What Is the Cost of Owning a Car?
Figuring out the specific costs of owning a car can help you budget accordingly. Many factors contribute to the total cost of ownership, such as fuel, insurance premiums, taxes and depreciation.
Here’s how to calculate your car’s costs, as well as seven ways to reduce your monthly auto expenses.
Average car price
According to AAA and Kelley Blue Book (KBB), this is how much a new car costs to own per month, including additional costs like fuel, insurance and tires.
| New vehicle category | Average total cost per month | Starting retail price |
|---|---|---|
| Small sedan | $849 | $16,490 |
| Medium sedan | $1,040 | $25,985 |
| Compact SUV | $962 | $27,995 |
| Medium SUV | $1,144 | $30,015 |
| Midsize pickup | $1,180 | $29,190 |
| Electric vehicle | $930 | $26,795 |
See here for more on AAA’s methodology and KBB’s research.
How to calculate the total cost of car ownership
A car ownership calculator can help you find the most accurate estimate based on your car’s make, model and the following car-related expenses:
Purchase price and financing
With the average price of a new car hitting $47,936 in October 2023, chances are you’ll need to take out an auto loan to cover some or most of the cost.
Based on LendingTree’s auto debt statistics, the average car loan was $40,851 for the first quarter of 2023, with an average monthly payment of $725. The latest Experian data shows that the average APR for a 60-month new auto loan was 7.48%, a 2.96% increase from 2022.
According to these figures, you could potentially pay $8,240 in total interest over the life of the loan. Check out the best auto loan rates to help you budget for your next car. While bad-credit auto loans can help low-credit borrowers get approved, they usually come with higher rates and less flexible repayment terms.
Also, our auto affordability calculator can help determine how much you can afford to pay monthly:
Registration, fees and taxes
While some states have no vehicle sales tax, others have high sales taxes on top of annual property taxes. When you first buy a vehicle, expect to spend about 8% to 10% of the vehicle’s price in taxes and fees, including those charged by the dealership.
Watch out for common dealership fees when shopping for new or used vehicles. Some are unavoidable, like a destination charge for a new vehicle or car title transfer fees for used vehicles. Others are optional add-ons, like extended warranties and anti-theft devices.
Insurance
The national average car insurance cost is about $53 a month, or $693 a year. However, the exact amount that you’ll pay will vary based on your vehicle type, driving history, home state and the level of coverage you select. Get a few car insurance quotes to find the best deal for your situation.
Fuel
There’s no denying that gas contributes to a large portion of your overall car expenses, with national fuel prices averaging $3.28 per gallon as of Nov. 22, 2023. The U.S. Department of Transportation’s Federal Highway Administration (FHWA) estimates that Americans put 13,476 average miles on a car per year.
While the exact amount spent depends on how much you drive and fuel costs in your area, you could expect fuel expenses between $150 to $200 per month, or an average of $5,000 per year.
You can use the U.S. Department of Energy’s gas cost calculator to estimate fuel costs for upcoming trips.
Maintenance and repairs
It’s hard to nail down exact maintenance costs since they vary by vehicle type, local mechanic fees and the general wear and tear you put on the car. AAA data shows that maintenance for a medium sedan in 2022 averaged about 10.64 cents per mile.
So, if you drive 15,000 miles in one year, you could expect to budget around $1,600 for maintenance expenses. These costs will likely increase as the car ages and the warranty covers less.
Depreciation
Car depreciation is the amount a vehicle’s value drops over time, varying by model, make, upkeep and other factors. While there are no set rules for depreciation, cars typically lose about 15% to 20% of their value in the first year.
Most new vehicles are worth only half of their manufacturer’s suggested retail price (MSRP) after three years, which is when most comprehensive warranties expire. The best way to limit depreciation is to buy a used car.
7 ways to save on car ownership
1. Choose your car wisely
Your overall insurance, repair and gas costs could change based on the type of vehicle you buy.
According to J.D. Power’s most recent vehicle dependability study, Lexus, Toyota, Genesis, Cadillac and BMW are the top five highest-ranked brands for reliability. Kelley Blue Book also features annual awards for specific cars based on their five-year cost-to-own ranking.
While electric vehicles (EVs) tend to cost more up front than conventional cars, they have far fewer moving parts that can break — plus, you might be eligible for an EV tax credit of up to $7,500.
New vs. used car costs
It’s no surprise that used cars cost less than new cars. On average, Americans borrow $26,420 for used vehicles versus $40,851 for new vehicles.
However, used cars generally have higher maintenance and repair costs due to breakdowns and diminishing warranty coverage. It’s part of the trade-off when you consider whether to buy a new or used car.
If you can’t decide between a used or new car, consider a middle ground: A certified pre-owned (CPO) vehicle. A CPO car must be within a specific age and mileage limit while meeting the manufacturer’s standards. CPOs also come with a free extended warranty.
2. Shop for cheaper insurance premiums
It’s worth comparing car insurance quotes to see if you can snag a lower premium with a different company. Another option is to use a quote comparison site to review quotes from leading car insurance companies simultaneously.
3. Perform regular vehicle maintenance
The best way to avoid a major repair is to keep up with your car’s maintenance schedule. Shop around for car repair estimates to find a reputable repair shop in your area.
4. Consider an extended warranty
A high-tech, basic or powertrain vehicle service contract (VSC) can prevent you from paying any hefty repair fees out of pocket. Here’s how to find the best extended car warranty.
5. Build an emergency fund
Building an emergency fund can help you prepare for unexpected car maintenance and repair costs. The popular 50/30/20 budget method recommends using 50% of your income to pay necessary bills, 30% for extras like entertainment and putting 20% directly into your savings account.
6. Refinance your car loan
Refinancing your car loan to a lower rate could reduce your monthly bill, helping you save over the life of the loan. Check out our list of best auto loan refinance lenders to see if you qualify for a lower rate.
You typically need a good to excellent credit score and debt-to-income (DTI) ratio to secure a competitive refinance rate. Alternatively, you can refinance with a creditworthy cosigner.
7. Evaluate your driving habits
Paying attention to your driving habits can help reduce your overall car expenses. Here are some money-saving tips worth exploring:
- Combine multiple errands into one trip
- Carpool with coworkers, friends and neighbors
- Use public transportation whenever possible
- Walk, bike or scooter to nearby locations
Driving less could also lower your car insurance premiums, especially if your insurance company offers a telematics program.
Frequently asked questions
To find a vehicle with a low cost of ownership, start by reading customer and industry reviews and paying attention to gas mileage and overall maintenance costs. You can also find the average cost of a new car by referring to a trusted guide, such as AAA’s cheapest cars to own — with Nissan Versa, Mitsubishi Mirage and Kia Forte taking the lead for 2024.
At first glance, Uber fees can seem exorbitantly high. But in reality, Ubering might be more cost effective than owning a car, depending on your travel trends.
Of course, many factors go into the Uber versus car ownership debate, such as if you have kids and pets or need a car for long road trips. However, Ubering could work for you if you live in an urban area and only need to travel short distances.
According to Edmunds, new cars typically lose 23.5% of their value after one year and roughly 60% in the first five years.
For example, if you bought a new car for the average price of $18,000, the estimated value would drop to around $13,770 at the end of the first year. And after five years, the car’s value would roughly be $8,000.