The True Cost of Car Ownership – Monthly Payments, Expenses, and Saving Strategies

Updated on January 11, 2023

To ensure your auto budget is in check, it’s essential to determine the total cost of owning your current or prospective vehicle. However, with rising car prices, interest rates, and fuel costs, it can be challenging to accurately calculate the expenses associated with car ownership. To assist with this, it’s important to familiarize yourself with average monthly payments, typical ownership expenses, and strategies to save money while driving the car of your choice.

Summary

The average monthly payment for a new car was $700 in Q3 2022 and $497 for leasing a new car.
Purchasing a used car can be the most cost-effective option, averaging $525 per month.
Additional expenses such as loan interest, depreciation, fuel, insurance, maintenance, and fees can significantly add to the overall cost of car ownership.
Gas cost is the most significant and variable cost of car ownership, prices can fluctuate frequently, making it challenging to budget for fuel expenses.
Auto insurance is a legal requirement in almost every state in the United States. The average annual premium for full coverage insurance is $1,588.
To calculate monthly fuel expenses, divide the number of miles driven by the car’s fuel economy rating and multiply by the cost of a gallon of gas in the area.
To calculate maintenance and repair expenses, use the monthly average provided by a car financing company, or calculate the exact figure for the past 12 months if it exceeds $1,500 per year.
To calculate registration, fee, tax, and miscellaneous expenses, divide the annual renewal amount by 12 and add any other recurring expenses such as parking costs.
Aim to spend less than 15-20% of take-home pay on vehicle-related expenses.
To lower car costs, focus on costs that can be controlled.
Consider refinancing a car loan to get a better interest rate.
Check with your current insurance provider for discounts or lower rates and compare quotes from other insurers to find a better rate.

Average Monthly Payments for New and Used Cars

According to credit reporting agency Experian, the average monthly payment for a new car was $700 in Q3 2022, a year-over-year increase of $91. Leasing a new car may seem more budget-friendly, with an average monthly payment of $497, while purchasing a used car could be the most cost-effective option, averaging $525 per month. It’s worth noting that regardless of the choice you make, financing a vehicle purchase will probably require an outlay of over $500 per month.

However, it’s essential to keep in mind that these figures only represent a fraction of the true cost of owning a car. Additional expenses such as loan interest, depreciation, fuel, insurance, maintenance, and fees can significantly add to the overall cost of car ownership. According to a car financing company, for new vehicles driven 15,000 miles per year, the average annual cost of car ownership was $10,728, or $894 per month in 2022. This highlights the importance of factoring in these additional expenses when budgeting for car owners to get a more accurate picture of the true cost.

» MORE: Compare auto loans, rates, and lenders

Additional Expenses of Car Ownership

Regardless of the car you drive, there are certain expenses that you’ll need to account for regularly. One of the most significant and variable costs of car ownership is gas. Prices can fluctuate frequently, making it challenging to budget for fuel expenses. According to a car financing company, in early 2022 the average cost per mile for regular unleaded gas was 18 cents, which translates to $2,700 in fuel expenses per year for a car driven 15,000 miles.

While the cost of fuel can be a significant expense, it’s worth noting that there are ways to mitigate these costs. The fuel efficiency of your car can have a significant impact on your fuel expenses, with smaller and more efficient vehicles such as sedans typically getting better gas mileage than larger vehicles like trucks and SUVs. Additionally, being mindful of when and where you purchase a gas can also help you save money at the pump.

Maintenance and Repairs

The average cost for repairs, maintenance, and tires for a new car is $121 per month. Regular maintenance tasks such as oil changes and tire rotations are typically done every 5,000 miles or three times a year. Keep in mind that if your car is still under the factory warranty or an extended warranty, certain repair costs may be covered. These manufacturer warranties usually last for either three years or 36,000 miles, whichever comes first. If your car is not under warranty, it’s a good idea to set aside some money for potential repairs, to prepare for unexpected maintenance needs.

Registration, Fees, and Taxes

The average car owner will pay $675 in 2022 for the expenses associated with legally operating their vehicle, including licensing, registration, and taxes. However, the specifics of how these fees are calculated, how often they are paid, and how much they cost can vary greatly depending on the state in which the vehicle is registered. This means that the amount you will have to pay annually for these expenses will depend on the specific laws and regulations in your state, as well as the type of fees that apply to your vehicle. It is important to be aware of the fees specific to your state and the costs you may expect to pay each year.

