The true cost of a free car
A relative offers you their old car for nothing. It's a real kindness, and often a very good deal. Here is what one illustrative first year of it adds up to, printed the way a till would print it.
NO RETURNS · NO WARRANTY
- Title and registration fees are set by each state and sometimes by the car's value, weight or age. These amounts are placeholders. Your state's motor vehicle agency publishes the real schedule.
- Whether a transfer between family members is taxed, exempt, or taxed on some assumed value depends entirely on your state, and sometimes on how closely you're related. We show zero for simplicity, not as a promise. Ask the titling office before you go to transfer the title.
- Paid before accepting the car, and the best $150 on the receipt: it produced the list of catch-up work before any of it became a surprise.
- A quote for this driver, this car and this address. Yours will be different, and an older car doesn't always mean a cheaper premium.
- Fuel price and mileage are round numbers for the arithmetic: 10,000 ÷ 25 = 400 gallons; 400 × $3.40 = $1,360.
Nothing on that receipt is a reason to turn down a free car. Almost every line would have appeared for any car at all: insurance, fuel, registration, oil changes. A bought car would have carried the same running costs plus a purchase price, and quite possibly a loan. The gift saved its new owner the single largest line most people ever see on a car receipt. That's real, and it's generous.
What the receipt corrects is the word "free." The price was zero; the year was $5,295, or about $441 a month. Anyone who budgeted the car as free — perhaps a student, perhaps someone who'd been getting by without a car at all — would have spent that year wondering where the money went. The shock isn't any single bill. It's that there are so many of them, and that none of them are optional.
Look at the middle section, too. The $1,890 under "catching up" is not bad luck; it's the maintenance the previous owner hadn't yet done, handed over with the keys. That's normal for a car someone was about to replace: people often stop investing in a car once they've decided to part with it. It also isn't a recurring cost. The second year of this car should look more like the third section alone, about $3,160 plus whatever the car decides to need. The first year is a catch-up year. Plan for it as one.
A few things make a free car cost less. Have it inspected by someone you choose before you accept it, so the catch-up list is known in advance and can be spread over a couple of months. Ask your insurer to price the specific car before the title changes hands. Ask the giver for whatever service records exist, which can save you paying to redo work already done. And settle the paperwork properly — a car that is informally "yours" but still titled and insured in someone else's name can create problems for both of you after a crash.
There's one more line that doesn't appear on any receipt. Once the car is yours, it has a market value, and you could sell it. Keeping it is, quietly, a choice not to take that money. If a free car is worth a few thousand dollars and costs a lot to run, it may make sense to sell it and put the proceeds toward something cheaper to insure or more reliable. Usually it won't — a known car with a fresh set of tires is worth a lot to its owner — but the option exists, and it's worth considering once rather than never. It may also be a delicate conversation with the person who gave it to you, so have it before the title changes, not after.
If you're the one giving the car away, the receipt is worth reading from the other side. Handing over the service records, mentioning the noise you'd been meaning to have checked, and passing on the spare key and the owner's manual all cost you nothing and can save the new owner a good share of the middle section. A clean handover is part of the gift. So is being honest about anything you already know is wrong: the recipient is going to find out either way, and it's kinder to let them budget for it than to let them be surprised in July.
For the monthly view of the same idea, what a car really costs per month sorts a household's car spending into what posts and what doesn't. For the repairs that keep coming after the catch-up year, a repair fund sized to your car's own facts is the sensible next step. A free car is a very good start. What you do with its second year decides whether it stays a good deal.
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Further reading
- Budgets, explained Investopedia
- True cost to own Edmunds
- Variable costs Investopedia