Total cost of ownership: The hidden traps of buying a car

A new vehicle is one of the most important purchases we make in our life time. But do we really consider what is in our best interests when selecting a vehicle? Most of us choose the best priced car in the yard without considering the ‘total cost of ownership’, a decision that can cost you thousands in the long run.

There are many costs to consider that aren’t included in the initial price of a vehicle. These include ongoing operating costs that can hurt your hip pocket, especially if you aren't aware of them in the first place. Maintenance, depreciation rate & insurance are just a few of the extra costs that make up ‘total cost of ownership’.
 

Maintenance Costs

The general service although not cheap can be more expensive depending on what vehicle is purchased. Some vehicle brands are more expensive to service than others due to part costs, labour rates and the requirements of the vehicle itself. So why not do a little research to find the cheapest?

Rule of Thumb

  • Generally cars will be cheaper to repair if they are manufactured within Australia or the Asia Pacific region. This is due largely to the transport costs & availability of new parts.
  • Imported cars generally have higher labour costs than Australian made cars due to a lack in availability of experienced repairers.
     

Depreciation Rate

Another factor that that is not commonly addressed is the depreciation rate of a vehicle. Popular vehicles that are purchased in large volumes across Australia tend to have higher depreciation rates than those less common. Why not research second hand versions of the car you are looking at, the re-sale value may just surprise you! Redbook.com.au is one of the best places to find accurate resale values.

Rule of Thumb

  • Popular cars will generally depreciate the fastest due to high levels of supply.
  • You must balance how common a car is with how easy the car will be to re-sell. If a car is uncommon it might hold its re-sale value but that’s no good to you if you can’t sell it.
  • Also consider brands which have good reputations, you would be surprised how much value a brand like Toyota can hold.

So when purchasing that new vehicle why not consider all the factors that lay outside the puchase price. Consider maintenance costs, registration costs, insurance costs and depreciation rates for the vehicle and make a calculated decision that gets you the best ‘total cost of ownership’.

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Categories: Financial Tips
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