There are few things more exciting than driving off the car lot while that “new car smell” permeates the air. However, driving off that lot just costs you 20% of the value of your vehicle. Over time, depreciation, amongst other costs, greatly contributes to the high cost of owning a car.
Owning a car is more expensive than most people realize.
Between the overall cost of the car, financing costs, insurance, and maintenance, owning a car can quickly drain any savings you may have had. Luckily, if you pay close attention to how much the vehicle costs, you can make smart decisions that can save you money.
This blog outlines the cost of owning a car including fuel, finance charges, the often overlooked depreciation, insurance, maintenance, and license, fees, and registration costs. Estimates are given, however, these estimates vary greatly depending on your make, model, and location.
How Much Does It Actually Cost to Own a Car?
The cost of owning a car is high, especially as the price of just about everything seems to be on the rise.
Between the price of the vehicle, financing, insurance, taxes, and maintenance, owning just one car can quickly drain your wallet. Keep in mind that many families have two or three vehicles in the driveway.
If you are smart about buying and owning a car, however, you could save a lot of money each year.
There are several major cost categories of owning a car, including:
- Finance charges (interest)
- License, Fees, Registration, and Taxes
In addition to the major categories of owning a car, the cost can vary depending on the age.
Once you factor in depreciation, by year ten, the vehicle value is so low that it makes more sense to lower your auto insurance coverage. However, maintenance expenses will continue to increase.
Why is Gas so Expensive?
One of the many costs of owning a car is fuel. The average annual cost is about $1,700 or 11 cents per mile. This, of course, varies depending on your location and the price of fuel at the time.
Not only does the cost vary depending on location, but it also depends upon the miles per gallon you get with your car and the road conditions you drive on.
In some ways, owning a vehicle is like a futures investment. You can’t be sure how much a gallon of gasoline will be tomorrow, next month, or next year. What could be affordable today might not be if there is a gas shortage that sends prices skyrocketing.
How to Avoid Excessive Vehicle Finance Charges
Another variable to owning a car is finance charges. The average expense is almost $700 per year assuming that you bought your car with a 10% down payment, that you have average credit, and the loan is valid for five years.
Again, just like fuel prices, the finance charge will vary depending on your situation. The amount you pay depends on whether or not you pay a down payment, the length of your loan, and your credit score.
For this reason, car shoppers are advised to shop around, even for a car loan. Sometimes car insurance agencies, credit unions, and retail banks offer better loans that the car dealership does. You don’t have to take the loan(s) the dealership offers.
Even better, some people save their money to make a cash payment on a used or new car. By cutting out the figurative middle man (the banks), they’re able to save money. Some dealerships even extend discounts to patrons who pay in cash.
The High Cost of Depreciation
One of the most expensive costs of owning a car is depreciation. Annually, it represents more than 40% of the cost; new cars experience rapid depreciation in the early years of ownership. In other words, as the car ages, it loses value.
Most consumers don’t consider depreciation a cost, but it is a very real cost. It represents a loss in value to the vehicle over its lifetime.
Once you drive away from the dealership, the car depreciates by 20%. For each following year, it’s another 15% to 20%. This, like the other categories, depends on a few factors including the make and model, total mileage, and condition of the vehicle.
Many people don’t think too much about this until they’re in a position when they want to sell their car. If you like to sell your car through private sales, you may want to consider how well the make and model in consideration holds its value as years go on. Some manufacturers fare better than others here!
How do I Save Money on Car Insurance?
Another expensive cost of owning a car is insurance. Luckily, several options will help you save money.
By shopping around and taking time to get quotes, you can save money. Several online providers compare your current policy to a group of others that will compete for your service.
You can also work with a local insurance agent. They can be more trustworthy because they are in your area and hopefully have credible reviews from other locals. There are many discounts available including accident-free driving, good school performance, and safety features.
Sometimes, insurance agents work to provide group discounts for schools, nonprofits, and other organizations. Some also provide discounts to military personnel and senior citizens.
Another way to save money on car insurance is to shop around. Get estimates from several providers and go with the best value (not the cheapest payment). If you’re in an accident later, you will spend a lot more by having gone with a lackluster policy.
You can also dial up your current insurance provider and ask if there are safe driver discounts being applied to your account. If you are able to take a safety course, sometimes the insurance company charges you less.
