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The cost of owning a car
September 29, 2023
Verified by
Jonah Collins
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The automobile is a necessity for most Americans. Unless you live in an area with a strong public transportation system, your car probably helps you get around in your daily life. But at a time when inflation is at its highest level in decades, do you know how much your car really costs you? Finwower analyzes the real cost of owning a car to help you understand the impact of your car on your budget.
How much does it cost to buy a car?
The cost of buying a new or used car has increased dramatically in recent years due to inflation and supply chain problems. According to Kelly Blue Book, in February 2023 the average cost of a used car was $26,510. The average cost of a new car was $44,697.
Although vehicle prices are slightly lower than at the end of 2022, many drivers continue to stretch their budgets to get around. Moreover, the purchase price is only the first in a long line of expenses associated with buying a car.
Owning a car also means paying for insurance, gasoline, maintenance and more. According to AAA's Your Driving Costs study, the annual cost of owning a car in 2022 was $10,728, up from $9,666 in 2021. This increase is in line with the latest Bureau of Labor Statistics (BLS) Consumer Price Index report, which indicates a 5.75 percent increase in all transportation costs (excluding gasoline) between February 2022 and February 2023.
Costs of car ownership
Some costs associated with car ownership are more obvious than others, but there are ways to minimize them. Whether you are buying your first car or simply want to take stock of what car ownership entails, here are some things to consider.
Insurance
The average cost of comprehensive auto insurance in 2023 is $2,014 per year, although your premium may vary depending on where you live, the type of vehicle you drive, your driving history, the insurance company you choose and the types and levels of coverage you purchase. Comparing quotes from different insurers and choosing the level of coverage that best suits your needs can help you avoid unnecessary expenses.
Purchase price and financing
According to Experian, in the first quarter of 2023, monthly repayments for new car loans averaged $725, while those for used cars averaged $516 per month. Not surprisingly, these amounts have increased to keep up with inflation. Buying a used car in good condition can help reduce future loan and maintenance costs.
Fuel
Gasoline prices have been in the news a lot recently, and with good reason. After peaking at just over $5 a gallon in mid-June 2022, the national average is $3.60 a gallon as of April 10, 2023, according to AAA. However, prices are still much higher in some states. California motorists are paying the most, with a current average of $4.88 per gallon. When calculating the price of gasoline, don't forget to take into account your route and average weekly mileage; the more you drive, the more you pay at the pump.
Vehicle registration
Vehicle registration fees vary from state to state. While some states charge a flat fee for all vehicles, others base the cost of registration on the age, horsepower or weight of the vehicle. In states like Oregon, vehicle owners can pay up to $316 in registration fees. To find out how much it costs to register a vehicle in your state, you can contact your state's Department of Motor Vehicles.
Maintenance
The average cost of routine maintenance for a midsize sedan was 10.64 cents per mile in 2022, according to AAA. Costs can vary depending on the type of vehicle, repair costs in your area and the number of miles driven. Tracking maintenance expenses, such as oil changes, tire rotations and windshield wiper replacements, can help you better predict these costs.
Depreciation
Depreciation is not really a "cost," but it is something to keep in mind, as the value of the car decreases as soon as you take it out of the factory. The depreciation of a car varies widely depending on make and model, age, location, mileage, and quality of maintenance. According to AAA, in 2022, the average annual depreciation cost for a midsize sedan driving 10,000 miles per year was $3,656. New vehicles depreciate rapidly. Therefore, buying a used car and keeping it in good condition can help reduce the rate of car depreciation.
How to save money on car ownership
Although the cost of owning a car can be high, owners can take steps to keep expenses under control:
- Buy cheaper car insurance: insurance companies have different algorithms for calculating insurance rates, so some may offer lower rates than others depending on personal rating factors and coverage needs. Comparing quotes from different insurance companies can help you save on your premium.
- Choose your vehicle wisely: the make and model of the vehicle you purchase can help you save money from the start through a lower price and, as a result, lower insurance, repair and fuel costs. When evaluating a new vehicle, you can consider your lifestyle, local fuel prices, customer reviews, average service costs, and average insurance costs.
- Refinance your car loan: some car loans can be refinanced at a lower rate. It might be a good idea to check if a lower rate is available, especially if the market has changed since you purchased the vehicle. With interest rates rising rapidly, it might be a good time to consider this option.
- Group car trips: the more you drive your car, the more maintenance it requires and the more you spend on gasoline. It may be a good idea to combine errands into one trip, carpool with friends and neighbors, and look for other local public transportation options. Driving less can also mean lower car insurance costs, especially if you participate in a telematics program.
- Car maintenance: when it comes to vehicle repair costs, the best defense is a good offense. Regular maintenance can help you avoid higher repair costs in the future. Early detection of problems can often reduce repair costs.
When is it necessary to replace a car?
Vehicles do not last forever, and sooner or later they will need to be replaced. Over time, maintenance can become unmanageable or the car no longer fits your lifestyle. Here are some things to consider when wondering if it is time to replace your car.
Change in family or lifestyle
Over time, the family may grow and the ideal vehicle may change at the same time. For example, a larger vehicle may be needed to accommodate car seats. Although larger cars are more spacious and newer models have advanced safety features, they do not consume as much fuel as a smaller car, which can mean greater financial responsibility.
A change in job or lifestyle may also make it necessary to replace a car. A new job that involves longer trips may mean it is time to invest in a more reliable and fuel-efficient vehicle. If you own a small car but fall in love with camping, you may need to purchase an SUV or truck to meet your new lifestyle preferences.
Ongoing maintenance issues
When a car is used for many years, it may require more frequent maintenance. If the vehicle is constantly taken to the shop, it may be time to purchase a new car. You can also calculate whether the cost of maintaining the current vehicle is higher than buying a new one.
Although new car models are generally less likely to break down, they involve a considerable initial cost or outlay. In addition, with advanced safety features and computer systems, servicing can be more expensive than with an older model.
Poor energy efficiency
Alternative energy and new technologies have greatly improved the fuel efficiency of modern cars. Those who are looking for a car that consumes little (or no) gasoline can find many hybrid and electric vehicles on the market, whose prices are increasing year by year.
Although fuel-efficient cars cost more to purchase and maintain, fuel costs can be reduced or eliminated altogether. In addition, fuel-efficient vehicles can help reduce personal carbon footprint and get a discount on car insurance with some companies.
Budget changes
If your budget has recently changed, your vehicle may no longer meet your new needs. For example, you may have taken a lower paying job and have difficulty paying for the car. Or perhaps the opposite has happened: you have earned more money and can finally afford the car of your dreams.
By being able to fit the cost of the car into your budget, you can enjoy greater financial peace of mind. However, if you are getting rid of an old car whose value has depreciated, you may not get the full amount needed to repay the loan, which means your budget will have to be adjusted to meet your new payment needs. On the other hand, if your budget has increased, selling an old vehicle may allow you to eliminate some maintenance costs and enjoy a more comfortable and efficient ride.
Motorists should be aware that states generally charge more for registering a newer vehicle and may also charge extra for all-electric models. In addition, insurers generally charge a higher monthly premium to insure newer or luxury vehicles because the cost of repairing or replacing the vehicle in the event of a covered event is likely to be higher.
Advantages and disadvantages of vehicle replacement
Replacing a vehicle has advantages and disadvantages that may vary from one motorist to another. While purchasing a new car can be exciting, it can come with additional expenses. By consulting this list and comparing the pros and cons of a new car in your life, you can decide if it is time to purchase a new one.
Advantages
New cars are generally more fuel efficient.
A hybrid or electric model can reduce or eliminate fuel costs.
A different vehicle may better suit your family's lifestyle and transportation needs.
Newer vehicles generally require less maintenance and fewer repairs.
Budget changes can help you purchase a more comfortable or efficient vehicle.
A hybrid or electric model can reduce or eliminate fuel costs.
A different vehicle may better suit your family's lifestyle and transportation needs.
Newer vehicles generally require less maintenance and fewer repairs.
Budget changes can help you purchase a more comfortable or efficient vehicle.
Disadvantages
Buying a new car will probably increase expenses, even if it reduces maintenance costs.
Registering and insuring a newer vehicle may cost more.
As for maintenance, advanced systems can make repairs more expensive.
Fuel-efficient cars may have higher initial costs.
Registering and insuring a newer vehicle may cost more.
As for maintenance, advanced systems can make repairs more expensive.
Fuel-efficient cars may have higher initial costs.
Advantages
Disadvantages
New cars are generally more fuel efficient.
A hybrid or electric model can reduce or eliminate fuel costs.
A different vehicle may better suit your family's lifestyle and transportation needs.
Newer vehicles generally require less maintenance and fewer repairs.
Budget changes can help you purchase a more comfortable or efficient vehicle.
A hybrid or electric model can reduce or eliminate fuel costs.
A different vehicle may better suit your family's lifestyle and transportation needs.
Newer vehicles generally require less maintenance and fewer repairs.
Budget changes can help you purchase a more comfortable or efficient vehicle.
Buying a new car will probably increase expenses, even if it reduces maintenance costs.
Registering and insuring a newer vehicle may cost more.
As for maintenance, advanced systems can make repairs more expensive.
Fuel-efficient cars may have higher initial costs.
Registering and insuring a newer vehicle may cost more.
As for maintenance, advanced systems can make repairs more expensive.
Fuel-efficient cars may have higher initial costs.
Frequently asked questions.
Which cars have the lowest running costs?
According to customer and industry opinions, cars with the lowest running costs generally have good fuel economy, low maintenance costs, and proven reliability. With a little research, you should be able to find a car with a low running cost that meets your budget needs.
How can I get a better rate for my car insurance?
To get the best rate on an insurance policy, most insurance experts recommend comparing rates from several providers. It can be a good idea to look at all the discounts and packages offered by different insurance companies. Many insurers offer discounts for things as simple as setting up an automatic payment system on the policy. In general, the biggest savings are achieved by bundling several insurance policies, such as auto and home insurance, with one insurer. A clean driving record can also help you save on your car insurance premium, as it is taken into account when calculating your premium and indicates the risk you represent as a driver.
How can I calculate the total cost of ownership of my car?
To calculate the total cost of ownership of a car, the following elements can be considered:
- the cost of the vehicle and any interest on monthly repayments
- insurance costs
- fuel costs
- registration costs
- maintenance costs
- depreciation.
By estimating these costs based on lifestyle, vehicle type, and local cost of living, the total monthly or annual cost of owning a car can be calculated.
Why are new and used cars so expensive today?
There are many reasons why new and used cars are so expensive today. Although average rates are not as high as they will be at the end of 2022, inflation and supply chain problems continue to drive up car prices. Labor shortages in manufacturing and the scarcity of electronic chips used in many modern vehicles are driving up average costs. As fewer vehicles are produced but demand remains constant, prices rise accordingly. Finally, as the Federal Reserve continues to raise interest rates in response to inflation and other economic factors, buyers may also see interest rates on their payments rise when they purchase a vehicle, increasing the total cost of the purchase.
