A car costs its purchase price plus fuel, insurance, maintenance, registration and interest on any loan.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
Depreciation
A new car commonly loses 20% of its value in the first year. That loss is a real cost even though nothing is paid out.
Why used cars are cheaper
Buying a two or three year old car lets the previous owner absorb the steepest depreciation.
The monthly payment trap
Salespeople negotiate on the monthly payment, which can be lowered by stretching the term while raising the total cost.
Running costs
Fuel, insurance and maintenance often total more over five years than the loan interest does.
Compare per year
Add every cost and divide by the years of ownership. That figure is what one car really costs against another.
The purchase price is the smallest part
Insurance, fuel, maintenance, tax and depreciation continue for as long as the vehicle is owned. Total cost of ownership over several years is the meaningful figure, and it is rarely the one quoted.
Depreciation is a real cost
A new vehicle loses a substantial fraction of its value in the first years. That loss is money spent even though no bill arrives for it, and it is the largest single cost of owning a new car.
Financing adds interest
A loan spreads the price and adds interest to the total. Comparing the total repaid against the cash price shows the cost of borrowing, which the monthly payment on its own conceals.
Negotiating on the monthly payment
Any monthly figure can be reached by extending the term. Discussing the total price and the interest rate separately is what keeps the comparison honest.
Step 2: Try It Yourself
Tap and try it out.
Depreciation
Fuel
Insurance
Maintenance
Depreciation has the most. It has 1800 more than Maintenance.
Step 3: Watch an Example
One step at a time.
Watch Rosa Cost a Year of Driving
A $24000 car losing 20% in year one, with $1500 fuel, $1200 insurance and $600 maintenance.
- Step 1
Depreciation in year one is 0.20 × 24000 = $4800.
Step 4: Your Turn
Practice makes it stick.
The Drop
Problem 1 of 2
A $24000 car loses 20% in year one. How much value is lost, in dollars?
dollars
The Running Cost
Problem 2 of 2
Fuel $1500, insurance $1200, maintenance $600. Annual running cost in dollars?
dollars
The Real Price
1 of 8
A $30000 car loses 20% in year one. Loss in dollars?
2 of 8
That car is now worth how much, in dollars?
3 of 8
Fuel $1800, insurance $1000, maintenance $700. Total in dollars?
4 of 8
$350 a month for 60 months. Total paid in dollars?
5 of 8
Total costs $40000 over 5 years. Cost per year in dollars?
6 of 8
A $20000 car losing 15% in year one. Loss in dollars?
7 of 8
Which belong in the total cost of owning a car?
8 of 8
A $16000 car losing 25% in year one. Loss in dollars?
Step 5: Quick Check
Show what you know.
Question 1 of 2
A $25000 car loses 20% in year one. Loss in dollars?
Question 2 of 2
Why is negotiating on the monthly payment risky?
What You Learned
- A car costs its price plus depreciation, fuel, insurance, maintenance and interest.
- A new car commonly loses 20% of its value in the first year.
- Compare cars on total cost per year, not on the monthly payment.