# The Real Cost Of Your Car

Owning a car is very expensive. The real expense

involves much more than your purchase price, or monthly car payment.

That makes up only about half of the average monthly car expense. The

true cost of your car includes: First, your loan payment. A 5 year loan

on a $20,000 car is approximately 400/month, dependent on your interest

rate. Second, insurance (collision because of the loan) is typically

between $75 to 200 per month (depending on where you live). Third,

Gasoline at $3.00 per gallon and an average annual use of 15,000 miles

per year, costs about $150 per month. Summer 2007 it would be more like

$200 per month as gas is scheduled to be closer to $4.00 per gallon.

Finally simple repairs (assuming $300 per year, which is conservative,

even for a car under warranty), routine maintenance, and annual

registration, all add up to another $60 per month. In all, neglecting

the extra things you do to or for your car, the AVERAGE car costs

between $685 and $860 a month. I won't even start on owning a truck! In

five years, you will have spent between $41,000 and $52,000 dollars for

your car which is now worth closer to $4000 dollars. Do you feel you

are getting the most for your money? Typically you do not have a choice

in whether or not to drive, but you do have a choice in what you drive

and how you drive.

So when shopping for your next car, consider the true cost of your

car and what factors influence that cost. Owning the car you want is a

luxury. A luxury most cannot afford, instead, decide what it is you

need. Will you need four wheel drive? How many passengers will you be

routinely carrying (how big is your family)? Also consider how long you

want to keep the car as the number of passengers may change before you

are ready for another car. Finally determine before shopping what you

are willing to spend on a monthly basis for this car. Let this number

determine the kind of car you buy and the price you are willing to pay,

and if at all possible, buy used. There is nothing wrong with buying a

new car, but if you are trying to reduce expenses, buy used. The

intrinsic value of car is mostly independent of its age. As long as it

can get you from one place to another it has value and the extent of

that value depends on how long that car will continue to serve that

purpose minus the maintenance expense to keep it serving. Any price

above intrinsic value can be attributed to marketing and personal

preference; values considered extrinsic. A new car comes with intrinsic

value which will decay proportionately with use and abuse, though the

vast majority a new car's price is extrinsic and will decay independent

of use at an exponential, meaning that they lose a percentage of their

value each year. Until there is no value left. For example, if you buy

a $20,000 car that depreciates 20% each year, after your first year the

car is worth, $16,000, after the second year it is worth $12,800, then

$10,240 its third year, and after 5 years, worth $6553. These numbers

are just an illustration. The true depreciation of a car is quite a bit

higher (about 28% each year). Typically after the third year, the price

of a car starts to stabilize. If you want your car as new as possible

and still have good value, buy it after 3 years. If you want as little

depreciation as possible, wait until car is at least 6 years old. At

this point, the car is old enough that much of the extrinsic value of

the car has decayed away, but is still typically free from major

physical wear.

You can gauge how much intrinsic value a car has by how much

differences in mileage influence price. For example, if you had two

cars of the same make, model, and year; If the first had 120,000 miles

and sold for $10,000 while the other had 60,000 miles sold for $13,000;

then, based on the selling prices, the intrinsic value of 60,000 miles

is $3000. If the market perceives the average life of this car as

180,000 miles, then the first car's intrinsic value is $3000, the

second car's intrinsic value is $6000, and a brand new car had an

intrinsic value of about $9000 and an extrinsic value of $21,000 if

bought new for $30,000.

Once you have a good gauge of intrinsic value, the next step is to

determine what mileage range to buy. This depends on how long you

intend to intend to keep the car for and your budget for maintenance. A

car with higher miles may fit just as well within your time frame and

cost less. For example, if a car model is not expected to last beyond

200,000 miles, and you want to own this car for over 5 years, then you

should probably not buy a car with more than 125,000 miles. If you only

intend to have the car for 2 years, you can get by with a higher

mileage car and pay significantly less initially. The same rule also

applies to warrantees. If the car's warranty expires at 100,000 miles

and you want to keep it at least 3 years, then you will probably want

to buy a car with at most 65,000 miles.

This is a simplistic description of auto pricing as many other

factors also influence price. In general, when looking for the right

car, remember these three things: first, know exactly what you need;

second, know how long you plan to keep it, and third, use not age

determines value.

**About The Author**

Kari Hoopes: Editor of http://automotive.yourbetterbuy.com , writing articles to help people make better consumer and financial decisions.