The average cost of owning a car
The allure of that new car smell is fading faster than ever as drivers grapple with the escalating cost of vehicle ownership. Not only is the average price tag of a new car precariously close to $50,000, but other considerations, such as car insurance and vehicle maintenance, are making some sizable dents in the household budget for many Americans.
How much does it cost to own a car?
To answer the question of how much a car costs overall, a good place to start is with the actual purchase price of the car. According to Cox Automotive and Kelley Blue Book, the average transaction price of a new car in June 2024 was $48,401, and used car transactions averaged around $25,251 in July 2024. While used car prices decreased by about $1,700 from the same time last year, the price wholesale dealers pay at auction has increased slightly, implying that used car prices may increase in the near future. But the sticker price is only the beginning—there are other costs involved in owning a vehicle.
Bankrate’s Hidden Cost of Car Ownership Study shows that Americans spend an average of $6,684 per year in hidden vehicle expenses in addition to their lease or loan payments. This study examined the annual cost of car insurance, gas, taxes, and maintenance and repair costs. When we add in the average monthly payment for new and used cars, Americans spend about $15,504 per year on costs associated with a new car and $12,960 for a used vehicle.
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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
Costs associated with car ownership
As noted above, the costs associated with purchasing and maintaining a car include far more than just fuel costs. All of the following factors play a role in determining what your total cost will be.
Insurance
The average cost of full coverage car insurance as of August 2024 is $2,329 per year, although your premium may vary based 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 carriers and choosing the appropriate amount of coverage for your needs may help you avoid unnecessary expenses. Speaking with an insurance expert may help you maximize the value of your car insurance coverage.
Purchase price and financing
Based on data from Experian, the average monthly loan payment for a new car is $735, while drivers paying on a used vehicle pay an average of $523 monthly. Based on these numbers, if you’re on a limited budget, you may be better off purchasing a good-quality used car to keep loan costs in check.
Gas
The national average cost of gasoline sits at $3.51 per gallon as of July 24, 2024, according to AAA. This puts the average cost of gas at $1,837 per year for Americans, depending on vehicle selection and other factors, such as the per gallon cost of gas in your town.
Our report determined that annual mileage can outweigh the average per gallon price of gas in your state, causing you to pay more at the pump. For example, drivers in Hawaii average 10,980 miles per year and pay $1,978 annually for gas expenses. In comparison, drivers in Indiana pay an average of $2,913 per year for gas despite the lower $3.68 per gallon price due to their higher mileage — an average of 20,560 per year.
Car repair and maintenance
The average price of routine maintenance for a 2022 Toyota Camry was 9.83 cents per mile in 2023, according to AAA. Nationally, drivers drive an average of 13,596 miles per year and pay $1,336 towards car repair and maintenance. Your own costs may vary based on your vehicle type, repair costs in your area and how much you drive. Tracking maintenance expenses like oil changes, tire rotations and windshield wiper replacements may help you better budget for these costs.
Taxes
Auto tax rates vary from state to state and even between municipalities. Some states, like Alaska and Delaware, do not have a typical tax for vehicle purchases—Alaska has a motor vehicle registration tax (MVRT) and Delaware has a gross receipt tax for the seller of goods. While your tax rate may be different depending on where you live and your vehicle, the national average annual car tax is $1,182.
Other vehicle expenses to consider
There are other factors that impact vehicle ownership expenses. While registration and depreciation may not feel like major aspects of vehicle ownership, these costs can add up.
Registration
Registration fees vary from state to state. While some states charge a flat fee for all vehicles, others base the registration cost on the age, horsepower or weight of a vehicle. In states like Oregon, car owners might pay as much as $316 in registration fees. Meanwhile, Alabama residents could pay as little as $23. You can find out how much registering a vehicle in your state will cost by contacting your state’s department of motor vehicles.
