Published June 25, 2012
It's getting easier to get a good interest rate on a car loan, and many Americans are ready to start shopping for their next new car or used car. But smart car shoppers don't sign on the dotted line until they are sure it fits within their budget. That goes beyond the monthly car payment and includes the total amount to keep your car on the road each year. Many independent car information websites provide ownership costs, but these numbers are just national averages. Your actual costs to own and operate a car could be widely different since so many factors are based on the individual's situation.
To calculate your ownership costs for a specific car, you can start with the data from an independent car information website where the numbers for depreciation, repairs and maintenance can definitely be used if you are buying a new car. They also should be fine if you are buying a used car, as long as the model you are buying is of average mileage and condition.
However, for other ownership costs, you'll need to do some legwork. First, calculate your annual fuel costs using the average miles per gallon for that car, the number of miles you drive each year and the average gas price for your area. Then, talk to your car insurance agent or get some instant auto insurance rate quotes online to get the annual insurance costs for the car you are considering. Be sure to use the same coverage you have on your current car insurance policy to get an accurate quote.
If you are getting a car loan or car lease, then this will be the majority of your ownership costs. Multiply the monthly payment you are expecting by 12 to get your annual costs and consider factoring in the depreciation numbers for the car you've already located. Don't forget your upfront costs, such as taxes, title and registration. Put them in your first year costs if you are paying them upfront, which is ideal.
Once you have your total costs, look at that monthly number. Ideally, the total costs for all the cars in your household should be no more than 20% of your monthly household income. If it's substantially more, then you might rethink your purchase and look for a cheaper car.
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