Budgeting for post-purchase costs

Buying a second-hand car more often than not makes good sense.

While buying a brand-new can be a joy-filled and “look at me, I’ve got a new car” experience, it can be hard to reconcile in a financial sense. For example, depreciation can be substantial – perhaps 20 per cent, the moment you drive it off the lot.

Canny car buyers (new or used) factor in hidden costs like depreciation. They also make sure they budget for the full spectrum of post-purchase outgoings. If you’re not careful, much of what you’ve saved can disappear quickly into a whirl of post-purchase running costs.

With smart buying in mind, here are five costs to watch for once you’ve purchased your ‘pre-loved car’.

Finance

Even when buying a used car, it’s likely there’s going to be a loan involved. A car loan generally offers lower interest than a personal loan (as it’s secured by the vehicle itself) but like a home mortgage, there’s often a choice of variable or fixed interest. The former lacks payment certainty, given that rates can rise without much warning, but may have better early payout options.

On the other hand, fixed interest loans lock you into a payment plan (and generally a timeframe, too) and allows a bit of forward planning.

Checking that the car isn’t already tied to an existing loan is a good idea (ww.ppsr.gov.au), particularly if buying privately. Paying your own loan is painful enough, without paying someone else’s…

Registration

Different states offer alternative plans for the yearly chunk of change required to keep your new pride and joy on the bitumen legally.

Where choice is offered, paying your rego annually rather than via the month can save a small amount ($35 on a $862 registration charge in South Australia, for example). South Australia also includes the compulsory third party insurance in its registration, but more on that shortly.

Personalised numberplates add as much as $400 per year to the running costs for your vehicle, so it’s worth considering comparisons between the default driver plates and personalised plates when it comes to value for money.

Much of the paying part (and in most cases registration and renewals) can now be done entirely online via desktop and smartphone apps. Taking a number and spending half a day waiting at the motor registry is largely, thankfully, a thing of the past.

Insurance

Car insurance is one of the most important forms of protection you can invest in.

The must-have if you don’t want to potentially ruin yourself financially is compulsory third party (CTP) insurance. It’s included with some states’ registration but most of the country requires it to be sorted by the car’s owner.

CTP covers you for injury claims that can potentially run into the millions if, for example, your car somehow hurts someone in an accident. CTP quotes can be chosen online from a list of providers in each state.

The next level of insurance you should seriously consider is comprehensive coverage. This means even if you’re in an accident that isn’t your fault, your car will be repaired, or replaced.

Online comparison tools such as that provided by Budget Direct can help you through the swings and roundabouts of balancing out your insurance needs.

Insurance costs can be reduced with secure parking, not letting high-risk age group drivers near your car, and keeping your clean driving record.

Fuel

Given that the average Australian spends around $140 a month on fuel (according to www.canstarblue.com.au), it’s worth shopping around. Fuel-price apps and fuel-watch websites can alert you to the fuel price cycle -- so you’re filling up on the cheapest day of the week.

Smart supermarket shopping will also deliver lower fuel costs, as will smart driving habits. Rolling up to a red light (rather than a severe stop) and gentle acceleration both make a difference. Other tips include not running the air conditioning all the time and removing unnecessary weight from the vehicle.

Of course, buying the right vehicle in the first place also has a bearing on the charges at the bowser. That V8 might sound great and be cheap to buy in the first place, but drive it hard and the fuel used can quickly become more costly.

Regularly checking your oil, tyres and water are some simple things that can prevent serious failures, as well as reduce your running costs.

Incorrect pressures can make your tyres wear out more quickly and increase your fuel use (as well as being dangerous). Regular servicing is also important to minimise more serious problems and it doesn’t have to be done at the dealership, unless there’s a capped-price servicing deal involved.

If you’ve purchased an extended warranty with your new car, it may require the vehicle be serviced by the dealer. These warranties also have exclusions, so taking time to read the terms and conditions is worthwhile.

If the car you are purchasing is approaching a milestone (eg: 100,000 or 120,000km) it is likely to need a major (read: expensive) service. Examine those service records, and proceed with caution.