What Is the Total Cost of Owning a Car?

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At last. You’re finally in a position to buy the new car of your dreams and financing is already in order. All that’s left to do is find the exact make and model, negotiate the price, and seal the deal.

brand new Toyota Corolla

That’s the fun part, but have you considered the total cost of car ownership over time? What you discover may come as an unpleasant surprise. Keep reading to learn more.

Monthly Auto Loan Payment

One of the first questions the loan officer usually asks is how much you are looking to spend each month. They’ll have to check your finances and credit score to gauge if it’s workable. But most buyers throw out a number without considering the other costs.

In fact, the average monthly payment in the U.S. is around $700 according to Car and Driver. And that’s before any other car ownership costs, like car insurance and maintenance, get factored in.

Is your credit is in shambles, but you’re already approved for a car loan? It may be best to wait to buy until your credit score improves. Otherwise, you could pay a fortune in interest.

To illustrate, assume you take out a 4-year, $25,000 car loan. The chart below demonstrates the impact a poor credit score has on monthly car payments:

INTEREST RATEMONTHLY PAYMENTFINANCE CHARGESTOTAL AMOUNT PAID
OVER LIFE OF LOAN
1.99% (Excellent Credit)$542$1,029$26,029
5% (Good Credit)$576$2,635$27,635
9% (Fair Credit)$622$4,862$29,862
18% (Poor Credit)$734$10,250$35,250

Once you’re ready to move forward, explore loan options. Some lenders cater to consumers with less than perfect credit. So, their interest rates may be lower than what you’d find at dealerships or traditional banks.

Consider making a down payment to reduce the amount financed. It may cost you upfront, but the long-term cost savings will be worth it.

Furthermore, select the shortest repayment period to cut interest expenses. A longer loan term will lower the monthly payment and make the vehicle more affordable. However, the finance company will have more time to collect interest on the loan.

Auto Insurance Premiums

Auto insurance premiums vary by location, vehicle type, driving history, and other personal data. So, if you own a sports car, live in a crowded city, and have several tickets, expect steep premiums.

On average, U.S. drivers spend $2,875 annually (or around $240 per month) for car insurance, according to Fool.com. Therefore, you can’t afford to ignore this expense. Otherwise, you could be putting yourself at risk if you can’t afford the premium payments.

Some insurers offer discounts for teens, safe drivers, and those who make lump-sum payments. Be sure to inquire with your car insurance provider to learn more and determine if you qualify.

To ensure that you’re only carrying coverage you need, review your policy in its entirety. All the extras could be costing you money that you shouldn’t be spending.

Gasoline

Do you know how much you’re spending on gas each month? Start by monitoring your gasoline expenditures each week. Or if you know how many miles per year you usually drive, multiply that number by the amount per gallon. Depending on how far you drive each day, this figure may be several hundred dollars.

Moreover, understand that fuel costs could be higher in certain locations, but the average costs per year are $3,000. This includes busy metropolitan areas where the cost of living is high or rural areas with limited fuel options.

Routine Maintenance

Did you purchase an extended service plan from the dealership? If not, you’ll have to cover the costs associated with routine maintenance. Beyond the standard oil change every 3,000 or so miles, the following services also fall under this category:

  • Braking system maintenance and pad replacement
  • Fluid checks and changes (sometimes included with oil changes)
  • Battery charging and replacement
  • Tire rotation
  • Bulb and lamp replacements

Plus, the older the vehicle, the more you’ll spend on maintenance as major scheduled services arise. Your maintenance costs may also be affected if you live in an area with extreme weather.

Are you thinking about extending routine maintenance or skipping it altogether? Think again, as you may spend even more in the long-run on major repairs.

You should also know that some newer and luxury models don’t need service every 3,000 miles. So, check with the manufacturer to determine how often your vehicle needs routine maintenance.

Repairs

You may have to cover repair costs. This is particularly the case for older models. Chances are the mileage is higher, which equates to more wear and tear on your vehicle.

But, newer models that aren’t properly maintained or serviced on a consistent basis usually require more repairs than normal. This is due to minor issues that could’ve been prevented.

auto mechanic

The good news is your repair costs will be minimal if the factory warranty still covers the vehicle. This is typically up to three years or 36,000 miles or if you purchased an extended warranty. But keep in mind that the warranty services may require you to keep service records. Otherwise, your repair may not be covered.

Keep in mind that some repairs are to be expected, no matter how well maintained your vehicle is. It’s important to be prepared so that you won’t be without transportation if the engine dies or the transmission fails.

Quick tip: if you don’t know the average cost of repairs for your car, use RepairPal to get a rough estimate.

Add-ons

How about those costs incurred here and there to make sure your ride is a head-turner? This is common for vehicles that come with a slew of bells and whistles, such as OnStar subscriptions and custom rims. Furthermore, be sure to factor detailing costs into the equation if you spend a hefty amount on high-level services.

Registration Renewal

Don’t forget about the cost to renew your vehicle’s registration at the DMV on an annual basis. (Some states offer multi-year renewals). Divide the total amount paid by the number of months covered to determine how much your registration fees will cost you each month.

Depreciation

What’s the useful life of your vehicle, or how long do you expect it to last? The answer to this question usually varies by owner and depends on several unique factors. New cars typically lose over 20% of their value after a year and about 60% of their value in the first five years.

One owner may buy the vehicle and plan to drive it for the next 15 years, or until the wheels fall off. Another may decide to only drive the car for three years and move on to a newer model.

Depending on how long you plan to keep your car (or how long it will last), you may not be bothered by its depreciation rate. If it’s a short-term purchase, having a rapid rate of depreciation can lead to a large financial loss. You may have to sell it for less than it’s worth and come out of pocket at the time of sale to pay the loan off.

Kelley Blue Book provides more in-depth information about depreciation, searchable by make and model. So, keep these figures in mind when shopping for a new car, and avoid vehicles that lose value quickly.

Bottom Line

If you know how much you’ll have to spend over the life of your next vehicle, you’ll be able to plan accordingly. And if you already have a reliable vehicle, taking a closer look at long-term ownership expenses could prompt you to downsize or adjust your spending.

If you need assistance calculating the total cost of car ownership, check out Edmund’s True Cost to Own Tool. It computes total costs for five years by make, model, year, and style. And if you’re car shopping, you can compare various new cars on your list before making a decision.

Allison Martin
Meet the author

Allison Martin is a syndicated financial writer, author, and Certified Financial Education Instructor (CFEI). She has written about personal finance for almost ten years and holds a master's degree in Accounting from the University of South Florida.