Don't Get Taken for a Ride: Calculating the Real Costs of Car Ownership

Wouldn't it be great if the total cost of buying and owning a car were limited to the purchase price? That way, there'd be no hidden fees. No sales tax. No insurance premiums. And no grim realization that some new cars can depreciate by 20 percent during the first year of ownership. The reality is that the true cost of owning a car is far above its list price. To help get a better sense of the financial commitment they're making, buyers should consider some significant costs of car ownership that aren't included on the window sticker -- costs that range from unnecessary add-ons to expenses they might not expect.

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It's common for prospective buyers to see two different stickers on cars at dealerships. One is the window sticker (also called the Monroney sticker, named after the senator who helped pass legislation requiring dealers to display them), which lists a suggested retail price, technical specifications, and more. The other is called a supplementary sticker, which includes the price of the car plus the cost of any options, which could include anything from anti-theft devices to chrome wheels and typically add hundreds of dollars to the price of the car. Car-buyers should assume about a 50 percent markup on dealer installed options, suggesting there's room for negotiation.

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American drivers buy about 11 gallons of fuel weekly. Although 2016 is a relatively cheap year for gasoline buyers, the Energy Information Administration projects an average cost per gallon of $2.06. That would add up to about $1,200 this year on gas alone. One obvious way to save on gas is to purchase a hybrid or electric vehicle. But what might not be obvious is the savings some states offer with the purchase of a fuel-efficient car, including tax rebates or credits, exemptions from emissions inspections, or access to high-occupancy vehicle, or HOV, lanes during rush hour, which could save commuting time. To maximize savings, drivers should research state policies.

Many people underestimate just how much they'll pay in taxes when purchasing a new car. And there are often other, more esoteric taxes applied to car purchases in lieu of sales tax. For instance, Georgia no longer charges a sales tax on vehicles but does charge something called a "title ad valorem tax" at the time of purchase. Also, it's important to understand which price the government will tax. For trade-ins, most states charge sales tax on the price of the car after the trade-in allowance is deducted. But for rebates, many states charge sales tax on the purchase price before the rebate is applied.

Like the price of gas, the cost of car insurance can be volatile and is based on many variables. Insurance companies determine the amount of a premium by looking at a driver's location, age, marital status, driving record, type of vehicle, and more. During the first five years, insurance accounts for about 10 percent of the total cost of owning a car, according to one analysis. Sure, drivers can cut costs by purchasing a bare-minimum auto insurance plan. But this can end up costing thousands if damage from an accident exceeds the plan's coverage. Moreover, car buyers who finance the purchase are often required to buy comprehensive coverage, collision insurance, and gap insurance.

All U.S. car owners need a few basic documents to drive legally, and the requirements and prices for them vary in each state. The price of obtaining registration and title can be a simple, combined flat fee ($61.25 in Nevada, for example) or the price may vary depending on vehicle weight, vehicle type, and owner location. Some states also require safety and emissions inspections, the cost and frequency of which vary by state. While some states require annual inspections, others, like Louisiana, give car owners the option to pay double the inspection cost for a sticker that is good for two years.

Maintaining a car might be pricey, but at least drivers have control over the cost. U.S. households spend about $792 a year on car maintenance, but how much they spend largely depends on the age of their cars. New cars are typically cheaper to maintain because of the lack of wear and manufacturers' warranties, most of which typically extend to at least 3 years or 36,000 miles. Drivers can reduce costs over the long term by maintaining a regular maintenance schedule. Things like brakes and alignment need to be serviced only once a year, while engine and power steering fluid should be serviced every few months. To save even more, drivers can learn how to service their own cars at home.

It's no secret that living in a big city means paying a big price for parking, one reason many urban dwellers decide owning a car isn't worth it. For instance, a driver in Manhattan might pay about $500 monthly for parking in the heart of Manhattan (or $1 million for a permanent spot in the garage beneath a luxury condo). Parking costs aren't a big deal for drivers in smaller cities and more rural areas. Still, most people have to pay for parking at some point. Smartphone apps can help drivers find the most affordable spots. A couple of popular ones are BestParking, which sorts spots by price in more than 100 cities, and SpotHero, an app that lets drivers reserve parking in lots and garages.

Buying a car can be a stressful process. But there's no reason to make car ownership a pain over the long term by making a rash decision and not getting the best deal, or worse: buying a lemon. Carfax says each year some 200,000 cars on U.S. roads have their odometers rolled-back illegally, meaning they would likely need significant maintenance sooner than expected. While Carfax sells vehicle history reports for about $40, many dealerships and websites provide this information for free. Buyers can consult sites like AutoTrader and Cars.com to compare prices and TrueCar to see actual prices people paid for cars in specific areas.

It's best to check out available interest rates from credit unions or banks before heading to the dealership. If the dealer is able to beat these rates, good deal. If not, buyers can be sure they're still getting the best financing available. Also important in securing the best terms is saving up a reasonable down payment. Conventional wisdom holds that buyers should put 20 percent down, but it can help to have 40 percent or so on hand. A large amount gives buyers more leverage when negotiating financing terms with a lender.

Depreciation is costliest aspect of car ownership, according to AAA. Although there are ways to help maintain the value of a car, new cars can lose about 20 percent of their value just 12 months after purchase. Buying a vehicle with a high resale value can help to mitigate this cost. Websites like Kelley Blue Book and Edmunds estimate depreciation rates for various brands and models, allowing buyers to map out their car value over the long term. A close look these long-term trends might reveal that a particular model tends to depreciate significantly during a certain year of ownership, meaning it might be smart to sell it before then. The winning brand in Kelley Blue Book's 2016 Best Resale Value Awards: Subaru.