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The cost of owning a car

An older gentleman stands in a showroom looking at a car.
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Most Americans use a vehicle to function in their everyday life. In fact, the United States has more automobiles per person than almost any other country. With so many car owners in the U.S., it’s important to understand the true cost of automobile ownership, factoring in gas, insurance, maintenance and more.

What is the average cost of owning a car?

Due to pandemic-induced chip shortages, the average cost of a new car is a shocking $45,000, according to CNET. Used car prices are spiking too, coming in at more than $25,000 on average. However, the sticker price of a vehicle is just the tip of the iceberg when it comes to the cost of owning a vehicle.

The cost of owning a car also includes insurance, gas, depreciation, maintenance costs and more. According to a study by AAA, the total cost of owning a new vehicle in 2021 is $9,666, which is in addition to the vehicle’s purchase price. In total, Americans spent an average of $9,826 per household on transportation in 2020, according to the Bureau of Labor Statistics.

Costs associated with car ownership

Some car ownership costs are more apparent than others, but there may be ways to minimize these costs.

  • Insurance: The average cost of full coverage car insurance in 2021 is $1,674 per year, although each driver’s premium will vary by the make and model of their vehicle, among other factors. Safe driving can dramatically lower the cost of car insurance. It’s also important to select the right amount of coverage for you. Speaking with an insurance expert can help you maximize your car insurance coverage value.
  • Loans/financing: In 2021, monthly loan payments for new cars jumped to an average of $576, a record high, according to Experian. Last year, the average monthly car loan payment was $554 for a new car and $391 for a used car. Meanwhile, average monthly used car loan payments exceeded $400 for the first time, sitting at $413. Buying a used vehicle in good condition can reduce the auto loan payment and future maintenance costs.
  • Fuel: The average price of gas in the United States in 2021 is $3.19 per gallon. Buying a fuel-efficient car can help reduce those costs.
  • Registration and Taxes: Driving fees from registration and taxes vary from state to state. You can check out vehicle registration fees in every state from the National Conference of State Legislatures. In 2019, the average cost of licensing, registration and taxes was $753.
  • Maintenance: The price of routine maintenance, repairs and tires was 9.55 cents per mile in 2021, according to AAA, and the average annual cost of auto repairs in the U.S. is $1,425. The cost of maintaining a car is closely related to the amount of time spent driving, so driving less will reduce these costs.
  • Depreciation: A car’s depreciation varies widely. In 2021, the average annual cost of depreciation is $3,900, according to AAA. Brand-new vehicles lose their value fast, so buying used and keeping the car in good shape could help lower your car’s depreciation rate.

How to save on car ownership

Although the cost of car ownership can be steep, owners can take steps to keep costs 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. A car owner may also save money by understanding their current coverage. Older cars or low-value vehicles may not require as much insurance.
  • 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.
  • Consolidate driving trips: The more a car is driven, 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 if you participate in a telematics program.
  • Maintain the car: When it comes to car maintenance, the best defense is a good offense. Getting your vehicle checked for routine maintenance a few times a year or more may help prevent huge maintenance issues down the road. Early detection of issues can typically bring repair costs down.
  • Consider leasing a car: Leasing a car may be a good option for those who only drive occasionally. Car leases usually last a few years, at which point the vehicle is returned to the leaser or dealership. Car lease payments are generally lower than comparable car loan payments and sometimes include some extra perks.

When is it time to replace a car?

Sometimes replacing a car is inevitable. Over time, maintenance can become unmanageable, or the car might no longer be a good fit for its owner’s lifestyle. Here are a few situations to consider when thinking about whether or not it’s time to replace a car.

Family changes

Families grow with time, and the ideal car for college might not do the trick once kids are in the picture. Typically, a larger vehicle is needed to accommodate 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.

Continued maintenance issues

Once a car has been used for many years, it may require constant maintenance. If a vehicle is constantly taken to the repair shop, it might be time for a new ride.

Pros Cons
New cars require less maintenance.
More recent models are less likely to break down.
New cars can tie up discretionary spending for years.
Newer models might have computer components that require special maintenance.

Totaled vehicle

If the vehicle has been in an accident or been totaled due to a natural disaster, buying a new car is inevitable.

Pros Cons
If a covered peril totaled the car, insurance might cover some or all of the replacement cost.
Even totaled vehicles can be sold for scrap.
If the car was totaled and replacement isn’t covered by insurance, it may be expensive to buy a new vehicle.
The value of a totaled vehicle usually decreases, even if restored to working condition.

Fuel efficiency

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.

Pros Cons
Fuel costs will go down or be eliminated.
Fuel-efficient vehicles have a smaller carbon footprint.
Fuel-efficient cars can be more expensive to purchase.
Maintenance for hybrid and electric vehicles is often specialized.

Frequently asked questions

What is the best car insurance company?

Car insurance rates and coverage depend on the car, driver, location and more. To find the best car insurance, it’s usually a good idea to compare quotes from a few different insurers and speak with an insurance expert.

How can I get a lower rate on my car insurance?

To get the best rate on a policy, it may be a good idea to research all the discounts and bundles offered by various insurance companies. Many providers give discounts for things as simple as setting up auto-pay on your policy. Typically, bundling multiple insurance policies, such as auto and home, with one carrier nets you the biggest savings opportunity.

Do used cars depreciate as quickly as new cars?

New cars depreciate much faster than used cars. While all cars depreciate over time, new cars lose value simply because they are no longer new, which can mean thousands of dollars in depreciation for new car owners.

Why are used and new vehicles so expensive right now?

The prices of used and new vehicles are skyrocketing due to a few different factors. Consumer demand for cars increased during the pandemic in the midst of stimulus checks. Meanwhile, the economy is dealing with a shortage of microchips which are key components in automobiles. In addition, kinks in the overall supply chain are driving up costs for most consumer goods. With fewer new vehicles in dealerships, the used car market has also become more competitive. If you’re looking to buy a cheap vehicle, you may want to consider waiting until the market calms down.

Written by
Lizzie Nealon
Insurance Writer
Lizzie Nealon is a former insurance writer for Bankrate. Her favorite part of the job is making home, auto and life insurance digestible for readers so they can prepare for the future.
Edited by
Insurance Editor