When you’re in the market for a new or used vehicle, comparing different models is a crucial step. Edmunds offers a comprehensive platform to compare vehicles side-by-side, helping you make informed decisions. But beyond the initial price tag, understanding the long-term financial implications is just as important. That’s where Edmunds’ True Cost to Own® (TCO®) comes into play. This article delves into the components of the TCO® calculator, providing a detailed explanation of how Edmunds helps you compare vehicles based on their total cost of ownership over five years.
The Edmunds TCO® calculator analyzes various factors to give you a complete picture of vehicle expenses. These components include car depreciation, interest on financing if you choose to finance, taxes and fees associated with vehicle ownership, insurance premiums, fuel costs, maintenance expenses, and potential repair costs. Furthermore, the calculator considers any applicable federal tax credits that might be available, particularly for electric vehicles. To estimate costs that fluctuate with mileage, Edmunds assumes an average driving distance of 15,000 miles per year. For used cars, the calculation estimates the vehicle’s age and mileage based on the model year, assuming the standard 15,000 miles driven annually.
It’s important to remember that TCO® is designed as a comparative tool. When you use Edmunds to compare vehicles, TCO® helps you understand the relative cost implications of choosing one vehicle over another. It’s not a precise predictor of your exact expenses, as your personal driving habits and circumstances will influence the actual cost. However, it provides an invaluable benchmark for comparing vehicles financially over a five-year ownership period.
How Edmunds Calculates True Cost to Own®
Edmunds employs a set of consistent assumptions to ensure fair and accurate TCO® calculations when you compare vehicles:
- Five-Year Ownership: Operating costs are projected over a 5-year period, representing a typical vehicle ownership duration.
- Annual Mileage: A standard of 15,000 miles driven per year is used to estimate mileage-dependent costs consistently across all vehicles.
- Traditional Financing: The calculation assumes traditional vehicle financing, not leasing, to standardize financing cost estimations.
- Above-Average Credit: A benchmark of above-average credit rating is used to determine a realistic finance rate, reflecting common financing scenarios.
- Down Payment: A 10% down payment at the time of purchase is assumed in the financing calculations.
- Loan Term: A 60-month loan term is used as the standard duration for financing calculations.
Utilizing proprietary formulas and extensive data, Edmunds calculates the 5-year costs across seven key categories that constitute the TCO®. These categories are car depreciation, insurance costs, financing expenses, taxes and fees, fuel costs, maintenance expenses, and repair costs. Crucially, the calculation also integrates any relevant federal tax credits, offering a comprehensive financial overview when you compare vehicles on Edmunds.
Explanation of True Cost to Own® Terms
To effectively compare vehicles using Edmunds TCO®, it’s essential to understand each component of the calculation. Here’s a breakdown of each term:
Total Cash Price
When you compare vehicles, the Total Cash Price is the starting point. For new vehicles, this represents the vehicle’s market value price, inclusive of commonly equipped options, destination charges, base taxes and fees levied by your state, and any applicable gas guzzler tax. This price is then reduced by any widely available manufacturer-to-customer cash rebates. It’s important to note that Edmunds’ TCO® calculation does not account for more specific or variable rebates and incentives due to their fluctuating nature and eligibility criteria.
For used cars, the Total Cash Price reflects the sum of the vehicle’s private-party value in “clean” condition, plus typically equipped options and base state taxes and fees. This provides a standardized cash price for comparison purposes across both new and used vehicles.
Depreciation
Depreciation is a significant factor when you compare vehicles’ long-term costs. It represents the decrease in a vehicle’s value from its initial purchase price to its estimated resale value after five years. The purchase price used for depreciation calculation is the Total Cash Price minus any taxes and fees included in that amount. Edmunds estimates the resale value assuming the vehicle is in “clean” condition, driven 15,000 miles per year, and sold privately. This depreciation figure highlights the substantial cost of vehicle value loss over time.
Insurance
Insurance costs are a recurring expense that significantly impacts the total cost to own. When you compare vehicles, Edmunds provides an estimated average annual insurance premium for your state. This premium is derived from annual premium data from a major national insurer, based on defined driver profiles and standard coverages (liability, comprehensive, and collision). While this data is vehicle-specific, considering the make, model, year, and body type, it’s crucial to understand that your personal circumstances are not factored in and can significantly alter the actual premium you receive. Factors like age, marital status, credit history, driving record, and vehicle garaging location will influence your individual insurance rate. The Edmunds estimate serves as a useful average for comparison when evaluating different vehicles.
