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The real cost of owning a car

Owning a car is more than just making the monthly payment. Remember to factor in expenses like gas, insurance, repairs, maintenance, and registration. All these extra costs make the car more expensive in the long run. Created by Sal Khan.

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Video transcript

- So let's think about all of the costs that are involved in buying the car. First and most obvious, what is the cost of the car itself? Now, it's really important to think about what the actual cost of the car is, 'cause you might say, okay, there's car A that costs $25,000, and Car B costs $30,000, car B is the more expensive car. But that's not always the case, because you are unlikely to just drive that car until it stops working, although some people might do that. What you're probably going to do is drive it for five years, 10 years, and then sell the car. So what you really want to think about is not just what you're paying up front when you get it for the first time, whether you're buying a new or used car, but also when you are selling it, what's it likely to go for? Now, it's impossible to predict the future, but you can look historically for that make and model that whether it has good depreciation, whether it doesn't decrease in value too fast, whether it has good resale value. And generally speaking, practical cars, with good fuel mileage, that a lot of people are interested in getting, that are reliable, tend to have good resale value. While cars that are a little bit more unusual, maybe less practical, and a lot less reliable, they tend to depreciate very, very quickly and have not so good resale value. Now, once you think about the depreciation of the car, and in other videos we talk about if you're financing, if you're getting a loan for the car, the different costs there, then you have to think about the cost of the day-to-day of owning the car. The most obvious one is, what does that car use for fuel? In most cases, even today, gas is what most folks are using. And so you have to think about what is going to be the gas consumption of that car? You can think about how much you're likely to use it, how much mileage a week or per month, and then think about what is the gas mileage for that car? There's a big difference between a car that gets 15 miles a gallon and that gets 30 miles a gallon, obviously it's a factor of two. Now, there's sometimes a misconception that the more cylinders a car has, the better, maybe it's more powerful, maybe it's smoother, that's not really the case, and in many cases, all you're getting is less fuel efficiency. But probably the thing that's most affecting fuel efficiency is just the size of the car, just the physics of it. If it's a big car with a lot of mass, it's gonna take more energy to get that thing accelerating and decelerating. It also matters how you drive, if you always drive with a heavy foot and you're accelerating and decelerating a lot, you're also gonna use more fuel. But when you're thinking about picking the car versus thinking about how you're gonna drive, think about that gas mileage, it will really add up. Now, obviously now we have hybrid cars, which have much better gas mileage, and now you have electric cars. Electric cars, there still is a cost, although it's usually lower, it's still going to hit your electricity bill if you're charging it at home, or you might have to pay for chargers, although some people might have access to chargers at work or something where you don't have to pay for it, but definitely keep that in mind. Now, the next factor is insurance. Now, insurance is gonna be related to your driving record, and your age and other things, but it's also gonna be related to the type of car you are driving. Once again, if you are driving a practical car, that tends to be less flashy, insurers, they do all the statistics and they say, well, people who drive that type of car tend to get into less accidents or less costly accidents, well, we can afford to charge less for insurance. So there's oftentimes a little bit of a connection between that and cars that have good resale value. But definitely, when you're thinking about what you can afford for your car, it's not just a monthly payment, it's the gas and it's the insurance. Now, above insurance, you also have maintenance and repairs, and this is once again another reason to get a reliable car. Now, some cars might come with a warranty, that definitely has value, but the best thing is look for a car that doesn't tend to require a lot of maintenance, or is very reliable generally, so you don't have to do some major car repairs. And also look at what type of those repairs are. I won't name any names, but certain makes and models, the same repair can cost dramatically more than other makes and models. Now, you also have registration and other fees and taxes that you will have to pay depending on your state, but it usually amounts to several hundred dollars per year. So put that into consideration. And then last but not least, especially if you're living in an urban area, you have to think about where you're gonna put your car. You might wanna do it for security reasons or you just need a place to put it, and so parking is another thing that you might have to factor in, if that's something you need to do. So before you buy a car, think about all of those things and put that into your budget, because you don't want to be surprised after you get your car.