The true costs of running a car

When you decide to buy a new car, it’s important to keep in mind more than just your monthly finance repayment. You’ll need to take into account the actual cost of running the car as well, which will involve a few surprise costs here and there.

We sat down with Michael Lindgren, CEO of Alliance Leasing, to discuss exactly what people should be looking out for when they’re buying a new car, and how much money they could be saving if they took out a novated lease.

So, what are these factors, and how do you spot them?

New is best

In days gone by, it was actually impressive when a car managed less than 15 litres per 100 kilometres in fuel consumption. It was even more pleasant if the annual service came out at less than $1,000. Now, with continuing development in the motoring arena, seeing fuel economy reaching closer to just 5 litres per 100 kilometres, and services under $500, cars are much more affordable to keep on the roads.

“The reason for this is that the car manufacturers are continually developing their cars to meet the market where things like fuel efficiency and emissions are in the spotlight,” said Michael.

“One of the most important things people overlook in the purchase of a car is the running costs.”

These running costs include things such as registration, a full tank of fuel and even something as simple as making sure the oil level is just right.

“Quite often we see older cars, say 2005-12 models, costing an absolute fortune to just keep on the road!  Even though the driver doesn’t owe any finance on the vehicle, the fact that it costs so much to run proves less financially sound than getting a new car on a novated lease.”

While a new car might seem like it’s out of your reach at the moment, if you have a vehicle that’s more than a decade old sitting in your driveway that costs an arm and a leg to keep driving along, you could actually be saving money with an upgrade.

You don’t have to go for the fanciest model on the market, but it would certainly pay to make the move to a more fuel efficient engine, and even one with fixed-price servicing cost.

What are the affordable options?

To help you make the right choice, below are a couple of options for new vehicles that would save you a significant amount of money in the long run, and even more with a novated lease. All of the models are new cars, and the costs of financing takes into account 20,000 kilometres travelled each year over a five-year novated lease period.

The benefits of a novated lease include that we factor in all of the running costs for your car each year based on the number of kilometres you’re going to be doing. These are things like:

  • Fuel,
  • Servicing,
  • Tyres,
  • Registration,
  • Insurance,
  • Roadside assistance, and
  • Finance.

1) Toyota Camry Altise

In order to keep things like the above in check each year, this car would cost around $6,000 to run annually. That’s just the running costs – and if finance is set at $470, you’ll be spending $970 on the car every month, instead of just the $470 you thought you needed in your budget.

With a novated lease, however, as you’re going to be paying off these things pre-tax from your salary, the same car, with the same conditions, would only end up costing you $771 per month. That’s a $200 saving, and it might mean a few more nice dinners out!

2) Mazda 3 Max Hatch

Another car that’s perfect for the family, or even for the kids as a cheap runabout vehicle, is the Mazda 3.

It’ll also work out to be cheaper than the above Camry, as it’s smaller and won’t wear as hard. Monthly running costs would equate to $460, with $420 going toward the finance of the car as well. That’s $880 a month, but on a novated lease, the figure would only come out to $700 because of pre-tax payments. Simple.

A photo posted by Mazda Australia (@mazdaaus) on

Do luxury cars differ?

It might not seem like it, but the costs of running a luxury car are not at all dissimilar to the costs of a more affordable family car. This is because the luxury manufacturers have spent a lot of time ensuring their new vehicles are fuel efficient and only require a service once a year.

Take the below options as examples, and you’ll notice that it’s not the running costs that change, but the monthly finance payments. If you can afford it, then getting into a luxury car won’t mean paying more to run your car, so it could end up being much more accessible.

1) Audi A4

A staple of the Audi range, this is a car that you’ll see a lot of around the country. There’s good reason for this, as it’s reliable and affordable, while maintaining that style and class that the marque always ensures.

The annual running costs of the A4 come out to the same as the Camry: $500. However, the finance payments are more, at $870. This means you’ll be paying $1370 a month for the car to be on the road, but on a novated lease, that’ll come down as low as $1,200. This might put it right in your affordability bracket.

2) BMW 320d

The BMW 3-series is a popular option for many European enthusiasts. It’s a small car but has so much practicality. This diesel variant, being a hardy engine, is also very cheap to run compared to some of the bigger engines around, at just $473 per month. With finance topping out at $1,000 per month, your total cost for budgeting purposes should be $1,473.

However, on a novated lease, you could be driving around in your own BMW for just $1,350.

A photo posted by BMW Australia (@bmwau) on

What to consider in your budget

“If you plan to drive ‘x’ amount of kilometres and want to keep your car maintained, it will always cost you $x. The costs are unavoidable, and I believe that budgeting these costs into a weekly or monthly budget is the most important thing to consider when buying a car,” continued Michael.

“Fixed-price servicing, insurance and registration, and fuel efficiency are all factors that need to be budgeted for each year, along with your finance payments. At Alliance Leasing, we take care of that all for you, so you can maximise your savings before tax.”

To find out more, get in touch with our team and see what a novated lease could get you behind the wheel of.