What Is the True Cost of Owning a Car?


Buying a car is an exciting and rewarding experience. You’ve worked hard, saved money, and now you’re ready to purchase the new car you’ve always dreamed about. But before you start negotiating prices for that shiny new vehicle, it’s crucial to consider more than just the sticker price.

brand new Toyota Corolla

The total cost of car ownership extends far beyond the purchase price, encompassing elements like car insurance, car loans, fuel costs, and maintenance expenses. With an average monthly payment of around $700 in the U.S., you might be in for an unpleasant surprise if you’ve not factored in these additional costs.

What is the average cost of owning a car per month?

When you’re weighing the decision to buy a new or used car, it’s crucial to look beyond the excitement of acquiring a new set of wheels. Grasping the full scope of car ownership expenses is critical, as they extend far beyond the initial purchase price.

Understanding Car Payments and Auto Loans

When you’re discussing your new car purchase, one of the first queries from the loan officer will be about your budget for monthly payments. They need this information to evaluate your financial standing and credit history, determining how much you can afford to borrow. However, many prospective car owners throw out a number without considering the total costs of owning a car, like insurance premiums and maintenance costs.

For instance, if your credit history is less than stellar, it might be wise to postpone your new car purchase until your credit score improves. This could save you a significant amount in interest payments. Let’s look at a scenario where you take out a four-year car loan for a purchase price of $25,000. The chart below demonstrates the impact of different credit scores on your car payments:

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

When you’re ready to proceed, remember to explore various loan options. Some lenders cater specifically to consumers with less than perfect credit, offering lower interest rates than you might find at traditional banks or dealerships.

Don’t Forget About Car Insurance

Car insurance is another crucial factor in the total cost of car ownership. Insurance premiums can vary significantly depending on your location, the type of vehicle you own, your driving record, and several other personal factors.

On average, U.S. drivers spend about $2,875 annually, or roughly $240 per month, on car insurance. Therefore, it’s essential to account for this expense when calculating the cost of owning a car. Keep in mind that some insurers offer discounts for safe drivers, teenagers, and those who make lump-sum payments, so don’t hesitate to inquire about any potential savings.

Understanding Different Types of Coverage

Knowing the different types of insurance coverage can help you select the most appropriate plan for your needs, and can potentially save you money in the long run.

  • Liability Insurance: Required by law in most states, this covers costs associated with injuries or property damage you cause to others in an accident. However, it does not cover your own damages or injuries.
  • Collision Insurance: This covers the cost to repair or replace your car if it’s damaged in an accident with another vehicle or object, regardless of who’s at fault.
  • Comprehensive Insurance: This covers damage to your car from incidents other than collisions. This includes things like theft, vandalism, fire, or natural disasters.

Factors Influencing Your Insurance Premiums

Your car insurance premiums are not just random figures. They are calculated based on a set of risk factors. Understanding these factors can help you manage your insurance costs effectively.

  • Driving Record: A clean driving record can significantly lower your insurance premium. Insurers reward safe drivers with lower premiums.
  • Age and Gender: Younger drivers, especially males, are statistically more likely to be involved in accidents, leading to higher insurance rates.
  • Location: If you live in an area with high traffic, a higher crime rate, or a high incidence of claims, you’ll likely pay more for car insurance.
  • Vehicle Type: The make, model, and year of your car also influence your insurance costs. High-end cars, sports cars, or cars with high theft rates often come with higher insurance premiums.
  • Credit Score: In many states, insurers use credit-based insurance scores. A good credit score can help you get a lower premium.

Factoring in Fuel Costs

Fuel costs are a significant part of the monthly expenses associated with car ownership. As of 2024, the average price per gallon of regular gas in the U.S. is $3.09. Depending on how much and how far you drive, and the fuel efficiency of your car, your monthly gas bill could be substantial.

Fuel Efficiency and Its Impact

The miles-per-gallon (MPG) rating of your car plays a critical role in determining your fuel expenses. A car with high fuel efficiency will consume less fuel per mile than a gas guzzler, translating into significant savings over time.

Driving Habits and Fuel Consumption

Your driving habits also significantly impact fuel consumption. Aggressive driving, speeding, rapid acceleration, and hard braking can lower your gas mileage by roughly 15% to 30% at highway speeds and 10% to 40% in stop-and-go traffic. Opting for smoother driving can help reduce your gas expenses.

Other Ways to Save on Fuel

Car maintenance and planning your trips can also help you save on fuel. Keeping your car in good shape, using the manufacturer’s recommended grade of motor oil, and removing excess weight can improve your car’s fuel economy. Pay attention to gas prices and combine errands into one trip. Using public transportation when possible can also significantly reduce your fuel expenses.

Regular Maintenance and Unexpected Repairs

Regular maintenance and unexpected repairs are an inevitable part of car ownership. They ensure your car remains in good working condition and retains its value over time.

Routine Maintenance

Routine maintenance includes oil changes, tire rotations, brake pad replacements, and other regular check-ups your car needs. These costs can add up, but neglecting preventative maintenance can lead to more significant, more costly problems down the line.

Unexpected Repairs

No matter how well you maintain your vehicle, unexpected repairs can come up. Whether it’s a blown head gasket, a faulty transmission, or a broken timing belt, these repairs can be costly. It’s essential to set aside a portion of your budget for these unexpected costs.

