With high cost cars, expect to pay twice!
By Kevin M
Most of us dream of cars. Like the home we own and the clothes we wear, cars aren’t just something we drive—they seem to define us. If you are what you drive, then driving something better somehow makes us better. The nicer the car, the better. But nicer comes at a price, and usually a much bigger one than we imagine based on surface factors. High priced cars are even more expensive than we generally think.
When people shop for cars, the single most important affordability factor is usually the monthly payment. ”How much payment can I fit into my budget? is the question that dominates the numbers. For most us, if the monthly payment is a good fit, we just may have bought ourselves a car, what ever the total price may be.
But the cost of a car is more than a monthly payment. It’s even more than the total price.
Beyond price and payment are carrying costs—the ongoing expenses of keeping the car. The higher the price of the car up front, the higher the carrying costs. And it never gets better.
Before buying that high priced dream car, consider the costs that you’ll carry, over and above the higher price, down payment and monthly debt service…
Insurance. The value of your car has a pronounced affect on the amount you pay for car insurance. While your driving record may be the single biggest factor in determining your premiums, a close second is the cost of collision coverage, and that’s where the value of your car figures prominently.
And speaking of collision, if you’re looking to save money, it may be advisable to drop the coverage on a vehicle once it reaches a certain age. With a late model, high end car, that isn’t an option.
Repairs. The more expensive your car, the more it will cost to repair it. Some of it may be the greater complexity of high priced cars—maybe—but equally likely is the fact that you’ll pay more because the automobile repair world fully expect that people who can afford high priced cars can just as easily afford higher repair bills. I call that the “soak the Yuppie premium”. Expect to pay it for a high priced car.
Replacement costs. The first cousin of repair costs is replacement parts. Just as with a house or any other major asset, sooner or later, you’ll need start replacing components, and the more expensive the car, the more you can expect to pay for parts. Tires, damaged body parts, mechanical components—all will cost disproportionately more in a 2010 Mercedes than in a 2000 Toyota Camry.
Ad valorem taxes. This isn’t a universal cost, but here in Georgia, we have ad valorem taxes on our cars, and we’re not the only state. The tax is like an annual sales tax on the depreciated value of your vehicle. Since the value of your car drops every year, the tax declines each year. However, the cumulative affect of the tax is to add thousands of dollars to the cost of owning your car over its life. Obviously, the more expensive your vehicle at purchase, the more you’ll pay for the tax.
Not all of the higher costs of high end cars are financial. In fact, some of the heaviest burdens may have little to do with money.
Theft. Higher priced cars are generally greater targets for theft—and not just theft of the car itself either. A person getting out of a luxury car is a more prominent target as well. Even if your car is never stolen, or you’re never robbed getting out of it, you’ll carry a bigger burden just on the potential of what can happen. Is that something you want to worry about?
Dings and dents. High end cars don’t seem to wear dings and dents quite as well as less pricey models. If you’re driving a ten year old beater, one more ding probably won’t bother you much. But if your car is a $50,000 late model special, any scratch is likely to be deeply traumatic.
Parking. You have to worry where you park a high end car. You probably have to garage it at home, denying the true purpose of the 21st Century garage–extra storage space. (You may even be forced to pay real money to rent remote storage space, but I digress!)
Away from home, you may find yourself being more particular about where you park it. People with less costly vehicles can park anywhere they choose, but with a high cost car, you might find yourself parking far away from entrances (to avoid the aforementioned potential for dings and dents), double parking to avoid contact with other vehicles, or avoiding street parking or other unprotected spaces. Translation: loss of freedom.
Worry. While most of us like to celebrate our success by rewarding ourselves with bigger, nicer toys, it’s a point of fact that the more we have, the more we have to worry about. What’s the cost of worry? It’ll be different for each of us, but it’s a real cost in more ways than one.
Replacement. Without going into the monetary costs involved in replacement of a high end vehicle, few people can trade down on their cars. In fact, as with houses, most of us fully expect to trade up to something even better. Once you buy on the high end, you’re emotionally—if not financially—locked into that realm, and all the costs associated with it.
So with all this in mind, is a lower priced car—or even a used car—looking like the way to go?