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The True Cost of Car Ownership

EXPECTED READ TIME: 5 MINUTES

Car ownership looks different for everyone. To some owners, a car is a prized possession, and to others, just a way to get from point A to B. Regardless of which lane you're in, the cost of car ownership inevitably comes into play. We'll navigate through expenses to consider, from those that are obvious to more obscure, to help you calculate the true cost of car ownership.

What Is the Average Cost of Car Ownership?

A quick internet search for current stats on the total cost of car ownership will show various numbers ranging from around $8,500-9,600 per year. Whether it's a used car or new car, drivers generally keep a newly purchased vehicle for an average of around six years. And while a vehicle may keep running for decades, in terms of staying up to date with technological developments and current features, the average age of cars today is approximately 11 years (according to research referenced by Autotrader.com).

Example Breakdown of Vehicle Expenses

This point-by-point guide will compile the individual costs of owning a car so you can see how everything adds up to the total estimated cost. Some of the parameters for our calculations are based on the Edmunds True Cost to Own (TCO)® set of assumptions, which specify the following criteria:

  • Mileage: 15,000 per year
  • Car owner is using traditional financing (not leasing)
  • Finance rate was determined on an above-average credit rating

Our new- and used-car monthly loan payment amounts are based on data from Experian, one of the top three credit bureaus. We've based amounts for insurance, registration/fees, and maintenance on data from AAA. Fuel costs per gallon are referenced from the U.S. Bureau of Labor.

Although hidden fees and optional expenses weren't incorporated into our calculations, being aware of them is important, and they might apply to your situation.

Financing

The amount you pay each month to repay your auto loan will depend on factors such as whether you buy a new or used car, your down payment, your interest rate and your loan term. Interest rates will vary depending on whether you choose a fixed or variable rate, as well as your credit score.

Keep in mind, how much you're comfortable spending monthly on your car loan will depend on your personal financial situation. Research spending rules to help you figure out an amount that works for you.

Average car loan payment (monthly average): new: $554, used: $391

Estimate the cost of a new or used car loan.

Insurance

Car insurance provides you with coverage if some kind of financial loss were to occur, such as theft or damage from an accident. Each month, you pay a premium and your insurance company is responsible for paying your potential losses, as outlined in the policy you choose. Insurance costs vary per state, but your policy may include common types of coverage such as liability, comprehensive, and collision. Make sure to shop around so you can find the right policy at a price that works for you.

Average cost of insurance: $99.50 (average monthly premium)/$1,194 (yearly premium)

Vehicle Title, Registration, Taxes, and Other Fees

Fees for your vehicle title and registration will also differ by state. Plus, remember to budget for state and local sales taxes. We calculated the monthly amount for our example based on AAA's annual figure.

Average cost of vehicle title, registration, taxes, and other fees: $62.75 per month/$753 per year

Drivers generally keep a newly purchased vehicle for an average of around six years.

Maintenance and Repairs

From getting an oil change to having a flat tire fixed, maintenance and repairs will pop up. Your factory warranty, which often lasts for the first three years that you have your car, should cover most costs. However, for a general idea of monthly maintenance and repair costs, we looked to more findings by AAA. If you're handy with repairs, this amount could be lower.

Average cost of maintenance and repairs: $66 per month/$792 per year

Fuel

Whether you need regular, premium, or diesel fuel will depend on your vehicle. However, for a general monthly estimate, here's how we'll break it down. Let's say:

  • You drive 15,000 miles a year
  • Your car gets 25 miles per gallon
  • Gas is approximately $3 per gallon

You'll end up spending approximately $1,800 a year, which divides down to $150 a month.

Average fuel cost: $150 per month/$1,800 per year

How to Calculate the True Cost of Car Ownership

For this example, we based our calculations on national averages, but you'll use the actual costs associated with your vehicle. Since some bills come monthly or even twice a year, you might have to take a monthly, quarterly, or bi-annual payment and multiply that to find the yearly number for each vehicle expense.

Here's how our example of the true cost of car ownership comes together:

  • Loan payment including interest for a new car: $6,648 yearly
  • Insurance: $1,194 yearly
  • Vehicle title, registration, taxes, and other fees: $753 yearly
  • Maintenance and repairs: $792 yearly
  • Fuel: $150 monthly/$1,800 yearly
  • Total = $11,187 (yearly) x 6 years (average car-ownership length) = $67,122

Many factors can affect these estimates. For instance, adding in depreciation will increase the annual and total costs of car ownership. Moreover, as the math shows in total, our estimates amounted to more than what AAA listed as the average annual cost to own and operate a car.

Depreciation

We didn't factor this into our calculations, but depreciation can play a role in overall value. Depreciation — the decline of your car's value over time — is an overall expense to consider as you compute your total cost of car ownership. Not as obvious as a monthly payment, depreciation still packs a price-tag punch, as cars generally depreciate at a rate of 20% in the first year of ownership and then slightly decrease to a rate of about 15% in following years. You can't completely avoid normal wear and tear, but keeping your car in top condition can help when you're ready to trade it in for another car or sell it. Just make sure you know your car's resale value when you're at that point.

According to AAA, a monthly estimate for depreciation is $3,759 per year, which equates to $313 a month .

Final Thoughts

As you can see, it really pays to run the numbers yourself. By mapping out your own expenses as you refer to this guide, you can see what the true cost of car ownership will add up to for you. Take it to the next level by using this guide to compare different vehicles as you shop for a new car or truck.

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