Q1. Which Of The Following Is Not A Cost Typically Associated With Owning A Car?
Option A – Fuel
Option B – Insurance
Option C – Wear And Tear Fees
Option D – Maintenance
The correct answer to this question is Option C – Wear And Tear Fees
While you own a car, a myriad of associated costs tends to chase you. Some of these include insurance, routine maintenance, cost of driver, fuel, depreciation, and others. Furthermore, there are some costs that are related to owning a car but not associated with it. “Wear and Tear fees” is one such type of cost. It’s not considered to be a part of the car-owning cost.
But do you know the reason behind it? Well, I am sure you don’t and that’s why you’re here. Keep reading to get the answer: Which Of The Following Is Not A Cost Typically Associated With Owning A Car?
Factors That Affect The Costs Of Owning A Car
If you want to create your auto budget (or you want to buy a car soon), you might want to be aware of factors that affect the cost of a car. There are a variety of factors that affect the cost of ownership of a car, Hence, it can be difficult for an individual to know the cost of a car.
According to NerdWallet,
“The average monthly payment on a new car was $726 in the third quarter of 2023, according to credit reporting agency Experian. Leasing a new car was cheaper at $597 a month, and owning a used car was the cheapest option, with an average monthly payment of $533. Regardless of your choice, you’re still likely to be paying over $500 a month whether you finance or lease a vehicle.”
Apart from that, there are also other costs associated with the ownership of a car. You will also need to consider the interest on the car loan, the depreciation of the car, maintenance, insurance, fees, and many more factors. If you drive a new car 15k miles, the ownership of the car costs more than $12,000 a year, which is more than $1,000 per month. This is a huge cost to bear.
The following are some of the major factors that affect the cost of a car:
- Fuel: Due to the high price of fuel, this becomes the most important factor that affects the price of owning a car. Furthermore, the variability of the fuel prices also adds to the woes of the car owner.
- Maintenance and Repairs: Although the cost of maintenance and repairs is not high, it still matters. Some of the common maintenance costs you need to worry about include engine oils, tire rotations, and repair of other parts of the car.
- Taxes, Registration, And Fees: An average car owner in the United States pays a fee of $762 (as of 2023) for license, registration, and taxes. Also, based on the sate you live in, the amount might change.
- Insurance: No matter which state you are in, your car needs insurance coverage. The average annual insurance premium for cars is $1,765. Apart from that, the cost of insurance also depends upon a lot of factors – your age, type of car, driving record, location, etc.
- Depreciation: Since cars lose their value over time, it affects their cost of ownership. However, nowadays, with new cars, depreciation is not as quick as in earlier days. In the first year itself, a car loses 15-20% of its value. Over the next four years, cars lose 15% per year.
Typical Costs Of Owning A Car
We all know how much money we have to spend on commuting by public transport. In metropolitan areas, the fares of public vehicles are quite higher. Several people tend to purchase their own vehicles with the hope of reducing the cost. But ultimately, they can’t since mountainous costs are also related to it.
Here is a list of all the fixed and variable costs associated with the ownership of car:
These are the costs that remain more or less the same and do not undergo changes with the passage of time. Take a look at the types of fixed costs below:
- Loan Costs: Loan costs belong to the category of car finance which comprises various financial products. These amounts allow people to acquire a car either by a single payment or an arrangement of periodical payments.
- Car Acquisition: The cost of purchasing or acquiring a car is itself a cost that is the most immediate and the most shallow cost.
- Depreciation: The annual depreciation of a car is the amount whose value diminishes per year. Normally, the value of a car is correlated to its price in the market. However, the median depreciation of a car is around 15% to 20% every year.
- Insurance: Insurance provides a financial safeguard against physical damage or bodily injury resulting from traffic collisions.
- Driving License: A driving license is legal permission to drive a car. You need to pay certain amounts to the federal government to create this document.
- Cost Of Capital: The cost of capital is the amount the car owner could have obtained if they have used the money in any other worthy investment
- Car Tax: Car taxes include the money car owners have to pay the government. This includes vehicle taxes, road taxes, vehicle excise duty, etc.
