Salespeople tend to avoid telling you about the total cost of ownership. Car dealers only want to talk about your monthly payments. Real estate agents and brokers only talk about mortgage payments. There are many expenses attached to buying a car than its payment and to buying a house than its mortgage.
“Total cost of ownership (TCO) is the cost of buying a product plus the cost of owning it until you sell it or it is no longer useful”, Save Invest Compound. If you buy a car, your total cost of ownership includes, car payments, interest on the loan, extended warranty, insurance, CAA, fuel, insurance, accessories, parking, maintenance, and repair. If you decided to buy a car based solely on whether you can afford the car payments, the shortfall will strain your finances and cause unnecessary stress. Lets calculate the monthly cost of buying a $30,000 car purchased with 5% loan with 5 year (60 months) payments.
- Car payments: $640
- CAA cost: $15
- Insurance Cost: $150
- Maintenance: $50
- Repair $0
- Fuel: $100
- Parking: $100
- Car wash: $20
The total cost of ownership comes to $1070 per month, 67% more than what the salesperson was telling you.
So many people slide into debt with purchases they thought they could afford. These are people who are responsible with money and don’t abuse their credit cards or a indulge in frivolous spending. They are stuck with houses they cannot afford, vehicles they cannot afford, furniture they cannot afford.
Calculate the total cost of ownership so that you don’t find yourself in debt for purchases you cannot afford.
