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Considerations When Contemplating A Car Investment

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Considerations When Contemplating A Car Investment

No doubt, the cost of a motor vehicle varies depending on model type, how you accessorize (i.e., the color of the vehicle, the material of the seats, including a television or a sunroof, etc.) and fuel economy. Hyundai's Accent, Chevy's Spark, Ford's Fiesta and Kia's Rio consistently rank among the least expensive vehicles overall. However, even when you drive an economical car such as one of these, there are some not-so-evident factors to consider when investing in a vehicle.

To Lease Or Not To Lease?

This really is the question. And, a word from the wise, ask it before you consider any of the other financial facets associated with a vehicle. Typically, dealerships offer mileage leasing rate package options of or around 12,000, 15,000 or 18,000 miles per year with the option to lease for 12 months, 24 months or 36 months (with some money down).

If you believe you will use more than a contract's allotted mileage, you may want to consider purchasing the vehicle instead. Adding mileage can be very expensive, as much as 25 cents a mile according to LeaseGuide.com. Breaking a lease is also costly, especially if you decide to do so with several months or years left on the contract. According to Bankrate, a dealership can charge the leaser as much as the remaining cost of the lease set by the outstanding months.

Alternatively, if you are not able to pay much up front when purchasing a car and, as a result, plan to pay it off over a long period of time, the associated interest may end up costing you much more than the lease.

The Downside Of Depreciation

A car is an asset, but like any asset, it will depreciate. In fact, it depreciates the moment the car is driven off of the dealership's lot after purchase. According to CarFax, it is at this very point that the vehicle depreciates by about 10 percent. Depreciation is the reason why a longer lease and higher mileage options cost more. When the car is returned to the lender, the leaser cannot sell the vehicle back for as much as it could with a low mileage option and a shorter lease.

Taxes, Registration And Other Fees, Oh My!

Most states require vehicles to be taxed. While its fairly intuitive that the higher the price of the car, the higher the tax rate, it is also important to consider the price of registration, a license and a plate varies from state to state. You must also renew your registration and license annually, which could cost upward of $100.

The Imperfections Of Insurance

The higher the price of your vehicle, typically, the higher the price of your insurance. Price also varies by insurance agency. Additionally, the more accidents on your record, the higher your insurance premium because you are considered more of a liability to the insurer. According to CBS News, factors that influence the rate at which one's insurance jumps as a result of an accident include whether or not they were at fault, their past accident history, the state in which the accident occurs, how much one claims and how long you've been a licensed driver. According to Insure.com, the national average of insurance premiums just a few months ago was $1,325. Twenty states are above this average.

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Source: Claire Kenney

The Mania Of Maintenance

Regular oil changes are a must for cars, which typically cost about $30 with a tire rotation. However, there are pricier costs associated with maintenance that one must account for, including brakes, the transmission and tires. The mileage at which parts need to be replaced depends on the vehicle model.

So, when making your next vehicle investment, consider these perhaps not-so-obvious costs. Not doing so may cause your finances to swerve off road.

 

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