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Inflation’s impact on the cost of car ownership

Person driving her car. Over-the-shoulder view where we see no traffic in front of her.
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Person driving her car. Over-the-shoulder view where we see no traffic in front of her.
wsfurlan/Getty Images
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If it feels like almost everything costs more these days, it’s because it does. Inflation is impacting everyday purchases, including the cost to own a car. The overall CPI is up 8.5% from March 2021 to March 2022, the largest yearly increase since December 1981, according to the Bureau of Labor and Statistics (BLS). Groceries are up too, but meat, poultry, eggs and fish have increased by a staggering 13.7% within the same timeframe. Gas price increases have become a regular headline in the news. The high cost of fuel has trickled down to impact almost all consumers — even those without a vehicle — as businesses and consumers adjust to keep up with such sharp increases.

From car maintenance to car insurance costs, it may feel as if owning a car is out of the realm of affordability. