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What’s The Total Cost of Owning a Car

Last updated 03/15/2024 by

The average price of a new car in the United States is $34,372, according to Kelley Blue Book’s recent numbers, which is up 2.5% from 2015 numbers.
However, the costs of owning a vehicle is much more than the sticker price. If you don’t consider all the money you will have to spend on a car, you could stretch your monthly budget to the breaking point.
Here is what you need to know to figure out the real costs of owning a car as well as a few money-saving tips for your next vehicle purchase.

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What are the real costs of owning a car?

Transportation isn’t cheap. If you want to control the money flowing out of your wallet, you need a clear picture of each related expense. According to the latest AAA Your Driving Cost study, the average annual cost of owning a vehicle is $9,282 (or $773.50). That is 15% of the annual income of the median household. If you were to contribute $9K in an investment fund every year, you could have $576K after 2o years, assuming a 10% return rate. Getting rid of one car could set you up for retirement if you invest your savings.
Of course, costs will vary depending on the type of vehicle you choose and how many miles you drive. For example, if you drive a small sedan 10,000 miles per year, your total costs drop to $5,740, or $478 per month. On the other hand, if you choose to drive a large SUV as much as 20,000 miles a year, your costs skyrocket to about $11,450, which is about $950 a month. Your insurance costs will also vary depending on your risk tolerance, which will also influence the cost of owning a a car.

Factors that contribute to the total cost of ownership

It’s a common mistake to think that your cost of owning a car is limited to your car payment each month. Unfortunately, it’s much more than that. The factors that contribute to owning and operating a vehicle include:
  • Vehicle depreciation
  • Interest and financing costs
  • Taxes and fees
  • Car insurance costs
  • Maintenance and repairs
  • Fuel expenses

Vehicle depreciation

If you buy a brand new car, vehicle depreciation will be your No. 1 cost of ownership in the first few years. According to Edmunds, the average new car loses as much as one-third of its value in the first year. The depreciation losses slow down after the first year. This is bad news for a new car buyer, but a savings opportunity for those that choose to buy used vehicles.
By buying a used car one that is just 1 to 2 years old, with low mileage and plenty of warranty left, you’ll miss out on that major depreciation loss and still have the benefit of an almost-new vehicle.

Interest and financing costs

When you purchase your vehicle, the deal that you strike with the seller and your financing package will affect your ownership costs. Technology now ensures we have the latest information on vehicle values, so getting a good deal on a car is easier than ever.
You still need to shop around for an auto loan and the best rates, however. If you’re looking for the lowest monthly payment, there are two things that you can do to achieve this. You can contribute more of a down payment on the vehicle, which will lower the amount you’ll need to finance. The other choice is to extend your loan repayment term. Some auto loan companies now extend auto loans as long as seven years.
According to Experian, the average term for a new car loan is now 68 months. While this option gives you lower payments, it also increases your total cost of owning a car in the long term.
If you need an auto loan, check out LightStream. They are a division of SunTrust Bank and a leading provider of auto loans. LightStream auto loans have annual percentage rates (APRs) as low as 2.19%, with no origination fees or prepayment penalties.
If you want a longer term on an auto loan, USAA has loans up to 84 months. USAA is a top lender that deals with members of the U.S. military and their families.

Taxes and fees

When you purchase a vehicle at a dealership, there is generally a long list of taxes and fees added to your bill. One-time costs include your sales tax, title fees, and other fees associated with purchasing a vehicle. Other charges are annual fees. The Auto Club estimates that license, registration, and taxes average $665 per year nationally. Most states will require that you pay annually to register your vehicle and some even have inspection fees. All of these expenses contribute to your total cost of vehicle ownership.

Car insurance costs

If you’re going to drive a vehicle in the U.S., you are required by law to have auto insurance. When you decide to purchase a new (or new to you) car, insurance costs should factor into your purchase decision.
Car insurance companies base their rates on such things as the make and model of the vehicle, its age, safety features, crash test results, the cost to repair and theft data for that model. Major car insurance companies can help you compare the auto insurance costs among several vehicles as you try to make your purchase decision.
If you qualify, one of the top auto insurance companies is USAA. The company has an A++ rating with A.M. Best and has 11.2 million members.
Another top auto insurance company is Allstate, through which you also can purchase coverage for your home or business at competitive rates.

Maintenance and repairs

Have you factored in car maintenance costs and the cost of repairs for your new car? A common misconception about vehicles under warranty is that maintenance is free. Granted, there are a few major car brands that offer some free maintenance packages, but you will largely pay for this when you purchase that car.
A warranty covers repairs and parts if your vehicle breaks down or malfunctions during the warranty period. This is not the same as car maintenance costs, which come out of your pocket. You are responsible for routine oil changes, tire rotation, filter changes, brake pads and tuneups unless your car company offers some free maintenance. Depending on how many miles you drive the vehicle and the car itself, this could cost upward of $500 per year.
Another car maintenance cost that you should budget for is tire replacement. As your vehicle approaches 60,000 miles, you’re going to need a new set of tires. This is assuming that you haven’t had an incident before this milestone. Tire replacement on an average vehicle is close to $500 but could be much more for a luxury car or an SUV.

Fuel expenses

When you shop for a new car, ask what kind of gasoline you’ll need to use to keep it running. The cost difference between having to use regular unleaded gas versus premium can be significant.
Drivers put an average of nearly 13,500 miles on their cars each year. According to a 2016 report from, the price difference between premium and regular gas was just over 25% in the past year. Let’s assume you drive the average miles each year and get 23 mpg. If you purchased regular gas at $2.25/gallon, you’d spend approximately $1,320 per year on fuel. Premium gasoline is typically about 20 cents a gallon more expensive than regular gasoline. In the same scenario, if you’re using premium gas at $2.45/gallon, that increases to about $1,438, a significant difference.
Also, by using gas from only top-tier gas stations, you may save money on repair costs down the road. This gas is proved to be cleaner and will leave you with fewer engine deposits. You’ll get better fuel economy with it and have fewer long-term vehicle issues, particularly with newer automobiles.

Figuring out the “five-year” costs of owning a car

When you decide whether to purchase a new vehicle, it’s important to consider more than just the sticker price. Most of us hold onto our cars for five years or longer, so looking at the “five-year cost” of owning a car is now standard practice.
Edmunds has a formula that will give you the True Cost to Own (TCO) data for nearly any vehicle over a five-year period. The figures tell you how much that car is going to depreciate in the first few years as well as such things as maintenance and repairs, fuel costs and insurance.

Comparing the costs of owning a car

Are you not sure which car you want to buy, or have it narrowed down to just a few? With your budget in mind, figure out the true cost to own each vehicle and compare those figures to narrow down your choices.
If your top vehicle choice depreciates 30% in the first year, you can either remove it from your list or consider looking at models that are a year or two old. As you review vehicles and narrow down your choices, remember that how you finance a vehicle and how long you keep it will affect those costs. Keeping a car for several years after you pay off your loan also can significantly lower those ownership costs.
If you’ve found the perfect vehicle for you, take the time to compare auto loans and check the best auto insurance reviews and comparisons here.

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