Financing
Financing costs represent the interest expense incurred when financing the Total Cash Price of the vehicle, assuming a 10% down payment and a 60-month loan term. The interest rate applied in the Edmunds TCO® calculation is the prevailing rate offered by banks and automotive lenders in your geographic region to consumers with above-average credit scores.
It’s important to note that even if you purchase a vehicle outright without financing, the financing cost is still included in the True Cost to Own® calculation. This is because it reflects the “opportunity cost” – the potential earnings you could have gained if you invested the purchase price instead of using it to buy the vehicle. This inclusion provides a more complete economic picture when you compare vehicles, considering the alternative uses of your capital.
Taxes & Fees
Taxes and fees are unavoidable costs associated with vehicle ownership. This category within Edmunds’ TCO® includes base sales (or use) taxes, license and registration fees in your state, and the gas-guzzler tax, if applicable. These taxes and fees are often calculated as a percentage of the purchase price and generally decrease as the vehicle ages and depreciates in value.
The state sales/use tax rate used by Edmunds in the TCO® calculation incorporates the average local and county taxes assessed within that state, providing a comprehensive tax estimate.
Fuel
Fuel costs are a significant ongoing expense, especially when comparing vehicles with different fuel efficiencies. Edmunds’ fuel expense calculation is based on revised EPA mileage ratings, assuming a driving mix of 45% highway and 55% city driving. It also assumes the vehicle is equipped with the standard transmission for that model. Cost estimates are derived from the current one-year moving average of self-service fuel prices in your state. The type of fuel (regular unleaded, premium unleaded, or diesel) used in the calculation corresponds to the manufacturer’s recommendations or requirements for each specific vehicle. This detailed fuel cost estimation is crucial when you compare vehicles, particularly considering fluctuating fuel prices.
Maintenance
Maintenance expenses cover both scheduled and unscheduled maintenance. Scheduled maintenance refers to factory-recommended services performed at specific mileage or time intervals. Unscheduled maintenance encompasses items like wheel alignments and replacements of components such as batteries, brakes, headlights, hoses, exhaust system parts, taillight/turn signal bulbs, tires, and wiper blades/inserts. Edmunds sources estimated tire replacement costs from The Tire Rack Inc., a reputable tire retailer. Accurate maintenance cost projections are vital for understanding the long-term financial implications when you compare vehicles.
Repairs
Repair costs estimate expenses for repairs not covered by the vehicle manufacturer’s warranties over the five-year ownership period, assuming 15,000 miles are driven annually. Edmunds estimates this cost based on the price of a typical “zero deductible” extended warranty for the vehicle, subtracting the estimated portion of that warranty cost that represents the warranty provider’s overhead and profit. This repair cost estimation helps factor in potential unexpected expenses when you compare vehicles and consider their long-term reliability.
Federal Tax Credits
Federal tax credits can significantly reduce the overall cost of owning certain vehicles, especially electric vehicles. The tax credit considered in Edmunds’ TCO® is provided under the Energy Policy Act of 2005 and is a direct reduction of your total federal tax liability. This credit is specifically for electric fuel vehicles and is only available to the original purchaser of a new qualifying vehicle. The credit is subject to specific phase-out rules, which Edmunds accounts for in the TCO® calculation. If a qualifying vehicle is leased, the leasing company may claim the credit. When you compare vehicles, particularly electric and hybrid models, understanding these potential tax credits is essential for an accurate cost comparison.
Conclusion
Edmunds True Cost to Own® is a powerful tool for anyone looking to compare vehicles effectively. By considering depreciation, insurance, financing, taxes and fees, fuel, maintenance, and repairs, TCO® provides a comprehensive financial picture beyond the initial purchase price. When you use Edmunds to compare vehicles and utilize the TCO® tool, you are equipped with the knowledge to make a financially sound decision, ensuring you choose a vehicle that fits both your needs and your budget over the long term. Remember to use TCO® as a comparative guide to understand the relative cost implications of different vehicle choices and factor in your personal driving habits and financial situation for a complete assessment.
