how debt adds to lifetime cost
lifetime costs can also include debt repayments for example the lifetime cost of an item financed through a credit card or line of credit loc can be much greater than the purchase would have cost had it been paid for with cash unless the debt is paid off right away the interest and fees on the credit card or credit line will add to the lifetime cost of the item the most dramatic example for most consumers would be the purchase of a home for example consider a 300 000 home purchased with a 20 down payment and a 30 year mortgage with an annual percentage rate of 7 assuming the homeowner keeps that home and mortgage for the next 30 years by the time it is fully paid off they will have paid about 335 445 in interest on the 240 000 they borrowed together with the 60 000 they put down initially the repayment of the loan s 240 000 principal and the 335 445 in interest the 300 000 home will have cost them 635 445 more than twice the original purchase price and that of course doesn t include all the other lifetime costs associated with a home such as property taxes homeowners insurance and routine maintenance nor does it include the opportunity cost of using that money differently that s the total amount that americans pay in credit card interest and fees each year as estimated by the consumer financial protection bureau 1 using credit cards to purchase items can add to their lifetime cost unless the consumer pays their monthly balance in full real world example of lifetime costa car buyer will often compare makes and models prices desired features and different dealers financing offers before making their purchase however the cost of the vehicle does not end at the car lot consider the costs involved with weekly gas fill ups periodic oil changes auto insurance as well as licensing and vehicle inspection fees other expenses may include a roadside assistance plan car washes and parking or garage rent so for budgeting purposes it makes sense to look not just at the vehicle s initial price but at what it will cost on an ongoing basis not only are some cars cheaper than others but some may also be less expensive to maintain it can also be the case that a car that s initially more expensive will be less costly on an annual basis making it a better buy in the long run the u s department of energy has an online vehicle cost calculator that allows users to compare the operating costs of up to eight different makes and models based on how much they drive according to the american automobile association the average new car costs 10 728 to own and operate that includes loan finance charges gasoline maintenance insurance license and registration fees and depreciation 2