Understanding Car Ownership Costs: Best Strategies to Save Money

Car ownership goes beyond merely paying the sum for procurement: it involves investment in proper maintenance of the vehicle, among other essentials. 

That is true about most modern cars, whether purchased, new or second hand. To help you better understand the true cost of ownership of a car, here is a list of expenses, both minor and major, that you may incur in its lifetime. Even though this list is comprehensive, it does not cover untimely or unexpected expenses that some owners may face.

Breakdown of Car Ownership Costs

Price

The biggest expense of car ownership is the upfront purchase cost. It is also the one which loses value the quickest in the form of depreciation. A car's sticker price is not just the manufacturer's cost but also multiple forms of taxation, which depend on the car's length, body style, engine size, and base price. Another factor that varies the taxes on a car is whether it's produced in India, imported but assembled locally, or completely manufactured outside the country. In the case of used cars, factors like the original price, age, condition, mileage, and market demand define the price tag.

Insurance

A car isn't road-legal if it doesn't have a valid insurance policy, but the importance of insurance goes beyond just paperwork. It can prove to be a lifesaver, especially in the case of an unfortunate incident. The right policy can save you from a wide variety of hassles not limited to getting your car repaired, covering the expenses of others involved in the accident, and even providing immediate roadside assistance.

The insurance premium is based on the vehicle's IDV (insurance declared value), the kind of vehicle, its age, engine size, etc. There are two types of insurance: third-party and comprehensive. Third-party insurance is a basic legal formality and covers only the cost of repairs of the other car involved in a crash. Comprehensive insurance covers damage repair for your car, too. Additionally, there is Zero Depreciation (Zero Dep) insurance, which can be added to your policy, specifically for new cars typically within the first 2 to 5 years of the vehicle’s life. Zero Dep insurance ensures that the depreciation of car parts is not deducted from your claim amount, meaning you get the full value of the parts in case of damage or total loss, making it a valuable option for those with newer vehicles.

A car's insurance premium will reduce as it ages, as its IDV decreases. So, you can safely assume that a used car will have a lower insurance premium than a new one — comparing the same model. A no-claims bonus is a component passed on to the owner as a benefit if they don't make an insurance claim. This component lowers the premium every year.

It is important to read between the fine print  to keep a check on the premium. Be mindful of the extra inclusions as they tend to shoot the premium up. Having said that, some of these are extremely important — like additional coverage for the engine, zero depreciation component . 

Modifications, too, can increase the premium, as it's considered a component above the car's IDV. Choosing the right insurance provider is also crucial, as they're the ones facilitating your car's coverage and facilitating repairs, too.

Registration and Taxes

A new car is only deemed legal once it has been registered. . The registration cost, road tax, and insurance, among other expenses, which add to the car's ex-showroom price, collectively makes up  the on-road cost. Road tax is a substantial component, ranging from anywhere between 2.5 per cent of the car's ex-showroom cost to as much as 18 per cent, depending on the car's make, and place of registration.

In the case of used cars, while registration and road tax are dealt with already, if the car is going to be re-registered or moved to a different state, there's an additional expense. If you're in the same state as the car's original registration, the post-purchase expense is merely for the transfer of ownership.

Maintenance and Repairs

Car maintenance is another critical component that adds to the cost of ownership. . Following the first few free services, car owners can pay anywhere from a few thousand every year, to well in lakhs for premium and luxury cars, just on routine services. 

Extending service plans might come at a cost, but those ensure that you don't have to pay for anything major from your pocket. It's a pretty viable solution for premium cars.

In addition to maintenance and repairs, there are part replacements. For instance, the battery is a component that requires timely replacement. Tyres are another, especially if you use your car a lot. 

Following a service/maintenance schedule suggested by the manufacturer can keep the car in good condition and avoid major repair costs. Additionally, it is a good idea to keep an eye on critical parts and gauge their remaining life. Parts should be replaced once they have reached end of life, and not before, to avoid unnecessary costs.

Running Costs

The most major recurring costs of owning a car are fuel, parking, and toll costs. Depending on your daily running distance, and type of roads where the car is driven, such as city or highway. City driven cars tend to consume more fuel, due to the stop and go nature of the traffic, whereas cars deliver a better mileage on the highway due to constant speeds. However, driving on highways may have you encounter tolls, which is a cost that you wont face in city driving. Similarly, travelling through cities may involve paying for parking, another cost that may not be present on the highways. All these costs are also included in the cost of ownership of a car.

Depreciation and Other Costs

Most cars tend to lose some value the moment they leave the dealership, with the first year of ownership bringing the biggest dip. This phenomenon is called depreciation, and it affects nearly all new cars. While it's not exactly a cost incurred by the owner on a daily basis, it needs to be accounted for, especially if you intend to sell the car in the future. Used cars don't suffer from depreciation as adversely as new cars, but their values drop, too. This means a used car that you buy today is unlikely to fetch you the same money down the line.

Cost Comparison: New vs. Used Cars

The major difference between new and used is the cost-benefit. Used cars have lower insurance, and if the car's still covered under warranty or an extended service plan, you won't have to worry about maintenance expenses either.

Tips to Reduce Car Ownership Costs

The best way to make car ownership easy on the pocket is by identifying the expenses that are avoidable. For example, pay-as-you-drive insurance can be beneficial for cars that are used very occasionally. 

Staying away from modifications and refraining from making an insurance claim for small repairs will also be beneficial.

Timely service is key, but moving to a trustworthy neighbourhood garage instead of the authorised service centre is another way to save money, especially if your car is out of warranty and its parts are easily available. 

Tools to Estimate Car Ownership Costs

There's a variety of tools available online which let you estimate the total cost of ownership (TCO)of your car, calculated on the basis of the car you drive and your monthly mileage. These TCO tools can give you a good estimate of what your costs may look like, but bear in mind miscellaneous and unforeseen expenses cannot be accounted for, and a buffer must be taken into account for the same.  

Regional Considerations

Car ownership also depends on geographical and regional factors. For instance, if the RTO imposes more taxes in your state, the purchase price of a new car becomes higher. This usually gets transferred to used car prices.

Similarly, the everyday driving conditions are also going to change how expensive it is to own a car. Driving in the plains, for instance, is bound to be slightly more economical than in a hill station where you're constantly shuffling between lower gears. 

On the other hand, if you're in a traffic-prone area or your commute involves a lot of stop-go traffic, the average fuel consumption is bound to increase. Another regional difference that will affect the overall ownership cost is the price of fuel in your state or union territory.

Conclusion

Owning a car — new or used — is bound to add to your monthly expenses. But if personal transportation is a necessity, then the points mentioned above can keep a check on the money you spend.