If only the price tag on that new or used car you’ve been considering was all you needed to factor in to the finances and hand you keyless entry to driving freedom. Dream on. Buying a car is just the beginning of a motoring expense trail you’ll find yourself going down, whether you like it or not. The trick is to be prepared beforehand.
Researching up on the running expenses and options you are likely to encounter when you buy your first car will help you make a more informed decision at this crucial point in time. And when it’s your very first car, disappointment number one is often that your heart must be overruled by your head, unless of course, you have extremely rich parents or an uncle who owns an Audi dealership!
Even if you have to downsize your dreams first up, it really is possible to find true driving happiness if you stick within your own budget limitations. Here are a few key points to consider in the overall running, repair and maintenance cost encounters that will affect your budget in the future.
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Cost of fuel
Everyone thinks about the gas-guzzling capabilities of a car first up. I guess it’s the most obvious consideration because if you can’t afford the petrol, you’re going nowhere fast. Does your car use regular, premium or ultra-premium unleaded petrol, diesel or LPG? Petrol is by far the most popular fuel source, accounting for in excess of 80% of the 18,893 million litres of fuel used in 2014, so the Australian Bureau of Statistics (ABS) tells us.
The ABS also tells us that 10.7 litres per 100 kilometres was the average fuel consumption for passenger vehicles in the year ended 31 October 2014. Which brings us neatly to pump prices. This is always an area of contention as prices fluctuate from low to high, according to supply, as well as the city or country region where you are filling up. According to www.motormouth.com.au average prices (as at 22/11/15) range from 135 cents per litre in Sydney to 114.6 in Adelaide. Check motormouth’s fuel cost calculator to help you nut down what your car is likely to use. Identifying how many litres your car will use to run a distance of 100 kilometres is also a useful benchmark to cost-effective performance.
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Cheapskate alert: Don’t be tempted to run your vehicle on petrol with an octane below that recommended for your vehicle. According to NRMA, it’s likely to result in a ‘knocking’, ‘rattling’ or ‘pinging’ sound which means the fuel is detonating instead of burning smoothly. A waste of energy which may also result in long-term engine damage. On the flipside, NRMA says it’s a widespread but misguided belief that if you use a high octane fuel your car’s performance will automatically increase. Not so, unless your vehicle’s engine is designed for it. Your car’s owner’s manual will clarify what type of fuel your engine is designed for.
Cost of car service and repairs
It stands to reason that taking good care of your wheels will pay dividends as time goes by. Maintenance costs include servicing according to the manufacturer’s schedule, plus repairs and spare parts that are likely to be required for normal driving conditions and assumed annual distances. There is great variance, once again, between new and used cars. Competition for sales is resulting in many new car manufacturers offering free or capped price servicing deals for a set number of years built in to the purchase price. New cars are also covered by a warranty which provides some certainty about future operating costs. New car warranties differ, but may typically provide cover for 3-5 years and 60,000-100,000 kilometres.
That’s not to say a used car is a second-rate purchase. It’s just that they are totally different animals and hard to compare against each other, as new and used have their own advantages and disadvantages, according to personal circumstances. It’s not unreasonable to expect to deal with many unscheduled items such as brakes, a battery, windscreen, headlight globes and other parts that may need to be replaced in five years of ownership.
Cheapskate alert: Think twice before fitting non- standard parts to your car. It may void your car insurance policy.
RACQ has put together detailed comparison tables on car running costs for all popular cars to give you a better idea of money you will be up for over a five-year period in your own situation. These can be found at www.racq.com.au/cars-and-driving/cars/owning-and-maintaining-a-car/car-running-costs
Tyres are included in this consideration. As the only thing connecting your car to the ground, tyres are one of the most important parts of the car. Included in RACQ’s comparison are 4 replacement tyres during the 5 year period plus 1 tyre assumed wrecked from puncture damage beyond repair. Replacements include fitting and balancing.
Double cheapskate alert: Your tyres can contribute to overall costs in other ways. Incorrectly inflated, they can add to fuel consumption. Incorrectly aligned, they will cause premature tyre wear and you’ll have to replace them more frequently.
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Cost of car insurance
A good car insurance policy aims to protect your interests by covering damage you may cause to other people’s property or their car, harm to other people, or theft or damage to your own car, depending on the type of policy you have. Car insurance should be part and parcel of your whole first car experience. After all, it’s not just you – there are 18 million other motor vehicles sharing the Aussie roads and that puts accident potential at an ever-increasing risk.
