The impact of inflation on the cost of owning a car

Owning a car is a significant expense — between purchasing the vehicle, paying car insurance premiums, getting repairs and refueling. In an age of record inflation, owning a car comes with even greater sticker shock. The current inflation rate sits at 7.1 percent, compared to the normal acceptable inflation rate of two percent. In addition, the cost of cars has increased 9.2 percent, according to the latest Consumer Price Index (CPI) data.

Inflation data for owning a car

Inflation impacts car ownership in various ways, and some categories within the ownership experience are impacted more heavily than others. It may be helpful to keep each category in mind as you are putting together your monthly and annual car ownership budget. Inflation is impacting numerous aspects of the ownership landscape, so there may be areas where you need to adjust your monthly budget.

Advice for someone wanting to buy a car

If you’re in the market for a car, you may be concerned about car price inflation. Bankrate’s chief financial analyst, Greg McBride, says:

It hasn’t been a great time to buy a car because limited supply has driven vehicle prices up significantly, but this is starting to reverse a bit in the used car market. If you have the luxury of waiting, the environment for used car buyers should continue to improve with prices easing and buyers having more negotiating power.

McBride goes on to say, “If you’re in a pinch and need a car right away or insist on having a new car, then expect to pay up. Dealer inventory is still limited enough to keep prices elevated and new car buyers have little room to haggle on price.”

“Auto insurance is another expense on the rise. Whether you’re getting a new vehicle or keeping the one you have, chances are your premiums have marched higher in the past couple of years. Shop around and compare among auto insurance carriers to see if there is a better deal out there. Oftentimes, there is,” McBride advises.

Most and least expensive cars to own

AAA reported on the total cost of vehicle ownership across several categories, including financing, maintenance and fuel costs. Half-ton pickup trucks topped the list of most expensive vehicles, with an average annual ownership cost of $10,839. The next two most expensive vehicles to own were large sedans, which were slightly less expensive at $10,403 in average annual ownership costs, and medium-sized SUVs at an average of $10,265 per year.

These vehicles are expensive to own mostly due to high financing charges and fuel costs. Those costs illustrate the importance of looking at the entire cost of owning a vehicle rather than just the sticker price. Keep in mind that your make and model will also impact the cost for your car insurance.

If you want to look at ways to lower your overall car ownership costs, you could consider looking at the three least expensive types of cars to maintain. The same AAA study found the following:

How to save on car insurance

Because of the impact of inflation on so many aspects of car ownership and household budgets, some Americans can no longer afford auto insurance. As shown through Bankrate’s analysis and the CPI, the annual cost of car insurance continues to creep up. The average cost of car insurance is now $1,771 per year for full coverage, while minimum coverage averages $545 per year.

Vehicle owners trying to cut costs without sacrificing adequate coverage can implement several strategies to save on car insurance.

1. Stay insured: It may be tempting to eliminate car insurance from your monthly budget altogether, but being continuously insured is a legal requirement in most states and can help you maintain lower costs of coverage in the long run. A lapse in coverage could cause insurers to perceive you as a higher risk to insure, leading to higher premiums. Additionally, getting into an accident without coverage could leave you financially vulnerable with high out-of-pocket costs. Maintaining coverage creates a financial safety net for yourself and may even qualify you for additional loyalty discounts.
2. Bundle your insurance policies: If you have another policy, such as homeowners, condo or renters insurance with another provider, try bundling all policies with one company. The discounts can be significant, with some of the top car insurance companies offering up to double-digit savings. Not only could bundling help save money, but it can also save time by streamlining your payments.
3. Shop around: Shopping around and comparing rates from multiple providers, even while currently insured, is a great way to ensure you are paying the cheapest car insurance rates. Rates vary from company to another, which can be a big advantage to you. When you shop around, you can compare the exact coverage levels and options, giving you a clearer picture of premiums.
4. Raise your deductible: Certain auto coverage types have deductibles, including comprehensive coverage and collision coverage. Your deductible is the out-of-pocket cost you would pay if you need to make a claim. If you raise the deductible amount, your premium will decrease since you are taking on more financial responsibility. However, be sure that your deductible remains an amount you could comfortably pay in the event of a claim.
5. Ask about low-mileage discounts: With more people working from home or commuting to the office less frequently, you may be able to qualify for a low-mileage discount. Annual mileage usage is one of the factors used to determine your rates, so there could be further savings if you have altered your driving habits. When inquiring about a low-mileage discount with your agent or provider, ask about any other discounts you may now qualify for that may not have applied to you when you first secured a policy.

Inflation impacts most aspects of everyday life, including making car ownership more expensive. Increases in the cost to own a car are seen in multiple facets, including sticker prices, refueling costs, maintenance and car insurance premiums. While the increased costs may sometimes feel overwhelming to your finances, you can take a few steps to help offset some of them.

If you are looking into how to finance a car, be sure to take time to shop different lenders and be mindful of how your loan term affects interest rates. By researching different vehicle’s annual ownership costs and carefully selecting your auto insurance so that you are adequately covered, you can help best prepare your budget to handle the total cost of car ownership.

Frequently asked questions

• • When is the best time to buy a car?

    The best time to buy a car depends on your individual needs. Right now, car price inflation is high and used and new car prices haven’t quite returned to normal after skyrocketing during the pandemic-era supply chain interruptions. If you need a car now, you may want to adjust your budget, consider financing, and find a way to make it work. However, if you can wait, you may want to hold off until used and new car prices come down a bit.

  • Is it better to buy a new or used car?

    It depends on what you’re looking for. If you want the latest features and lower initial maintenance costs, a new car may be the right fit. If you’re looking for a lower initial price and a lower insurance premium, you may want to consider a used vehicle.

  • How much is car insurance?

    The national average cost of auto insurance is $1,771 per year for full coverage. Your actual car insurance rate will differ, as there are many factors that impact your cost for car insurance.

  • How do you find the depreciation rate of your car?

    From the second to fifth year of ownership, a car loses approximately 10 percent of its value each year. To find the exact value of your used car, you can use online sources such as Carfax’s  history-based value tool, Kelley Blue Book and Edmunds.