Factory Warranty

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.

Extending the Lifespan of Your Car

Regular maintenance isn’t just about preventing breakdowns; it’s also about extending the lifespan of your car. The longer your vehicle lasts, the more value you get from it. This can include things like washing and waxing your car to prevent rust, changing your air filter regularly, and ensuring your tires are properly inflated.

auto mechanic

The Impact of Depreciation

Depreciation is the loss of value your car experiences over time. On average, new cars lose 20% of their value in the first year and around 10% each subsequent year.

How Depreciation Affects Your Car’s Value

Depreciation is the single most significant factor that affects the value of your car. It’s the main reason why a three-year-old car is worth significantly less than a new one, even if it’s in excellent condition.

Factors Influencing Depreciation

Many factors can influence your car’s rate of depreciation, including its make and model, mileage, overall condition, and market demand. Luxury cars and sports cars, for instance, typically depreciate faster than economy cars.

Minimizing Depreciation

While you can’t stop depreciation, there are ways to slow it down. Keeping your car in excellent condition, minimizing its mileage, and choosing a model with a strong resale value can all help reduce the rate of depreciation.

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.

Personalization and Upgrades

When it comes to personalizing your vehicle and upgrading its features, these costs can add a unique touch to your ride and enhance your driving experience. However, they also contribute to the overall expense of car ownership.

Specialized Features and Subscriptions

Many cars today come equipped with sophisticated features such as OnStar, satellite radio, or connected car services that often require ongoing subscriptions. These services can provide added security, convenience, and entertainment, but they also come with recurring costs that need to be factored into your monthly budget.

Custom Additions

For car enthusiasts, custom additions like rims, spoilers, or body kits can give a vehicle its distinct character. These modifications, while enhancing the aesthetic appeal of your car, come with their own set of costs. If customizations are part of your vehicle ownership experience, remember to include these expenses in your overall calculations.

Premium Services

Services such as car detailing, which includes thorough cleaning, restoration, and finishing of your car, both inside and out, to produce a show-quality level of detail, can also add to the overall cost of owning a car. If you enjoy having a pristine, well-maintained vehicle and regularly invest in premium detailing services, these costs should be considered as part of your ownership expenses.

Cost of Accessories

Accessories are another factor that can add to the cost of owning a car. Items like floor mats, cargo liners, seat covers, GPS systems, roof racks, and more are not just about personalizing your car, but can also enhance its functionality and comfort. These items, while often seen as minor purchases, can add up over time, contributing to your total cost of ownership.

Vehicle Licensing and Registration

Remember to account for the recurring cost of renewing your vehicle’s registration at the DMV each year. Some states even provide the option of multi-year renewals. To understand its impact on your monthly expenditure, divide the total paid by the number of months covered.

In certain states, you can enjoy the privilege of purchasing a vehicle without paying any vehicle sales tax. In contrast, other states impose relatively high sales taxes, along with annual property taxes. Typically, when purchasing a car, you can expect to shell out around 8-10% of the car’s price on taxes and dealership fees.

Parking Expenses

Living or working in a city often implies a substantial parking cost. Parking charges can greatly differ based on the city and the nature of the parking—whether it’s daily parking in a public lot or monthly parking in a private garage. It’s crucial to investigate the parking expenses in your specific city to ensure these costs are accurately included in your budget.

5 Ways to Save on Car Ownership

  1. Shop around for the best deal on car insurance: Compare different insurance companies and their policies, looking for the best coverage at the lowest cost. Make sure you know exactly what is covered, and don’t be afraid to negotiate.
  2. Compare car maintenance costs: Research different mechanics and their services to find the most cost-effective option. If you have the skills, you could even do some of the maintenance yourself.
  3. Find ways to reduce your fuel costs: Consider carpooling some days or driving more slowly. Taking the time to plan your route and look for the cheapest fuel prices can save you money. Carpooling with friends or family members can also help reduce gas costs.
  4. Take advantage of any special offers or discounts: Many car dealerships and mechanics offer discounts or promotions that can save you money on car ownership. Be sure to ask about any special offers or promotions available.
  5. Buy second-hand parts or accessories: This allows you to save money on repairs and upgrades. Buying second-hand parts or accessories can often be much cheaper than buying new ones. Look online for second-hand parts and accessories, or ask around for recommendations.

Cost of Owning a Car FAQs

What is the average annual cost of owning a car?

It is estimated that owning a car costs around $8,500 per year. This figure includes costs such as gas, maintenance, insurance, and depreciation.

What cars have the lowest cost of ownership?

The cars with the lowest cost of ownership include the Toyota Prius, Honda Civic, Honda Accord, Toyota Corolla, Honda Fit, Nissan Versa, and Hyundai Elantra.

To find a car with a low cost of ownership, it is best to research cars that have good fuel economy, low maintenance costs, and reliable reviews from customers and industry experts. Doing research and comparing prices should help you find the best car that fits within your budget.

Which cars depreciate the most?

Cars that depreciate the most are typically luxury vehicles, high-end sports cars, and vehicles that are more than three years old. Other factors that can contribute to a vehicle’s depreciation rate include its make, model, age, mileage, condition, and features.

New cars tend to depreciate much quicker than used cars, sometimes costing thousands of dollars in lost value as soon as they leave the showroom.

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 total car costs, 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 are 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.