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Buying Your First Car? Insurance and Other Considerations

interior of a toyota car
Credit: Pexels / Sindre Fs

A car is one of the biggest purchases you’ll make in life.

With the proliferation of EV and hybrid technology in modern-day cars, there’s never been more selection before.

During the COVID pandemic, prices for used vehicles soared to unprecedented levels, rivaling new purchases in sale price but without the benefits of a brand-new car. In the past year, inventory levels have continued to stabilize which resulted in car prices having come down.

The economic conditions have leveled out and despite steady interest rates, data suggests that 2024 may see enough stability for a healthy automotive market.

However, the price of cars is a separate discussion from personal finances. If you’re looking to make your very first car purchase, there are some important considerations that you should make that will set the tone for the ownership experience.

From purchase price to maintenance to insurance costs, we break down the main factors that any buyer should consider, especially for their first vehicle.

Initial Purchase Price

hands shaking at a car dealership

Credit: Pexels / Antoni Shkraba

Let’s get the obvious one out of the way: the price of the car.

Used cars have come down in price and there are substantial savings to be had. The usual caveats apply: do your due diligence and have used cars properly inspected so that you’re not buying a money pit that will cost you way more down the road.

Bear in mind that used cars do not typically come with a warranty so risk-averse buyers may want to consider a 3rd party product or look for a CPO (certified pre-owned product) from a dealership. The used car market is a popular platform as consumers look to take advantage of the widening gap between used and new cars.

We won’t get into the details of paying cash for a car vs financing, but financially savvy buyers will want to weigh the options and figure out the total vehicle cost. Focusing on monthly payments leaves buyers vulnerable to the actual amount they end up paying for the car and you also run the risk of buying a car you can’t afford.

Insurance Costs

insurance and laptop

Credit: Kindel Media

The type of car you buy will also implicate your insurance rates, along with other factors such as driving type of insurance, history, age, and statistics such as theft rate, accidents, etc.

According to Insuranceopedia, “a 22-year-old can expect to pay anywhere from $955 per year for minimum coverage to $4,538 per year for full coverage”.

Where’s this big difference coming from? For starters, insurance companies offer a variety of different plans such as 3rd party liability (minimum coverage) and comprehensive coverage (full coverage). 3rd party coverage will cover the other driver if you’re at fault, but does not cover any damages to your vehicle.

So, you’ll be left with the entire repair bill whereas full coverage will typically take care of all repair costs, including benefits such as protection against theft, vandalism, and even loaner car rental costs while your ride is in the shop.

3rd party liability makes the most sense when you’re driving a hoopty that you don’t care if it goes up in flames. It’s not worth cheaping out on insurance for a higher value vehicle because anything can happen at anytime.

Luckily, many insurance companies offer incentive programs that use telematics to track your driving habits for a short period which can result in premium savings. Shopping around for different insurance rates is also a surefire way to find the best deal.

Maintenance, Repairs, and Fuel Costs

The more expensive a vehicle, the more all of your associated costs will be. It’s that simple.

Sure, you can find a backyard mechanic to do all of your maintenance and repairs, but that opens up a whole other can of worms that we won’t get into here.

bmw 3 series

Credit: BMW

You’ll definitely want to consider what interval services look like your vehicle because you may get sticker shock when you go in for a basic oil change just to learn that it’s about 2-3x more than you thought.

toyota corolla

Credit: Toyota

For comparison, here are some routine maintenance costs between a Toyota Corolla and a BMW 3 Series, which is considered to be in the luxury segment of vehicles:

Routine Maintenance Costs

Common Service Types Toyota Corolla BMW 3 Series
Oil Change $30 – $50 $80 – $120
Tire Rotation $20 – $40 $50 – $100
Brake Pads Replacement $150 – $300 $300 – $500
Air Filter Replacement $20 – $40 $50 – $100
Spark Plugs Replacement $100 – $150 $250 – $400
Total Annual Routine Maintenance Cost $320 – $580 $730 – $1,220

Major Repairs and Services (Every 5 Years)

Common Repair Types Toyota Corolla BMW 3 Series
Transmission Fluid Change $150 – $250 $300 – $500
Timing Belt Replacement (if applicable) $300 – $600 $700 – $1,000
Water Pump Replacement $300 – $500 $500 – $800
Suspension Work $400 – $800 $1,000 – $1,500
Total Major Repair Costs over 5 Years $1,150 – $2,150 $2,500 – $3,800

Fuel Costs

Gasoline prices are higher than they were several years ago, excluding a global pandemic that wreaked havoc on supply chains.

gas price chart

Buyers will want to consider whether their vehicle uses diesel, regular, or premium gas as the long-term costs will differ significantly.

Again, using the Toyota Corolla and BMW 3 Series as examples and assuming that car drives 12,000 miles per year:

Toyota Corolla BMW 3 Series
Combined Fuel Economy 32 mpg 26 mpg
Annual fuel consumption 375 gallons 461.5 gallons

At $3.50 per gallon, the Toyota Corolla’s annual fuel cost would be $1,312.50 compared to the BMW 3 Series’ $1,615.25.

These numbers illustrate the significant difference in fuel costs between the two vehicles, supporting the statement that the Toyota Corolla is more economical in terms of fuel consumption compared to the BMW 3 Series.


coins and depreciation

Credit: Corporate Finance Institute

Lastly, the biggest elephant in the room: depreciation.

On average, a new car can lose about 50-60% of its initial value within the first five years. The initial depreciation is the most significant, with the value dropping by around 20-30% in the first year alone. Over the subsequent years, the rate of depreciation typically slows down.

This means that if you buy a $30,000 car:

  • Initial Value: $30,000
  • End of Year 1 Value: $22,500
  • End of Year 2 Value: $18,000
  • End of Year 3 Value: $14,400
  • End of Year 4 Value: $12,240
  • End of Year 5 Value: $10,404

Consumer credit reporting company Experian indicated that the average length of a car loan as of Q1 2024 is roughly 67 months, or 5 years and 7 months. 

Some dealerships even offer terms as long as 96 months, which is why we earlier suggested buyers pay attention to the total cost of the vehicle plus borrowing interest, as opposed to the monthly payment.

The numbers above are based on a $30,000 vehicle. Cox Automotive reports that the average price of a new car in the United States in 2024 is approximately $47,218, which means that you could owe more than a car is worth by the end of a loan term.


So if you want to buy your first car, what’s the takeaway?

  • Purchase Price: Consider buying used instead of new. Get thorough inspections; consider certified pre-owned (CPO) for added security.
  • Insurance Costs: Vary by car type, age, driving history, and coverage level; younger drivers typically pay more.
  • Maintenance and Repairs: More expensive cars incur higher maintenance costs; compare costs for economical vs. luxury vehicles.
  • Fuel Costs: Consider fuel type and economy; basic cars are likely to use regular gas instead of more expensive premium gas.
  • Depreciation: New cars lose 50-60% of value in the first five years; important to consider long-term financial impact.
  • Loan Terms: The average car loan term is 67 months; focus on total cost rather than just monthly payments.

Buying your first car is an exciting milestone that requires careful planning and consideration of various factors.

By thoroughly researching and comparing your options, you can ensure that your first car purchase is both financially sound and suited to your needs, setting the foundation for a positive and enjoyable driving experience.

It can be one of the biggest purchases (besides a home) that you’ll ever make, so crunch your numbers before you buy.