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A vehicle is a necessity for most Americans. Unless you live in an area that has a strong public transportation system, your vehicle likely helps you navigate your daily life. But in a time of decades-high inflation, do you know how much your car is really costing you? Bankrate delves into the true cost of car ownership to help you understand how your ride affects your bottom line.
The cost of buying a new or used car has increased substantially this year due to inflation and supply chain issues. As of June 2022, the average cost of a used car is $28,200, according to Statista. For a new car, the average cost is now $48,301, according to the most recent data from Kelley Blue Book. These prices are enough to cause many consumers to cringe, but the sticker price of a vehicle is only the first in a long line of expenses when you own a vehicle.
The cost of owning a car also includes insurance, gas, maintenance costs and more. The annual cost of car ownership in 2022 is now $10,728, up from 2021’s yearly cost of $9,666, according to AAA’s Your Driving Costs study. This increase is in line with the most recent Consumer Price Index report from The Bureau of Labor Statistics (BLS), which shows an increase of 9.5 percent on all transportation costs (except gas) between June 2021 and June 2022.
Costs associated with car ownership
Some car ownership costs are more apparent than others, but there may be ways to minimize these costs. If you’re buying your first car or just want a refresher on what car ownership entails, here are some things to consider.
How to save on car ownership
Although the cost of car ownership can be steep, owners can take steps to keep expenses in check:
- Shop for cheaper car insurance: Some insurance companies are known for offering cheaper rates than others, so getting and comparing quotes from multiple providers may be a smart move.
- Refinance your car loan: Some car loans can be refinanced at a lower rate. It may be wise to check and see if there’s a lower rate available, especially if the market has changed since the vehicle was purchased. With interest rates rising quickly, it might be a good time to consider this step.
- Consolidate driving trips: The more you drive your car, the more maintenance it will generally require. It may be a good idea to consolidate errands in one trip, carpool with friends and neighbors, and research alternative local public transportation options. Driving less might also mean lower car insurance costs, especially if you participate in a telematics program.
- Maintain your car: When it comes to vehicle repair costs, the best defense is a good offense. Having routine maintenance done may help prevent higher repair costs down the road. Early detection of issues can often bring repair costs down.
When is it time to replace a car?
Vehicles don’t last forever, which means at some point you will need to replace yours. Over time, maintenance can become unmanageable or the car might no longer be a good fit for your lifestyle. Here are a few situations to consider when thinking about whether or not it’s time to replace a car.
Family or lifestyle changes
Families may grow with time, and your ideal vehicle may change as your family changes. For example, a larger vehicle may be needed to accommodate car seats. While larger cars have more room and the newer models include advanced safety features, they may not get as good of gas mileage as a small car, and could mean greater financial responsibility.
Job or lifestyle changes may also necessitate a car replacement. You could get a new job with a longer commute, which means a newer, more reliable car makes more sense to own. If you own a small car but fall in love with camping, then you may need to buy an SUV or truck to accommodate your new lifestyle preferences.
Continued maintenance issues
Once a car has been used for many years, it may require more frequent maintenance. If a vehicle is constantly taken to the repair shop, it might be time for a new ride. You can even do a bit of math to see if the cost to maintain your current vehicle is outweighing the cost to get a different one.
Although newer car models are typically less likely to break down, they do come with a substantial upfront cost or car payment. Additionally, with advanced safety features and computer systems, maintenance may be more expensive than with an older model.
If your vehicle has been in an accident, has been totaled due to a natural disaster or was stolen, buying a new or new-to-you car may be inevitable. You can use the opportunity to shop around and find a vehicle that fits your current needs and budget.
With full coverage insurance, you may receive a payout if your vehicle is totaled. If not, there may still be some scrap value, which can help with the cost of a new car. If you decide to keep a totaled car, it can lower its value, even when restored to working condition. And even if you get a payout from the insurance company, it may not be enough to cover the full cost of a new car, which means you may have to pay or finance the difference.
Alternative energy and new technology have dramatically increased the fuel efficiency of modern cars. Those looking for a car that won’t use a lot of gas (or any at all) can find plenty of hybrid and electric vehicles on the market, and they’re becoming more affordable every year.
Although fuel-efficient cars may cost more to buy and maintain, fuel costs could go down or be completely eliminated. Plus, fuel-efficient vehicles have a smaller emissions footprint, especially if you were planning to buy a new car anyways.
If your budget has recently changed, your vehicle might not fit your new needs. For example, perhaps you’ve taken a lower-paying job and are struggling to afford your car payment. Or maybe it’s the opposite: you’re making more money and you can finally afford your dream car.
You could get greater financial peace of mind when you align your vehicle’s costs with your budget. However, offloading an older car with depreciated value may not get you the full amount to pay off your loan, which could mean your budget has to adjust to meet your new payment needs. On the other hand, if your budget has increased, selling an older vehicle could eliminate some maintenance costs while providing you with a more comfortable and efficient ride.
Drivers should note that states typically charge more to register a newer vehicle, and may also charge extra for all-electric models. Additionally, insurers typically charge a higher monthly premium to insure newer or luxury vehicles, as the cost to repair or replace this vehicle in the case of a covered event will likely be higher.
Pros and cons of replacing your vehicle
|New cars typically have greater fuel efficiency
A hybrid or electric model could reduce or eliminate fuel costs
A different vehicle could better meet the daily transportation needs of you and your family
Newer vehicles usually require less maintenance costs
Having the right coverage in place could mean an insurance payout on a totaled car
Budget changes could help buy a more comfortable or efficient vehicle
| Buying a new car will likely increase your out-of-pocket costs, even if it reduces maintenance costs
It may cost more to register and insure a newer vehicle
When maintenance is needed, advanced systems could make repairs more costly
Fuel-efficient cars can have higher upfront costs
Buying a new car could be out of budget
The depreciated value of a new vehicle may reduce its selling power