Insurance

Auto insurance is a legal requirement in almost every state in the United States. The average annual premium for full coverage insurance is $1,588. However, the cost of insurance can vary greatly depending on several factors. These factors include the type of coverage you select, the make and model of your vehicle, your age, your driving record, and your location. Each of these elements can affect the premium you pay for your insurance, meaning that depending on your circumstances and coverage options, you may pay more or less than the average.

For example, purchasing a high-end luxury car will generally increase your insurance premium as the car is expensive to replace, similarly, a person with a poor driving record will pay more for insurance as they are considered a high-risk driver. Some states have higher insurance costs than others due to the number of claims and accidents within the state, thus leading to a higher cost of living in those areas. Therefore, It is essential to evaluate your specific needs and circumstances when purchasing auto insurance to ensure you have adequate coverage at an affordable rate.

» MORE: Compare car insurance rates

Depreciation

Depreciation is a cost associated with owning a car that is often overlooked, but it can have a significant impact on your total cost of ownership. Depreciation refers to the loss of value that a car experiences over time, meaning that as the car ages, it becomes worth less money. This can be significant when it comes time to sell the car or trade it in.

It’s important to note that the current car market is unique in that depreciation has been reduced. However, this is likely to change soon, and in normal market conditions, cars typically lose 15% to 20% of their value in the first year, and then 15% per year over the next four years.

To get an idea of how much your car has depreciated, you can compare current offers on the same make and model to what you paid for it originally. You can also find your car’s resale value through a service such as Kelley Blue Book or get a cash offer from a local dealer or online buyers such as Carvana or Vroom.

While there are ways to manage car depreciation, it is generally considered an expense that you have less control over once you own your vehicle

Strategies for Saving Money on Car Expenses

Gas. If you know how much you usually spend on fuel, enter that amount in the calculator. Otherwise, divide the number of miles you drive each month by your car’s fuel economy rating, available on FuelEconomy.gov. Multiply that number by the price of a gallon of gas in your area.

Maintenance and repairs. You can go with the monthly average that’s pre-populated based on the data provided by a car financing company. But if your car has needed a lot of work lately and is costing you more than $1,500 a year in work, go ahead and calculate the exact figure for what you’ve paid in the past 12 months and enter it here.

Registration, fees, taxes, and miscellaneous. This part is easy: Just put in your annual motor vehicle registration renewal amount, divided by 12. Add any other recurring expenses such as parking costs.

Analyzing the Specifics of Various Car Expenses: Gas, Maintenance, Fees, Taxes, Insurance

To get a better understanding of how much of your income is being dedicated to your car each month, it’s important to review the total cost of ownership. Ideally, you should aim to spend less than 15-20% of your take-home pay on vehicle-related expenses.

If you find that you’re over budget for your car costs or if you want to reduce your spending, the first step is to focus on the big-ticket items and work your way through costs that you can control.

One way to lower your car payment is to explore the possibility of refinancing your loan to get a better interest rate. This can reduce your monthly payment.

Another way to save money is to check with your current insurance provider about any potential discounts or lower rates. If they can’t offer you a better deal, consider getting quotes from other insurers to find a better rate on your coverage.

Additionally, paying attention to gas prices by using a gas price app, and a credit card that offers the biggest discount on gas can also help to reduce expenses.

Conclusion

In conclusion, owning a car can be a significant financial commitment. It’s important to understand the total cost of owning a car, including the average monthly payments, typical ownership expenses, and ways to save money.

Questions Answered in this Article

What is the average monthly payment for a new car according to the credit reporting agency Experian?

The average monthly payment for a new car is $700 according to Experian in Q3 2022.

How much does leasing a new car typically cost per month according to Experian?

Leasing a new car typically costs $497 per month according to Experian.

What is the average cost of car ownership per year according to a car financing company in 2022?

The average annual cost of car ownership for new vehicles driven 15,000 miles per year was $10,728 in 2022.

What are some ways to reduce fuel expenses when owning a car?

Some ways to reduce fuel expenses when owning a car include choosing a more fuel-efficient vehicle, being mindful of where and when you purchase gas, and combining trips to reduce miles driven.