True Cost to Own a Car (and How to Lower It)

December 6, 2019

When it comes to estimating the true cost to own a car, the sticker price is only the start. Understanding the factors that go into cost of car ownership can reduce surprises and help you budget more accurately.

True Cost to Own a Car: 6 Essential Factors

Here are six factors that impact the total cost of owning a car—plus tips for how to cut costs, where possible.

1. Initial purchase price

Naturally, the price is a large component of the true cost to own a car. Purchase price can also determine sales taxes, state registration fees and licensing fees.

How to lower it: Arm yourself with knowledge. Use online tools like Kelley Blue Book and TrueCar to research average selling prices and establish an appropriate value for your trade-in. Plug-in hybrids and electric vehicles come along with tax credits, which can offset part of the initial cost. You can also brush up on your negotiating tactics: U.S. News & World Report recommends controlling your emotions and knowing which fees are flexible.

2. Interest rate

About two-thirds of buyers use financing for their car purchase, and the interest charges can contribute meaningfully to the true cost of car ownership.1

How to lower it: Don’t settle for financing directly from the dealership. Our partners at NerdWallet recommend, “It’s wise to get pre-approved before you hit the dealership, so take a little time to compare auto loan interest rate offers from different lenders.” Making a down payment and keeping your credit score in good shape can also help you lock in a lower interest rate.

If you already have a loan, auto refinancing can save you money on interest, lower your monthly payments, or potentially do both. Lowering your APR by just 2.5 percentage points can save you approximately $1,3502 on the total cost of your car loan.

3. Depreciation

Unfortunately, even well-maintained cars lose value over time, making depreciation one of the largest cost factors—particularly for new cars. Depreciation may not seem like an explicit cost, but it’s one you’ll realize when you go to sell your car and purchase a new one.

How to lower it: Buying a used car can diminish the sting of depreciation, since older cars depreciate at a lesser rate. New cars can depreciate by as much as 11 percent the moment you drive them off the lot.3 Keeping your car longer can also reduce depreciation costs.

4. Maintenance

New tires, oil changes and unexpected repairs are included in the total tally for car ownership.

How to lower it: Longer, more comprehensive warranties and maintenance plans can help defray some costs—though these might add to the initial purchase price of the car. Reliability reviews and ratings, like those available at Consumer Reports, can help you estimate expected costs and decide if a deluxe warranty is a good choice, or if a different car would be a better option.

5. Insurance

Coverage is required by law in most states, and rates can vary widely.

How to lower it: The Insurance Information Institute recommends shopping around for at least three price quotes and requesting a higher deductible. Bundling auto and home insurance with one company can also save money. Rates can also be impacted by your driving record, how you use your car (daily commute versus weekends-only) and where it’s parked (in a garage versus on the street).

6. Fuel

On average, fuel is the second-largest cost of car ownership—and the price goes up if you choose a gas-guzzling SUV. 4 According to Consumer Reports, “You could pay more than $15,000 to fill up a Jeep Liberty over five years, while a similar-sized but more-efficient RAV4 V6 could save you $4,000 during that time.”

How to lower it: Pick your new car with an eye for efficiency, and consider whether an electric or hybrid vehicle could be right for you. Once you’ve made your purchase, get the most out of your MPG by avoiding aggressive driving, using cruise control and lightening your load.

Calculating the Cost of Car Ownership

Budgeting for the true cost of car ownership can get complicated, but an online cost estimator, like the Edmunds True Cost to Own® calculator, can help.

Can refinancing your auto loan reduce your cost of car ownership? Find out in just two minutes with a LendingClub rate quote.

2 Based on analysis of 300,000 consumer accounts from Q4 2012 to Q3 2013 using credit bureau data. Assumes the consumer refinances with the lowest rate for which they are eligible and does not extend the term of the loan. Savings figure is based on a refinance from an average APR of 11.45% to an average APR of 8.2% and 60 months remaining on the term of the loan. Your actual savings may be different. A representative example of payment terms are as follows: an Amount Financed of $18,000 with an APR of 8.20% and a term of 60 months would have a monthly payment of $366.70.

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