There are four main types of car insurance:
Compulsory Third Party (CTP)
Third Party Property
Third Party, Fire and Theft
Comprehensive
Choosing the car insurance that’s right for you will depend in part on your budget. Ideally, though, you should look for the best cover you can comfortably afford. You’ll find a full explanation of the different types of car insurance available here.
If your car is under finance, it may be a requirement that you have it insured with a Comprehensive Policy. Luckily, it is easy to compare quotes. Canstar’s latest Car Insurance ratings include 53 insurers, giving you the ability to easily compare online quotes in the one place.
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Cheapskate alert: A cheap policy is not cheap if you can’t claim on it when you need to. Watch out for high excesses. And make sure you don’t skimp on features you would find helpful or necessary in the event of a crash. This could include provision of hire cars or taxis while your car is in the repair shop.
Cost of roadside assistance
Roadside Assistance is an optional extra that can be added to your comprehensive insurance coverage. If you have this cover, your insurer will help you if your vehicle won’t start or if it stops because of a mechanical or electrical failure. If they can’t fix the problem immediately, they will tow you to the nearest mechanic or to a mechanic within a certain kilometre range. They can also help you change a flat tyre or a flat battery, fill up your car if you run out of fuel, and help you get into your car if you lock your keys inside the car.
Some insurers cover the entire cost of this emergency help. Other insurers will arrange the help needed to get you off to the side of the road, but you still have to pay some or all of the cost afterwards. There are a number of providers of roadside assistance as a stand-alone product separate to your car insurance policy.
Cheapskate alert: You may already be a member of your state’s local Royal Automobile Club, in which case you won’t need to pay twice for roadside assistance. Some new car manufacturers are now offering a roadside assist deal as a sweetener with the purchase of a new car. Check all conditions meet your needs before deciding if you need another extra policy or not.
Cost of vehicle depreciation
While new cars may be less likely to break down than used cars, they are far more exposed to depreciation which can be a trifle depressing the moment you realise your shiny new motor could lose about 40% of its value within the first 3 years – so much for that “investment” you thought you were making!
Depreciation varies from vehicle to vehicle and depends on market conditions, mileage, and the like. It’s difficult to pinpoint an exact formula that will be accurate for every car but in general terms, the older a car is and the more kilometres it’s done, the lower the car’s resale value. The resale appeal of your car will also depend on what the market thinks of that make or model (and this does change). For instance small cars often keep their value best during times of high fuel prices or economic uncertainty.
Cheapskate alert: Beware of after-market or non-genuine accessories and treatments when buying a new car. These are typically seat covers and floor mats, rust and fabric protection, and sound proofing and window tinting. They are often not approved by the vehicle manufacturer, have a different warranty and have little impact on resale value. Shop around for the best deal if you want them and don’t cave in to the pressure at the car yard.
Cost of a car loan
A car loan is a type of personal loan generally available as a fixed rate loan secured against the car itself. You can, however, obtain an unsecured variable rate loan for a car – each individual circumstance is different. A secured car loan is more attractive in that its rate will be lower.
The main thing to shop around for is rate and also the application fee. The current low interest rate environment is stacked in favour of borrowers so why not take advantage? Check our car loan comparison and repayment calculators to give you a better idea.
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Cheapskate alert: It’s a financial no-no to keep paying off a car that’s depreciating in value all the time unless it is absolutely necessary. If you decide it is necessary in your case, don’t go overboard.
Cost of car registration and license
Yes, these “incidentals” are part of the regular and lawful cost of running a car and driving. Each state offers a raft of different registration costs for all on-road vehicles, bikes, boats, trailers etc. Registration can be paid at 3, 6 or 12-monthly intervals, depending on state flexibility. Your state government website is the best place to go for all information on costs involved in keeping your car legally on the road.
Getting a driver’s licence is another complication you’ve probably already learned about as a new driver about to buy a car for the first time. With statistics showing that young drivers, aged 17-25 years, are more likely to be involved in crashes resulting in death or injury, many states have introduced Graduated Licensing Schemes. These are designed to improve new driver skills as they move from a learner to a full licence. The schedule of fees charged is also available on your state government transport website.
Cheapskate alert: Not taking your legal obligations seriously is a mistake which could cost you big time. Double check that you meet all requirements and for your own sake, keep it legal at all times.
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