Depreciation
Depreciation isn’t actually a “cost,” but it is something to keep in mind, as your car’s value will decrease as soon as you drive it off the lot. A car’s depreciation varies widely based on its make and model, age, location, mileage and how well it’s taken care of. In 2023, the average annual cost of depreciation for a medium sedan driven 10,000 miles per year was $4,538, according to AAA. Typically, brand-new vehicles lose their value quickly, so buying used and keeping the car in good shape may help lower your car’s depreciation rate.
First-hand insights: Is the cost of car ownership worth it?
As car ownership costs rise, some drivers are reconsidering how many cars are worth owning — if any. To get first-hand perspectives, Bankrate’s insurance editorial team turned to r/MoneyDiariesACTIVE, a women-focused Reddit forum dedicated to sharing money tips and stories. Some users shared their tips for reducing the cost of car ownership, while others reported that going entirely car-free had saved them a significant amount of money.
Oct. 7, 2023
Gas prices are the killer
I live in a very car-centric area so not owning a car is impossible. I paid my car off in 2018 and my husband does my maintenance for me, so it’s not too bad. HOWEVER —
Gas prices are hovering under $7 where I live and it’s bonkers that my small car takes $60 to fill up. Remote work has made this so much better for me. Previously, I was spending $200-$250/mo on gas alone to and from work (45 minute commute each way in traffic), now I’m only paying $60/mo on gas.
If I had an option for public transit, I’d take it. It does “exist” here but it’s unreliable.
via Reddit community
Oct. 7, 2023
One-car household
We have been a one-car household for 8 years now. My work at a university makes it easier to find places to live where that’s possible, but we’ve always had to make intentional choices about our specific locations to make that work.
Over the last 6 months, car costs totaled $4300, our second-highest spending category. Just over half of that is our car payment ($430/month). We put 50% down on a low mileage used Camry and chose a 3-year loan. $700 for insurance, $419 for gas, and $300 for maintenance in that time period.
via Reddit community
Oct. 7, 2023
$900/per month saved
Moving from a car-centric area to a city where we can be car-free has saved my family so much money. And our rent is actually a lot cheaper too. I don’t feel constricted at all in mobility because it’s very common to be car-free and transit is very good and cheap. If I had to think about how much it’s saved us… I think around $900/month, between payments, insurance, and gas.
via Reddit community
*The quotes and citations included on this page have been verified by our editorial team and are accurate as of the posting date. Outlinked content may contain views and opinions that do not reflect the views and opinions of Bankrate.
How to save on car ownership
Although the cost of car ownership can be steep, owners may be able to take steps to keep expenses in check:
- Shop for cheaper car insurance: Insurance companies have different algorithms for calculating insurance rates, so some may offer you cheaper rates than others based on your personal rating factors and coverage needs. Comparing quotes from multiple providers may help you save on your premium.
- Choose your vehicle wisely: The make and model of the vehicle you buy may help you save immediately with a lower price tag and down the road with lower insurance, repair and gas costs. When considering a new vehicle, you may want to research local gas prices, customer reviews, average maintenance costs and average insurance costs across various makes and models before settling on which car to buy.
- Refinance your car loan: Some car loans can be refinanced at a lower rate. It may be wise to check and see if there’s a lower rate available, especially if the market has changed since the vehicle was purchased.
- Consolidate driving trips: The more you drive your car, the more maintenance it will generally require and the more you will spend on gas. It may be a good idea to consolidate errands into one trip, carpool with friends and neighbors and research public transportation options. Driving less might also mean lower car insurance costs, especially if you participate in a telematics program.
- Maintain your car: When it comes to vehicle repair costs, the best defense is a good offense. Having routine maintenance done may help prevent higher repair costs down the road. Early detection of issues can often bring repair costs down.
When is it time to replace a car?
Vehicles don’t last forever, so you will need to replace yours at some point. Over time, maintenance can become unmanageable, or the car might no longer be a good fit for your lifestyle. Here are a few situations to consider when thinking about whether or not it’s time to replace a car.
