Car ownership can bring a lot of freedom and flexibility to your life — but it also comes with a financial commitment that lasts long after your car loan is paid off. If you’re looking to create a budget for your next car, take these factors into account when determining how much it will cost you in the long run.
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The average cost to own a compact car is estimated at $8,600 per year. However, this number can vary considerably. For example, according to the Canadian Automobile Association (CAA) a 2017 Honda Civic driven in Ontario could cost over $10,000 to operate annually.
This amount represents vehicles driven about 20,000 km a year and includes the cost of fuel, maintenance, repairs, insurance, fees, depreciation and loan payments. The loan payment alone in our example was estimated to be $345 a month.
However, these numbers are just averages. Your actual cost of car ownership will differ depending on how often you drive, where you live, what you drive and other factors. Use these numbers as a guideline when estimating your own annual budget.
How can I calculate the cost of car ownership?
The easiest way to calculate the cost of owning a new or new-to-you car is to look at online resources like the CAA Driving Cost Calculator. This calculator gives you a yearly estimate for different makes and models based on a 5-year long loan or lease.
It takes 5 factors into consideration — alongside depreciation — to give you an idea of how much it will cost to own a specific car.
Unless you plan on paying for your car with cash, you’ll have monthly car loan payments that could last anywhere from three to eight years depending on the loan term you choose.
While a longer term will make for lower monthly repayments, you’ll end up paying more in interest in the long run.
You can look up most cars’ fuel economy ratings using the search tool on the Natural Resources Canada website. This helps you choose vehicles based on your personalized needs and information about fuel consumption for different makes and models.
By budgeting for common car maintenance costs, you can prevent expensive repairs down the road. Visiting a mechanic regularly means you may be able to spot problem areas before they crop up — which is especially important whenever your car is out of warranty.
The CAA Driving Cost Calculator provides an estimate of how much you might pay for maintenance for different makes and models when following the manufacturer’s recommended service schedule.
Keep in mind that depending on your insurance coverage, you may have to pay extra to repair car damage caused by an accident.
You can calculate a portion of your car’s cost to own by adding these smaller expenses together:
Registration. Your province or territory’s annual motor vehicle registration fee will be a regularly occurring cost no matter what car you buy.
Fees. Parking fees, emissions testing, tolls and other minor fees can make owning a car significantly more expensive depending on where you live. Add these regular fees together to see how much it might cost you every month — then multiply that number by 12 to get the yearly cost.
Taxes. You may also need to add in the cost of sale and use taxes. These will vary based on the value of the car you buy and where you live.
You’ll typically spend between $1,000 and $1,500 per year on car insurance — though this varies widely depending on the coverage you opt for, your driving record, where you live and other factors.
How does depreciation factor into my car costs?
Depreciation is a car’s loss of value over time. It isn’t an out-of-pocket expense like the other factors on this list, but it impacts the total cost of your car. In general, new cars lose over 20% of their value within the first year. And by the end of five years, a new car may lose 40% – 50% of its value.
Opting for a car that has a slower rate of depreciation can help you avoid becoming upside down on your car loan — meaning you owe more than your car is worth. And taking steps to reduce your car’s depreciation can help you get more money when you decide to sell it or trade it in down the road.
How can I lower the cost of owning a car?
From opting for a used car to keeping up with maintenance, here are four ways to lower the cost of car ownership:
Buy used. If you’re stuck between a new or a used car, opt for lightly used. Someone else has already taken the brunt of the depreciation, so you can pay far less for a car that’s nearly as good as new.
Refinance your car loan. An expensive car payment is a quick way to suck your budget dry. If your credit has recently improved, you may find that refinancing your car loan is an easy way to lower your monthly repayment. You can compare low interest rate car loans using our guide.
Shop for a new insurance quote. Like your monthly payment, a high insurance premium can add to the cost of car ownership. Take the time to shop for quotes and see what another provider may be able to offer.
Maintain your car regularly. Car manufacturers recommend regular servicing and maintenance — it’s often required to keep your warranty in effect. This can help reduce the risk of a bigger repair later on.
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Bottom line
A car can cost tens of thousands of dollars over the course of five years. Using sites like the CAA Driving Cost Calculator to create a yearly budget can help you pick a car you’re able to afford in both the short and long term.
When you’re ready to hit the dealership, compare car loans ahead of time to find the best rate available to you — and lower the cost of your car payment.
In general, a subcompact or compact car will be your least expensive option — the cheapest cars can cost less than $30,000 to own over five years. And since they start at less than $20,000, you won’t have to take out a huge loan to buy new.
If you aren’t sold on car ownership, you can compare car-sharing and car subscription services. These allow you to rent a car for a few hours to a few days for a small fee. For those who live in a large metro area or don’t drive frequently, it can mean big savings over the course of a year.
Kellye Guinan is a seasoned financial writer with over 500 articles under her belt spanning all things loans from auto to personal to business and everything in between. With four years in the field and five years of research experience, she's able to make complex personal finance decisions easier for anyone to tackle. When she's not up to her knees learning about the latest trends in lending, she spends her time improving her own financial literacy and expertise — and maintaining a Duolingo streak of over 1,300 days.
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