When most car buyers begin budgeting for the ongoing monthly expenses of car ownership, they typically consider the cost of vehicle financing and insurance coverage as the total cost of owning and operating a vehicle. Unfortunately, that approach fails to see the big picture. Did you know that, according to a recent study from AAA, annual car ownership costs can add up to an average of $8,469 if you drive 15,000 miles a year?
If you fail to consider the bigger financial picture of car ownership—including fuel, maintenance and repair, registration, and depreciation—you can accidentally end up with a new vehicle that’s out of your budget. Avoid unnecessary financial strain down the road by reviewing all the car ownership costs you can expect before committing to your next car purchase.
Car Ownership Cost #1: Auto Financing and Insurance
The most obvious factor in the cost of car ownership is the vehicle loan most buyers need to utilize in order to purchase their ride in the first place. Repaying the total purchase price plus interest over the course of five, six, or even seven years adds up, with the average monthly payment for a new vehicle coming in at $504. Fortunately, you can easily gauge this expense and how it fits into your budget by doing a quick calculation with our online tool.
Insurance is also a required expense with car ownership and covers collision and liability for the time you own your vehicle. Costs for insurance vary depending on the amount of coverage you select, your driving record, and the vehicle you purchase, but on average, car owners pay $92 per month or $1,115 annually.
Car Ownership Cost #2: Fuel
To get from point A to point B, you have to fuel up. While many newer model vehicles tout greater fuel efficiency, filling up one or more times each week should be added to the cost of car ownership. On average, new vehicle owners spend roughly 10 cents per mile or $1,500 per year. A pro tip for those with a vehicle that does not specifically require premium grade gas: AAA reports that buying the pricier option at the pump doesn’t improve performance or fuel efficiency, so you can save those dollars for other expenses.
Car Ownership Cost #3: Maintenance and Repair
If you own a brand new vehicle, the costs associated with repairs and maintenance are light in the first few years, as many standard fixes are included in the factory or extended warranty coverage. Owning an older vehicle or one that is out of warranty, however, comes with added maintenance and repair expenses. Tire rotations, oil changes, brakes, or unexpected repair bills can add up to $1,186 per year on average.
Car Ownership Cost #4: State Fees
Each state requires car owners to register a vehicle, carry the appropriate licensing, and in some cases, pay taxes, although the fees vary greatly from state to state. As a car owner, you can expect to pay an average of $668 per year for keeping your vehicle in good standing with your state’s motor vehicle department.
Car Ownership Cost #5: Vehicle Depreciation
As a car owner, it’s important to understand how depreciation works and how it impacts the total cost of car ownership. Depreciation is simply the loss of value of your vehicle over time, which means it isn’t necessarily an out-of-pocket expense. However, vehicles purchased new lose an average of 20-30% of their value in the first year of ownership, and between 15 and 18% in years to follow. Extra wear and tear, accidents, and failure to properly maintain your vehicle may cause it to depreciate at a faster rate, which ultimately lowers the resale value of your vehicle.
Planning for Car Ownership Costs
It may seem like car ownership and its associated costs are a big pill to swallow, but the expenses of owning your vehicle are easily managed with the help of advanced planning. Before purchasing your next car, take the time to recognize these added expenses and build them into your budget, just like you would a new car payment.
Add up what you expect to spend on car ownership costs over the next year, then divide that number by 12 to spread those costs out over the course of 12 months. Then, set up a separate account for vehicle costs and add to it each month. A little planning can make all the difference in avoiding financial strain and being fully prepared to afford the total expense of car ownership over time.