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How much does it really cost to own a car?
Your monthly expenses don't stop at your car loan payment.
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.
What is the actual cost of owning a car?
The average cost to own a car is $8,849 a year — or around $738 a month — according to AAA’s 2018 Your Driving Costs report. It found that small sedans are the cheapest to own, clocking in at just under $7,000 annually. Pickup trucks are the most expensive, with an average ownership cost of just over $10,000 a year.
This represents vehicles driven about 15,000 miles a year and includes the cost of fuel, maintenance, repairs, insurance, fees, depreciation and loan interest — but not the loan principal. The average monthly loan payment was $545 for a new car and $387 for a used car, according to Experian’s 2018 State of the Automotive Finance Market report.
However, these numbers are just averages. Your actual cost of car ownership will vary 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 Edmunds and Kelley Blue Book. Both have a five-year cost-to-own estimate for different makes and models.
They take six factors into consideration — alongside depreciation — to give you an idea of how much it will cost to own a specific car.
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 up to 60% of its value. Used cars depreciate at a less drastic rate, usually around 17.5% per year.
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. You can learn more with our guide to depreciation.
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.
- 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.
Compare car loans
A car can cost tens of thousands of dollars over the course of five years. Using sites like Kelley Blue Book and Edmunds 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.
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