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Hidden costs of a new car can add 60% to the purchase price over five years
The total cost of owning a vehicle goes far beyond the showroom price. According to experts, over five years of use, with depreciation, fuel, insurance, maintenance and tire costs, the total cost can exceed the purchase price by 40 to 60 percent.
Focusing solely on the sticker price when buying a car can lead to major budget surprises. The real cost of car ownership consists of hidden expenses that start the moment you drive off the lot and accumulate over the years.
The Biggest Item: Depreciation
Depreciation, which begins the moment a new car is purchased, is the largest component of total cost. According to experts, the decline in a car's market value over the first five years accounts for 40 to 50 percent of the total cost of ownership. A car loses 15 to 20 percent of its value as soon as it leaves the showroom. In subsequent years, it continues to depreciate at an average annual rate of 10 to 15 percent. By the end of the fifth year, most cars have lost 50 to 60 percent of their purchase price. For example, a car bought for $30,000 can only be sold for between $13,500 and $15,000 after five years.
Recurring Costs: Insurance and Fuel
Comprehensive and mandatory traffic insurance are another significant cost of car ownership. The annual premium for comprehensive insurance ranges from 3 to 5 percent of the car's current value. Total insurance premiums paid over five years can reach 15 to 20 percent of the car's initial purchase price. Insurance costs are shaped by factors such as the car's model, the driver's age and driving record.
For gasoline or diesel vehicles, fuel costs account for 20 to 25 percent of the five-year total cost. A driver averaging 15,000 to 20,000 kilometers per year spends more than one-fifth of the car's purchase price on fuel over five years. Electric vehicles can reduce this cost by 40 to 50 percent when charged at home, but in some markets they may depreciate faster.
Maintenance, Repairs and Tires
During the warranty period, scheduled maintenance and repairs are usually covered by the manufacturer, but consumables still cost money. Once the warranty expires, replacing mechanical parts such as brake pads, discs and suspension components increases costs. Maintenance and repairs account for 7 to 10 percent of the total five-year ownership cost.
Tires, often overlooked by buyers, are a critical safety expense. A set of tires typically lasts between 40,000 and 60,000 kilometers, depending on climate conditions. That translates to 2-3 years of normal use, requiring at least two tire replacements in five years. Tire costs add an extra burden of $600 to $2,500 depending on the vehicle type and wheel size.
Expert Advice
Engineer Cihad Muhammed el-Beşir, manager of a major service center in Qatar, stresses the need to focus on total cost of ownership when buying a car. El-Beşir recommends choosing models with high resale value and a strong reliability record.
He also notes that buying a one-year-old used car in good condition is a smart strategy to avoid the sharp 20 percent depreciation in the first year. Comparing insurance quotes before purchase and reassessing them annually, as well as selecting only the features you need, also yields savings.
The expert adds that keeping the car as long as possible reduces costs, and that the first five years are the most efficient period in terms of total cost.
In conclusion, a car's purchase price is just the tip of the iceberg. With depreciation and fuel costs making up more than 70 percent of total cost, the most important criterion for an informed buyer is not the lowest purchase price but the lowest total cost of ownership over the long term.
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