This is an area where it pays to do your homework.
Maintenance and Repair Costs for Vehicles
Regularly scheduled maintenance and repairs should be accounted for yearly and contribute to the cost of owning a car. The average maintenance cost per year is about $1,000 for newer vehicles. Unfortunately, if your car is older, that number could be double.
How much you pay depends entirely on your situation. If you take care of your vehicle, maintenance expenses will be lower. If you live in an area with harsh weather conditions, it may be higher. The final variable to consider is whether or not you do the work yourself or have a mechanic do it.
If you don’t spend wisely on oil changes and tire rotations, you will pay out more down the road when the big repairs roll in. People who take good care of their car usually spend less money in surprise repairs. It pays to think ahead!
License, Fees, Registration, and Taxes
Like the other categories to costs of owning a car, registration, fees, and taxes vary greatly, depending on where you live. On average, the cost is $700 per year. However, in some locations, you are taxed on the depreciation of your car each year while in some states, the fees are minor.
There’s no real work around on this one. You can sometimes ask for aid, assistance, or discounts for certain situations. If you think your government charges you too much for car ownership, you can write a legislator or move.
Keeping Your Car Vs. Buying New
These cost breakdowns provide a quick financial snapshot of what the costs of owning a car are.
You may find yourself hitting a sweet spot when the car payments are up to date and your insurance rates are trending downward, but when the surprise repair bills start to roll in, it’s frustrating. All of the sudden the old car is costing you more money.
If you take good care of your car, this won’t happen so soon.
When it comes to buying a new car or keeping your current car longer, numbers suggest that keeping the car longer is the best way to go.
However, the decision comes down to several factors and questions you need to ask yourself: How well is the vehicle running? Can you do repair work yourself to save money? How much driving do you do? How much do you need the car? Can you even afford a new car?
The answers are different for everyone.
Cost of Owning a Car vs. Public Transportation
One misconception about public transportation is that it is expensive and that the cost of owning a car will end up being cheaper (and save you time getting to your destination).
Some transit can be viewed as expensive, although it depends entirely on your situation. For example, a 30-day pass for the New York City Subway and Bus Routes is $121, or $1,452 per year whereas the Los Angeles Metro costs $100 for a 30-day pass or $1,200 per year.
Compared to the cost of driving, this is minimal. Driving a car costs approximately $11,000 per year including depreciation. Excluding depreciation, driving a car costs about $3,000 per year. This cost is more than double what public transportation is.
Whereas some people may argue that it’s cheaper to reduce transit time by owning a car, all of the associated expenses make that perspective debatable.
What Cars are the Cheapest to Own?
Fuel is a huge factor in the cost of owning a car which has led drivers to buy smaller, fuel-efficient cars that are less expensive to own. Small sedans are the least expensive to own while hybrid cars are the second least expensive.
Half-ton pickup trucks are the most expensive to own followed by large sedans. The annual cost difference between a half-ton pickup truck and a small sedan is almost $4,000.
Advice For Buying a More Affordable Car
After purchasing a home, buying a vehicle is normally a consumer’s second-largest expense. With the high cost of owning a vehicle, it is important to know how to make this process more manageable.
If you know what you can afford before going to the dealership, it will help ease the overall cost of owning a car. Determine your budget and stick to it; even better, figure out financing ahead of time and get the shortest loan term you can afford.
The True Cost of Owning a Car
If you are a current car owner, you probably read this article shaking your head in agreement, as you know full-well just how much owning a car can cost. If you are considering purchasing a car, this article may have you doubting that purchase. Don’t worry, some options can help you save money.
In addition to the options mentioned above about using public transportation or purchasing a gently used car, there are tools to help you decide if your new car purchase is worth its value. Consider using an online calculator that helps determine the total cost of car ownership.
In addition to your car payment, remember you will have the cost of car insurance, fuel, maintenance and repairs, and registration, fees, and taxes. Also keep in mind that while you don’t make a monthly payment towards depreciation, cars lose value over time and this affects the total cost of owning a car.
Buying cars that hold their value will save you money. If you are careful about your driving locations and complete routine maintenance, you are better prepared to save on bigger car costs. This helps your peace of mind and your wallet.