Here’s the Most Important Factor You’re Not Considering When Car Shopping

Car Miles Are Important.  But How Many Miles You’ll Add To The Car Is More Important

 

Cars are a big marketing game, and they seduce all of us (including me). We see the commercials, we see the billboards, and we even see them parked at the dealerships. Then, we see our neighbors, and our co-workers, and everyone else in town cruising the circuit in the latest and greatest model. And this cycle continues annually, as each new model gets a series of new fools that stop in for a test drive and buy these new cars off the lot.

 

But we’re losing foresight. Cars are overtaking our sense of priority. CNBC just reported that auto loans have hit a new high.  Consumers are averaging monthly bills of over $500, while signing loan terms for 68 months.  This is financial insanity.  The seduction is consuming our financial integrity and prosperity.  And it’s because we’re not considering this hyper-important question when we car-shop:

How Many Miles Will I Drive This Car?

Car mileage is how we gauge a car’s age. Years are deceiving. Because a 2010 car with 200,000 miles, may be in worst condition than a 2001 car with 100,000 miles. But when shopping, all we look for is how many miles are currently on the car, and the year of the car.  When in reality, we also need to consider how many miles we hope to drive the car for.

And here’s why:

In 2015 I needed a new car.  My current car (at the time), a 1996 Geo Prism with 270,000 miles, was reaching its life span.  The car was serviceable, and dependable, and I only paid $900 for it and got 40,000 miles out of it.  And that’s what I wanted again; a dependable vehicle that provided great value for a great price.  So I created a car-cost-calculator to help find another valuable car for a great price.  And here’s what I factored when making the calculator:

  • Longevity Expectations:
    • How many total miles will I drive:  This is the grand all question.  It lets us know how long you plan to own the car, how often you may need to service it, how much gas you’ll need, and most importantly, how much you’ll get out of it.
    • How many miles will I drive annually:  Factoring this number, with the total amount of miles will let us figure out the annual recurring expenses, such as registration, insurance, and assumed maintenance.
  • Cost Expectations:
    • What is the total purchase price of the car:  This should be self-explanatory.  But remember, if you’re financing a car, you need to consider the down payment, and all the monthly payments, and those lovely taxes.
    • What is the annual insurance cost
    • What is the annual repair, registration, and maintenance cost: This number is a guess.  But it’s better to be high, so that you give yourself an honest report
    • What is the car’s gas mileage

I ended up buying a used car off Craig’s List.  It was a 1997 Mazda Protege.  I paid $1500 for the car.  It had 114,000 miles, but was well maintained, so I could easily see myself tacking on another 100,000 miles.  I filled out longevity expectations and cost expectations, and these are my results:

car cost calculator

Based off my expectations for 100,000 miles, and driving about 25,000 miles per year, I will pay a total of $12,540 over 4 years.  This comes out to $0.13 per mile.  If you look through the Cost-Per Mile results, you’ll notice the biggest expense is gas, averaging about $0.08 per mile.  One factor that I will point out is that I buy minimum car insurance, which comes out to only $30 a month ($360 annually).  I’m not sure the cost for full-coverage, but the overall value of my car is less than the money I save buying minimum insurance.

So is $0.13 per mile a good cost?  I suspect it is.  But lets do a comparison.

Let’s say I was eyeing up something a little younger, something with a little more power, and I found something for $15,000 (including taxes and car payments).  And because the car is a little nicer, let’s say I wanted to bump up my insurance a little more, to protect my nicer, younger, more powerful vehicle.  And let’s say my new, younger, more powerful car gets less gas mileage to compensate the larger more powerful engine.  But, even though I want a younger, more powerful car, I still have the same longevity expectation of 100,000 miles.  Here are my results:

car cost calculator

So, by purchasing a $15,000 car, with more insurance coverage and lower gas mileage, we’re paying a total cost of $29,578 over 100,000 miles, which comes out to $0.29 per mile.  So when you compare the flashier, younger, more powerful car, with the 1997 Mazda Protege, you end up spending nearly $17,000 more dollars over 4 years.  But sometimes you need a newer, flashier car.  Maybe you have a sales job, where presentation and appearance influence your success.  If that’s the case, we’ll buy the same car, and apply the same insurance costs.  But, we’ll drive it 150,000 miles, instead of 100,000 miles, because 6 years (assuming you’re driving 25,000 miles annually) is still a short time to own a car.  Here are the results:

car cost calculator

By bumping up the total miles by 50,000 miles, we’re reducing the cost per mile to $0.24 per mile, which comes out to a total of $36,717 over 6 years.  This reduces our annual cost from $7,369 to $6,119.  So by adding 50,000 more miles to your car’s life span, you’re reducing your annual cost by about $1200, and reducing your cost per mile to $0.24.

So if you need a newer, more presentable car, then it’ll save you in the long run to own that car for a few more years.  But the key take-away is that you need to know how many miles you will own the car for.  If you owned that $15,000 car for only 50,000 miles, then you’re going to spend over $11,000 per year on that car, which comes out to $0.44 per mile!  Now, let’s look at the fools financing new cars.  If they’re paying $500 a month for 68 months, that’s $34,000.  And let’s assume they put a $3000 down payment on the car too.  And then, because the car is financed, they’ll need to obtain full coverage for the vehicle.  So let’s punch that into the calculator, with the same 100,000 mile expectations:

car cost calculator

The total cost of this brand new car balloons to $54,860 over 100,000 miles, which factors out to $0.55 per mile.  Full coverage auto insurance is usually about $100 per month.  But there’s probably a warranty, so you can expect less cost for repairs and maintenance.  That doesn’t outweigh the all the other factors.

So getting a car for $0.13 per mile is a great deal.  And if i’m able to add 125,000 or 150,000 miles, then my cost per mile will fall farther than that.  But you never know how many miles your car will actually last.  And you never know how much maintenance your car will actually need.  But based on the results, the biggest contributing factor to your cost per mile is your car’s purchase price.  So although all the other variables are unknown, you do have control over how much you’re willing to spend on a car.  And based on the results, never, ever finance a brand new car.

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