The true costs of owning a vehicle: Repairs, maintenance, fuel and more all add up


Sandra Fry: Determine what you can afford to allocate towards transportation costs and then do the math on any offer you see

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Long before being able to drive, I dreamed of the freedom that would come from having my own car. I was able to make that teenage dream a reality with the help of my aunt and uncle who sold me their yellow 1980 Chevette for $500. Even though I was a good saver, my 17-year-old self had no idea what really went into vehicle ownership, especially ongoing maintenance. As a result, my first car only lasted six months.

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The true financial costs of owning a vehicle are often more than we anticipate. I’m sure I’m not the only one who could have benefited from a better understanding of what those costs are and how to prepare for them.

As easy as it is to get stars in your eyes when you see advertisements for car payments as low as $99 per week, it’s a good idea to review your budget prior to embarking on your car ownership journey. Determine what you can afford to allocate towards your transportation costs — that is, loan payments plus everything else that comes with owning a vehicle — and then do the math on any offer you see.

Only then will you realize that what looks like an affordable weekly car payment of $99 actually adds up to $429 every month ($99 times 52 weeks divided by 12). And that payment does not include insurance, fuel, parking, repairs and maintenance. If in doubt, be prepared to walk away to give yourself time to think before signing on the dotted line.

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Once you have determined how much you can afford to pay for a car, delve into the costs you can expect with your desired vehicle. It could be that a similar car in your preferred class is rated higher because it has a history of lower maintenance costs. In addition to the plethora of information to be found online, the Lemon-Aid series of books is well reputed to provide a great overview of used vehicles.

Recognizing that a new vehicle significantly depreciates the moment you drive it off the lot, my husband and I only buy used vehicles. We are, however, also aware that the trade-off for getting a lower-priced pre-owned vehicle can mean increased repair and maintenance costs. Some of the impending repair costs can be offset by purchasing a used car warranty, but this doesn’t take care of ongoing maintenance.

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I have found that my clients often overlook setting money aside monthly for car repairs. This is likely because it’s hard to estimate how much to save for these unexpected bills that can throw a budget off track. A good rule of thumb is to allocate $50 towards maintenance costs for every tank of gas your vehicle uses. This amount will vary according to your vehicle’s age and condition, but saving at least some money towards these unexpected costs can help prevent you from relying on credit to cover them, thus helping prevent any subsequent excessive accumulation of debt.

Keep in mind that you also need a budget for regular maintenance such as oil changes, new wiper blades, snow tires and car washes. The more miles you put on your car, the more it’s going to cost to maintain it, but the better you maintain it, the longer it will last.

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Keep in mind that you'll need a budget for things like snow tires.
Keep in mind that you’ll need a budget for things like snow tires. Photo by Luke Hendry/The Intelligencer/Postmedia Network files

Be sure to factor in the ever-increasing cost of fuel when calculating vehicle affordability. How much you expect to be driving your car can greatly impact your monthly costs. During the pandemic, I was pleasantly surprised by how little gas my family was using. However, I fully expect to see a greater increase in fuel consumption and maintenance costs as we return to work and other activities outside the home. Investigating what you can anticipate for fuel costs will ensure that getting your desired vehicle doesn’t result in not being able to afford to drive it.

The cost of vehicle insurance can also be a determining factor when deciding which vehicle to purchase. Ask your insurance agent for a quote for any car you want to buy. For example, it is useful to know that insurance costs can be higher for a two-door vehicle than for a four-door one. Also, a newer vehicle requires a higher insurance payment due to higher replacement costs.

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Some provinces now offer gap insurance to cover the difference between what is owed on a vehicle loan and its depreciated value. It would only add insult to injury if your new vehicle were written off due to an accident and you found yourself still owing on the previous loan.

Even if a vehicle loan and all the related ownership costs do fit into your budget, it is important to understand the broader implications to your finances of taking on a loan before committing to the second-largest purchase of your life.

If you hope to buy a home in the future or do any kind of borrowing, all existing debts will be factored into how much more credit you can qualify for. Lenders call it debt servicing and it’s a percentage of your income that is designated to ensure you don’t acquire more debt than you can reasonably afford to pay back.

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If your loan payment is a large percentage of what you earn, financial institutions may decline any further credit until that loan is paid off. If your five-year plan is to buy a house, you may need to choose whether you can afford both a vehicle payment and the savings required to work towards that house, or any other financial goals.

If your situation changes and you can no longer afford the five-to-eight-year vehicle loan you committed to, it can be hard to escape from it. As vehicles depreciate, they are rarely worth what you owe on the loan, unless you made a large down payment when you bought it. This makes it next to impossible to sell the vehicle and pay off the loan in order to break free from this potential financial burden.

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After doing the math, you may discover that the anticipated costs make car ownership seem like an unattainable goal. But don’t give up on your teenage dream. Consider saving up to purchase a used car outright instead. Without the additional cost of a vehicle payment, you may find owning a car much more affordable.

If you already own a car and just can’t fit saving for regular maintenance into your budget, allocate part of your tax return towards some TLC for your car. A vehicle can be an investment, but it needs to be maintained or, like my first car, it will not last very long.

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Once you think you can manage the costs of vehicle ownership and the impact the additional commitment will have on your lifestyle, try going one step further and do a virtual test drive before driving the car off the lot. This means setting aside money each month for the amounts you’ve calculated for your chosen automobile. If after six months you have not had to rely on credit to cover budget shortfalls for other expenses, then, by all means, go ahead and make that car dream come true.

Test driving car payments and associated costs comes with the added bonus of saving money for six months that can be used towards a down payment. That might just be enough to reduce the loan payment and make it as comfortable as your new driver’s seat.

Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for almost 25 years.

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