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.

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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.

    • The average cost of full coverage car insurance in 2022 is $1,771 per year, although your premium may vary based on where you live, the type of vehicle you drive, your driving history, the insurance company you choose, and the types and levels of coverage you purchase. Safe driving may lower the cost of car insurance, as it could shield you from surcharges. It’s also important to select the right amount of coverage for you. Speaking with an insurance expert may help you maximize your car insurance coverage value.
    • Monthly loan payments for new cars jumped to an average of $700 in the third quarter of 2022, while used vehicle loans averaged $525 per month, according to Experian. Unsurprisingly, these amounts have increased to keep pace with inflation. Buying a used vehicle in good condition might reduce your auto loan payment and future maintenance costs.
    • Gas prices have been big news lately, and for good reason. After the national average peaked at just over $5.00 per gallon in mid-June 2022, the national average sits at $3.83 per gallon as of October 5, 2022, according to the auto club AAA. Some states are still dealing with far higher prices, though. California drivers pay the most, with a current average of $6.43 per gallon, almost identical to the mid-June high of $6.44 per gallon. Make sure to think about your commute and average weekly mileage when you factor in gas prices; the more you drive, the more you’ll pay at the pump.
    • Registration fees vary from state to state. While some states charge a flat fee for all vehicles, others base the registration cost on age, horsepower or weight of the vehicle. Registration fees in Oregon are the highest in the country, ranging from $268.50 to $636.50 for first time registration. Arizona has the cheapest registration fee of just $8, though there is an additional public safety fee of $32, making the total $40. You can check out vehicle registration fees in every state from the National Conference of State Legislatures.
    • The average price of routine maintenance is $9.68 cents per mile in 2022, according to AAA, and the average annual cost of auto repairs in the U.S. is $1,425. However, the BLS reported a 7.4 percent increase in overall vehicle maintenance cost between June 2021 and June 2022, so it’s likely to cost more to maintain and repair your vehicle now than it did last year. The cost of maintaining a car is closely related to the amount of time spent driving, so driving less may reduce these costs by reducing wear and tear.
    • Depreciation isn’t actually a ‘cost,’ but it is something to keep in mind, as your car’s value will decrease as soon as you drive it off the lot. 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 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.

Totaled vehicle

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.

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.

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.

Budget changes

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

Pros Cons
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

Frequently asked questions

    • The cars that have the lowest cost of ownership typically get good gas mileage, have low maintenance costs and are proven to be reliable, based on customer and industry reviews. By doing some research, you should be able to find a car with a low cost of ownership to meet your budgetary needs.
    • To get the best rate on a policy, most insurance experts recommend shopping around to compare rates from various providers. It may be a good idea to research all the car insurance 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. Shopping around can also be impactful, since different companies use different rating systems.
    • New cars depreciate much faster than used cars. While all cars depreciate over time, new cars may lose value simply because they are no longer new, which might mean thousands of dollars in depreciation for new car owners.
    • The BLS reports that, as of June 2022, new vehicles are 11.4 percent more expensive than they were a year ago, while used vehicles are 7.1 percent more expensive. These increasing costs are due to a mix of factors, the largest of which is general inflation. Inflation has reached a new 40-year high, and most purchases are more expensive because of it. Vehicles have also been hit by supply chain issues, including a shortage of semiconductor chips and a decreased supply of vehicles in general.