Buzz
Have you considered getting rid of your old car? It could be the simplest way to improve your finances by cutting down on thousands of dollars in yearly expenses. Of course, most people have cars because they’re necessary, but is that still the case for you? The pandemic has eliminated commuting for many of us, and you may be one of them, leaving you with a depreciating asset sitting unused in your driveway.
Owning a car is costly
Transportation is typically the second-largest household expense after housing. When factoring in fuel, repairs, insurance, registration, taxes, depreciation, and finance charges, the average annual cost for owning a car is $9,282, according to AAA.
Naturally, if you own an older car, your expenses will likely be lower. You'll also pay less for insurance due to depreciation, but that just means your car is losing value—up to 60% by the fifth year, according to Black Book. Maintenance costs also rise as the vehicle ages. A Consumer Reports survey found that, on average, a 10-year-old car costs $375 more annually in repairs than a three-year-old car.
Car expenses vary by model, and using a cost-of-ownership calculator can help you figure out your total expenses. As a general rule, you should spend no more than 15 to 18% of your income on a used car, especially if you're not using it often.
You might have other options.
Not everyone has the option to get rid of their car, but if you're living in an urban area with good public transportation and ride-sharing services, it’s worth calculating whether it makes sense for you. Knowing your car expenses, including fuel and parking, can serve as a baseline to compare with these alternatives:
Public transportation
Walking or biking
Taxi services, car-sharing, and ride-sharing options
Peer-to-peer car rentals
Rides from family or friends
A public transportation pass that costs around $150 amounts to only $1800 annually—how does that stack up against your current car expenses?
Remember to be realistic about your needs—every now and then, you might need to do heavy shopping, move furniture, or drop your kids off at school. Even if you plan to primarily use public transportation, it’s wise to set aside some funds for taxis, ride-sharing, or rentals. Additionally, consider putting a monetary value on your time and factoring in the opportunity cost of doing something else during your commute, like reading or working, instead of driving.
If you decide to sell your car
The good news is that the used car market is booming. NerdWallet has a helpful guide for selling your old car, and the leading online platforms include Carvana, Shift, and Vroom. These sites allow you to appraise your car and will even pick it up once you agree to sell.
