticker price, but don’t forget about ownership costs. If you find a car with low ownership costs and then lower the ownership costs on your own, you could end up with some significant savings.