L2 Fixed Costs and Variable Costs
Completion requirements
Unit F: Finance
Fixed Costs and Variable Costs
In addition to monthly car payments, there are other costs associated with owning and operating a vehicle. Fixed costs are costs that do not vary or change from month to month. They must be paid regardless of how much the vehicle is used. Variable costs are unpredictable costs that change in amount or frequency. Variable costs are affected by the distance the vehicle is driven, the climate, the manner in which the vehicle is driven, and any maintenance required.
Examples of fixed costs and variable costs are displayed in the table.
| Fixed Costs | Variable Costs |
|---|---|
| registration | fuel |
| monthly loan or lease payments | oil changes |
| insurance | maintenance and repairs |
| driver's license | parking |
| tires | |
| towing |
Most new vehicles come with a 3 year or 100 000 km warranty. If you buy a new car and a repair is needed, it will be covered under the warranty. Most dealerships offer the option to buy an extended warranty that covers the vehicle for a longer period of time than the basic warranty. Warranties help decrease the variable costs of operating a vehicle but they may be expensive.