Variable costs are those that change based on the total amount of output produced. Check out the variable cost related to owning a car below:
The maintenance cost of a car includes short-term or long-term maintenance fees. Theis cost might again be unpredictable and sometimes irregular based on the age of the car.
The fuel costs depend on four factors: distance traveled, the price paid for the fuel, energy efficiency, and type of driving.
The parking cost includes the amount the user has to pay for parking their car. This is applicable to offices, shopping centers, public buildings, etc.
Toll taxes apply to bridges, tunnels, and motorways as well as for access to some specific cities like New York and Los Angeles. Again, this may vary as per the state and federal laws.
A traffic ticket or traffic fine is issued by law enforcement officials to the car owners violating the traffic laws. These fines imply the payment of a specific quantity of money which may change as per the extent of the violation and state laws.
6. Car Washes
The cost of car washes depends on the frequency of the users cleaning their cars and the price they are incurring for each cleaning.
The Explanation- Which Of The Following Is Not A Cost Typically Associated With Owning A Car?
Which Of The Following Is Not A Cost Typically Associated With Owning A Car? The answer to this question is Wear and Tear Fees. It’s not associated with owning a car. Wear and tear basically refer to the damage caused due to the normal aging of the vehicle. Basically, the Warranty contracts that car manufacturers issue highlight that damage due to wear and tear of the vehicle would not become under warranty. The most common instances are dents, scrapes, and scratches.
However, if you are leasing a car, then for a specific amount of wear and tear due to usage and the aging of the car, you will be charged wear and tear fees. If you are taking a car on lease or buying a leased car, then we suggest going through the leasing company agreement thoroughly.
- If you are Planning on taking a car on a lease, then you should do it by carefully evaluating a car.
- If you are returning a car at the end of the lease, and you are returning it with wear and tear, then the leasing company will ask you for wear and tear fees.
- But, if you are buying a leased car at the end of the lease, then you have no need to pay for the wear and tear. Leasing companies do not care about the wear and tear fees when the lease wants to buy it.
Usually, wears and tear on a car, to some extent, are overlooked. However, if you feel that you are being charged excessively for wear and tear on the leased car, then you should ask the leasing company for a detailed list of different wear and tear and repair costs.
Normal Wear & Tear Fees
When leasing a car, a lease should have a contract describing the normal wear and tear on the car. These wear and tear do not significantly reduce the price of the car. Some common examples of the same include –
- Light Bulbs
- Minor Scratches
Usually, these parts require regular maintenance and are replaced from time to time. However, if the car has more extensive damage caused by any accident, then you should repair them before returning the car to the leasing company. According to the lease contract, you have to carry complete coverage car insurance. It will cover these damages before you return the car.
Excess Wear & Tear Fees
Usually, the leasing company mentions the most common areas that are considered as excess wear & tear. The leasing company might outline the wears and tears with examples such as –
scratches, bumper damage, a bad color match, sanding marks, and damage in the body that is bigger than two inches in diameter.
You might get charged with excessive wear and tear fees if the condition is as follows –
When the deficiency in the actual value of the vehicle and its residual value is more than 3 of the base monthly payments, whether a vehicle is leased or purchased, excessive wear and tear can potentially decrease its value. So, it is crucial to evaluate the car before borrowing or purchasing it.
Frequently Asked Questions!! (FAQs):
Here are some popular questions related to owning a car and their answers –
Generally, the Wear and Tear fees are not associated with the charges of owning a car. Although these are supposed to be repair costs.
Running costs include the expenses spent on insurance repairs, services, maintenance, fuel, depreciation losses, and interest on loan payments.
The factors one should take into account for the car leasing charges are:
• Lease term
• Mileage Cap
• Early Termination fee
• Capital Cost Reduction
• Money Factor
• Capitalized Cost
On average, the total monthly cost of owning a car is $999.50. This includes mostly car insurance fuel, and monthly car loan repayment. On the other hand, the average monthly maintenance cost is $99.
Here Is A Wrap!
Which Of The Following Is Not A Cost Typically Associated With Owning A Car? You now know the answer; it’s wear and tear fees. So I hope next time while considering the costs of owning cars, you won’t face any more confusion. It’s the car manufacturers who opt out of the damage expenses from the warranty coverage. However, in the cases where the damage is there from the beginning of the purchase, the companies will make an exception.