Introduction
For the majority of Americans, a car is a necessity. Unless you reside in a region with a robust public transit system, your car probably helps you get around in daily life. Do you realize how much your automobile truly costs you in this era of historically high inflation? In order to better help you understand how your vehicle affects your bottom line, Bankrate digs into the true cost of car ownership.
How much does owning a car typically cost as at February 2, 2023?
Due to supply chain concerns and inflation, buying a new or used car has become much more expensive. According to Kelley Blue Book, the average price of a used automobile was $28,012 and the average price of a new car was $48,043 in June 2022. These costs are enough to make many people shudder, but they are merely the beginning in a lengthy list of costs associated with car ownership.
In addition to other expenses, owning a car has fees for gas, insurance, maintenance, and more. A study by AAA estimates that in 2021, in addition to the vehicle’s purchase price, the total cost of owning a new vehicle will be $9,666. But keep in mind that in 2021 there hadn’t been the soaring inflation that has engulfed the country in 2022. All transportation expenditures (apart from gas) are expected to rise by 9.5 percent between June 2021 and June 2022, according to the Bureau of Labor Statistics (BLS). The price of owning a car will probably be much greater in 2022 than it was in 2021.
costs related to owning an automobile
There may be solutions to reduce some car ownership costs that are more obvious than others. Here are some things to think about if you’re buying your first automobile or just want a reminder of what car ownership involves.
Insurance
In spite of the fact that the average cost of full coverage auto insurance in 2022 is $1,771 annually, your premium will change depending on the kind of car you drive, your driving record, the insurer you select, and the kinds and levels of coverage you buy. Driving safely can protect you from surcharges, which can significantly reduce the cost of your auto insurance. It’s crucial to choose the appropriate level of coverage for you. You can get the most out of your auto insurance coverage by speaking with an insurance specialist.
Financing
According to Experian, monthly loan payments for new car loans increased to an average of $677, while those for used car loans averaged $515. It should come as no surprise that these sums have increased to reflect inflation. Your auto loan payment and upcoming maintenance costs may be lower if you choose to purchase a used car in good condition.
Fuel
Recently, there has been constant coverage on gas costs, and for good cause. According to the auto club AAA, the national average is at $4.30 per gallon as of July 27 after reaching a peak of just over $5.00 per gallon in mid-June. However, several states continue to see far higher pricing. Drivers in California pay the most, with an average gallon price of $5.69, down from a peak of $6.44 in mid-June. When considering gas prices, keep in mind that the more you drive, the more you’ll pay at the pump.
Plate Registration
States have different registration costs. The National Conference of State Legislatures has information on automobile registration costs for each state.
Maintenance
According to AAA, the cost of routine maintenance, repairs, and tires was 9.55 cents per mile in 2021. The average cost of auto repairs in the United States is $1,425. It is likely to cost more to maintain and repair your vehicle now than it did a year ago because the BLS recorded a 7.9 percent increase in overall vehicle maintenance costs between June 2021 and June 2022. Driving less may lower these costs by minimizing wear and tear since the cost of maintaining a car is closely correlated with the quantity of time spent on the road.
Depreciation
Although depreciation isn’t technically a “cost,” it is important to be aware of because it will lower the value of your car as soon as you drive it off the lot. The depreciation of a car varies greatly. According to AAA, the average yearly cost of depreciation in 2021 will be $3,900. New cars depreciate quickly, so buying a secondhand car and keeping it in good condition could help you reduce the rate of depreciation.
The best way to save to own a car
Despite the high cost of car ownership, owners can take measures to reduce costs:
- Shopping around for less expensive auto insurance may be a wise choice because some insurance providers are known for providing lower rates than others.
- Your auto loan may be refinanced at a lower interest rate in some cases. Whether the market has changed after the vehicle was acquired, it would be a good idea to check to see if a lower rate is available. It could be a good idea to take this action now because of the sharp rise in interest rates.
Consolidate your driving trips: Your car will typically need more maintenance the more you drive it. Consolidating your errands into one trip, carpooling with friends and neighbors, and looking into alternate local public transit choices may all be smart moves. Reduced auto insurance costs may also result from decreased driving, particularly if you take part in a telematics program.
Maintain your car: The best defense against expensive auto repairs is a good offense. Regular maintenance can potentially assist avoid future greater repair expenses. Often, if problems are discovered quickly, repair expenses might be reduced.
When to replace your car
Since cars don’t last forever, you’ll eventually need to replace yours. Over time, maintenance costs may become excessive or the car may stop being a good fit for your way of life. Here are a few scenarios to think about while deciding whether or not to replace an automobile.
Family changes
Families may expand over time, necessitating a change in your ideal vehicle as your family grows. For instance, a bigger vehicle could be required to fit car seats.
| PROS | CONS |
|---|---|
| Larger cars have more room. Newer models have modern safety features. | Larger cars typically get lower gas mileage. Buying a new car means taking on more financial responsibility. |
problems with maintenance
A car may need more frequent maintenance after being driven for a while. It might be time for a new ride if a car needs to be repaired frequently. You can even perform a little math to determine whether the expense of maintaining your present vehicle outweighs the cost of purchasing a new one.
| PROS | CONS |
|---|---|
| New cars usually require less maintenance. More recent models may be less likely to break down. | New cars can tie up discretionary spending for years. Newer models might have computer components that require special or more expensive maintenance. |
wrecked vehicle
Purchasing a new or new-to-you car may be necessary if your car has been in an accident, was totaled due to a natural disaster, or was stolen. You can take advantage of the chance to comparison shop and discover a car that suits your needs and price range at the moment.
| PROS | CONS |
|---|---|
| Depending on your coverage and the details of the accident, you may get an insurance payout for your totaled vehicle. Even totaled vehicles can be sold for scrap, which may help if you don’t get an insurance payout. | Depending on your coverage and the type of car you want to buy, your claim payout may not cover the full cost. If you decide to keep your totaled vehicle, the value usually decreases more than normal, even if it’s restored to working condition. |
Fuel efficiency
The fuel efficiency of current cars has significantly improved thanks to alternative energy and innovative technology. There are several hybrid and electric vehicles on the market, and they are getting more and more affordable every year, so anyone seeking for a car that won’t use much gas (or any) won’t have any trouble finding one.
| PROS | CONS |
|---|---|
| Fuel costs could go down or be eliminated. Fuel-efficient vehicles have a smaller carbon footprint. | Fuel-efficient cars can be more expensive to purchase than their gas-powered counterparts. Maintenance for hybrid and electric vehicles is often specialized and could be pricey. |
Budget changes
Your car might not meet your new needs if your budget suddenly changed. For instance, you might be having trouble paying your automobile loan because you accepted a lower-earning position. Alternatively, perhaps your financial situation is improving and you can now buy the car of your dreams.
| PROS | CONS |
|---|---|
| You may be able to find a lower-priced vehicle if your budget has become tighter. Aligning your vehicle costs with your budget allows for greater financial peace of mind. | You will need to adjust your monthly budget to take a new payment amount into consideration. You may not get as much for your prior vehicle as you want, since it has depreciated and you have to pay off the balance on your outstanding loan. |