While planning to buy a car, you must have come across the terms: ‘Cost of buying a car’ and ‘annual cost of ownership of car’. Let's understand the difference between the two terms.
Cost of Buying a Car: Buying a car means you pay a sum of money for the retail price of the car in order to purchase it. It is also called the MSRP (Manufacturer’s Suggested Retail Price) that you have to pay to the dealer after negotiations.
Annual Cost of Ownership of Car: It means the amount that you need to pay for the car during a year. The cost of owning a car includes the cost of fuel, depreciation, service, maintenance, etc.
Let’s look at some of the aspects of the annual cost of ownership of car. According to a comprehensive AAA report, the annual cost of ownership of car is more than $8,500. Do you believe it is too big a number for keeping the car running? Well, here are different aspects that contribute to it:
Service and Maintenance: The service and maintenance cost of the car depends on the manufacturer and the warranty policy. The rest depends on how you use it. On an average, the yearly service and maintenance cost sums up to $914 including the cost of tires.
Fuel: Considering that the car travels an average distance of 12000 miles in a year, the fuel price may range up to $1682 for one year.
Insurance: The insurance payments are constant and you can calculate the cost for the same easily. On an average, the insurance amount is $1115 per year.
Depreciation: The depreciation rate of a car depends on the purchase price of the car, its current age and its life span. If you use a car to travel a distance of 15000 miles, with normal wear and tear, the depreciation amount will be $3655 per year.
Other Costs: Finance charges and fees related to license, registration and taxes cost around $1334 per year. Car buyers often ignore the registration fees and charges. But, in reality, such costs contribute heavily to the cost of ownership of car.
Additional Costs: Accessories that you install after the purchase of the car contribute to the expenditure. Also, parking tickets contribute to the overhead charges. The parking tickets may cost you a lot more than you can imagine. Plus, if you live in a metropolitan such as New York City, you will have to pay an additional charge for the parking space.
The annual cost of ownership of car shows you how much you need to save for a car. Buying a car is a big responsibility. Plan well and make judicious decisions so that the car doesn’t become a burden for you.
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