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Families may grow with time, and your ideal vehicle may change as your family changes. For example, a larger vehicle may be needed to accommodate car seats. While larger cars have more room and the newer models include advanced safety features, they may get fewer miles per gallon of gas than a smaller vehicle, which could mean greater financial responsibility.
Job or lifestyle changes may also necessitate a car replacement. Getting a new job with a longer commute could mean it’s time to invest in a more reliable vehicle with better gas mileage. If you own a small car but fall in love with camping, you may need to buy an SUV or truck to accommodate your new lifestyle preferences.
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Once a car has been used for many years, it may require more frequent maintenance. If a vehicle is constantly being taken to the repair shop, it might be time for a new ride. You can do some math to see if the cost of maintaining your current vehicle outweighs the cost of getting a different one.
Although newer car models are typically less likely to break down, they come with a substantial upfront cost or car payment. Additionally, with advanced safety features and computer systems, average maintenance costs may be more expensive than with an older model.
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Alternative energy and new technology have dramatically increased the fuel efficiency of modern cars. Those looking for a car that won’t use a lot of gas (or any at all) can find plenty of hybrid and electric vehicles on the market, and they’re becoming more affordable every year.
Although fuel-efficient cars may cost more to buy and maintain, fuel costs could decrease or be eliminated. Plus, fuel-efficient vehicles may reduce your carbon footprint and potentially earn you a discount on your car insurance with some carriers.
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If your budget has recently changed, your vehicle might not fit your new needs. For example, perhaps you’ve taken a lower-paying job and are struggling to afford your car payment. Or maybe it’s the opposite: you’re making more money and can finally afford your dream car.
Aligning your vehicle’s costs with your budget could give you greater financial peace of mind. However, offloading an older car with depreciated value may not get you the total amount to pay off your loan, which could mean your budget has to adjust to meet your new payment needs. On the other hand, if your budget has increased, selling an older vehicle could eliminate some maintenance costs while providing a more comfortable and efficient ride.
Drivers should note that states typically charge more to register a newer vehicle and may also charge extra for all-electric models. Additionally, insurers typically charge a higher monthly premium to insure newer or luxury vehicles, as the cost to repair or replace this vehicle in the case of a covered event will likely be higher.
Frequently asked questions
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There are certainly pros and cons to replacing a vehicle, and they vary by driver. While getting a new car may be exciting, it may also come with additional expenses, such as a new downpayment, taking on another loan if your prior vehicle was paid off and may cost more to insure than your old car. However, you could save money on gas with a more fuel-efficient vehicle and might not have to worry about repair costs and breakdowns as often.
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The cars that have the lowest cost of ownership typically get good gas mileage, have low maintenance costs and are proven to be reliable, based on customer and industry reviews. By doing some research, you should be able to find a car with a low cost of ownership to meet your budgetary needs. Or you can start by considering low-cost models like the Nissan Versa, Mitsubishi Mirage or Kia Forte, as suggested by AAA.
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The lingering effects of the supply chain crunch and the global semiconductor shortage that was the result of manufacturing disruptions during the pandemic limited the production of new cars and drove up their cost. According to Kelly Blue Book, 8 million fewer cars were made between 2021 and 2022, meaning we may be in short supply for an extended period of time. Of the new cars that are being produced, many come with a price tag of over $60,000. The demand for used cars has surged due to high interest rates and the limited supply, which has led to higher prices. Rising prices for raw materials have also contributed to the overall increase in vehicle costs.
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Vehicle depreciation rates can vary based on factors such as make, model and market demand. On average, new cars depreciate around 20 percent in the first year, primarily due to the initial drop in value when driven off the lot. Over the next few years, annual depreciation typically ranges from 15-20 percent. After about five years, the cumulative depreciation tends to be more gradual. On average, a vehicle may lose about 50 percent or more of its value over the first five years. Keep in mind that these are general estimates, and actual depreciation can vary based on factors like mileage, the vehicle’s condition and market trends. Regular maintenance and care can also influence a vehicle’s resale value.
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