When I bought my Mazda 6 back in February 2003, I put $12,000 down and financed the rest to keep my monthly payments low. At 4.25%, my monthly dues were at only $256. It was something I could definitely afford at the time and I was very satisfied with the purchase.

Effective Monthly Payment

But how much was my effective monthly payment? How much was my actual monthly cost when accounting for the finance charge, maintenance and repair costs, and other costs associated with the car?

After $12,000 down payment, my total financed amount was $13,826.20. I opted for 60 month finance, but I paid the balance off in 3 years, which saved me a few bucks off of finance charge. After three years, my grand total purchase amount came out to be $15,129.59 plus $12,000 down payment I originally made. This car lasted me from February 2003 to August 2010 which equates to 90 months. Dividing this number into my total paid price of $27,129.59 gives a grand total effective monthly cost of $301.44 over the course of 7.5 years! This really puts it into a different perspective because I thought I was saving money by paying the balance early and not havingto deal with monthly payments. Not only that, this doesn’t account for all of the major repairs and maintenance costs that went into the car over 7.5 years as well. Some of the major items that I can remember at the top of my head are as follows:

  • 15k service = $300
  • 30k service = $550
  • 45k service = $300
  • New Tires and Front Brakes at 50k miles = $800
  • New Tires and Front and Rear Brakes at 100k miles = $1100

These costs add up to $3,050 and don’t account for other items such as oil changes. When added to the final cost, you get a monthly cost of $335.32 over 7.5 years. You can make an argument and say that the monthly cost will go down as I drive my car longer, but I’m not so sure if I buy that statement. The main reason I bought a new car a few months ago was because the repair cost estimate I received was over $3,000, which included new brakes, new tires, and new catalytic converter.

Why My Point?

Oftentimes, when people shop for cars, they only look at the final price. They tend to overlook the finance charges that are involved. They almost never ask about maintenance and repair responsibilities. After you figure out your effective monthly payment, you can use this figure to compare and contrast with other options such as leasing. I wrote about how leasing can be advantageous over buying in certain situations. Since you don’t have to pay for any maintenance (besides oil change) when leasing, when you compare the effective numbers between the two, you might be surprised that leasing can be quite competitive.