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The Hidden Costs Of Owning A Car
●June 11, 2021●5 minute read
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Owning a car can provide freedom and independence. It saves you time, and offers privacy and safety that public transportation cannot. However, car ownership also comes with hidden running costs which are easily overlooked. The average annual cost of owning a car is over $6,000 per year; as such, it’s important to break down these costs before deciding if owning a car is right for you.
Pre-Purchase Costs Of Buying A Car
There are many costs to consider before purchasing a car. Initially, you should decide whether you’re wanting a new or a second-hand car. This can affect the purchase price and ongoing costs.
Below, we break down the pre-purchase costs you can expect when buying a car:
If this is your first time driving, you will need to apply for an Australian driver’s license. Alternatively, your current driver’s license may need renewing around the same time you buy a car. In Australia, both the application and renewal processes can cost hundreds of dollars alone. Each state has different renewal fees, so it’s important you check which are relevant to you.
Second-Hand Vehicle Reports
It’s a good idea to get a professional inspection before buying a second-hand car. This can be done through your local mechanic, or through state motoring clubs such as the RACQ and RACV. This inspection will ensure there are no defects with the car before you buy it.
You can also pay a small fee to get a car history report online. Personal Properties Security Registry (PPSR) gives you a security report that checks if the previous owner still owes money on the car. If the previous owner defaults on their loan, the car can be repossessed even after you have gained ownership. You can also pay more to get a comprehensive report which outlines the car’s financial history. This report outlines:
- The car’s estimated valuation;
- Odometer check;
- Discloses write-off history;
- Discloses any illegal activity.
These checks may seem time consuming, but they are the most important way you can make sure you’re getting a reliable vehicle.
Ongoing Costs of Owning A Car
While you may have enough money to cover the cost of buying a car, there are many ongoing costs to consider:
In Australia, you have to register your car before it’s allowed on the road. Each state has its own registration laws, so it’s important to check those that apply to your situation. Vehicle registration is an ongoing payment that lasts for the lifetime of your vehicle. You can either pay the full amount each year, or opt to pay in bi-annual (six-month) instalments. Your registration costs depend on the following:
- The car’s value;
- Your postcode;
- In some states, the car’s engine size.
When buying a second-hand car, you should also consider the costs of transferring registration from the previous owner. This includes stamp duty costs, which are one-off tax based either on the market value of the car, or the amount you’re paying for it – whichever is higher. You can calculate your estimated stamp duty payments here.
Additionally, you should check how much registration remains on the car. If it’s nearing expiration, you will have to fork out registration money sooner than expected.
In Australia, your car needs to have Compulsory Third Party (CTP) insurance. This covers personal injuries to both yourself and others in the event of an accident. In Victoria, Tasmania, South Australia, and Western Australia, CTP is included in your annual registration fee. However, Queensland and New South Wales drivers need to pay for CTP separately to their registration.
Third party car insurance is one type of insurance offered to drivers. In the event of an accident, this insurance will cover you for damages caused to other vehicles. However, it won’t cover your own expenses if your vehicle is damaged.
Comprehensive car insurance is the most popular type of vehicle insurance. In the event of an accident, comprehensive insurance covers your own vehicle damages, as well as other involved vehicles. This is the most secure type of insurance, as it has the lowest out-of-pocket expense if you do have an accident.
The cost of insurance varies from person to person. On average, annual insurance can cost over $800. However, many car owners don’t shop around when buying insurance, meaning they usually lose out on big savings. If you have another type of insurance, like house or travel insurance, some providers will offer you discounted car insurance.
Factors which influence insurance cost include:
- The car’s model and make;
- The car’s year model;
- Your age;
- Your gender;
- Your driving record;
- Where you store your car overnight.
If you have a healthcare card, or a household income of less than $48,000 a year, you may be eligible for Essential by AAI. This offers eligible drivers financial assistance for car insurance, and breaks down payments by fortnight, month, or year.
Maintenance and Depreciation
Car maintenance includes mechanical services and general repairs, like tyre and damage repair.
- Servicing: Most cars need servicing once per year, which usually costs upwards of $400. This increases significantly based on the car’s model, year, and odometer reading.
- Petrol: Depending on how often you drive, you will have to fork out an average of $50 per week to fill a petrol hatchback. This adds up to a substantial amount each year.
- Roadside assistance: You should consider paying for roadside assistance, in case of an emergency. This covers tyre changes, emergency fuel, battery replacement, and much more. You can get roadside assistance through your state’s motoring club, like the RACQ in Queensland.
Cars typically have a very high rate of depreciation. This means that, from the time of purchase, their value decreases substantially each year. Many factors contribute to vehicle depreciation, including:
- The car’s age;
- Fuel efficiency;
- Make and model;
- Maintenance quality;
- The car’s interior and exterior condition.
To help reduce your car’s depreciation, you should keep the car’s interior and exterior in good condition. You should also stay up-to-date with regular services.
Depending on how you use your car, you may have to consider road tolls and paid parking when factoring in driving into your schedule. These payments can quickly add up and cost you a fair amount of money.
Additionally, if you’ve taken out a loan for your vehicle, you need to factor in regular repayments. In Australia, 1 in 5 new cars are purchased with a loan – so it can be important to consider these extra costs if you’re planning on taking out a loan. You can calculate your repayments here.
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Written by Katie Francis
Katie Francis is a Content Intern at Jacaranda Finance. She is currently studying a Bachelor of Business (Marketing)/Media & Communications at the Queensland University of Technology.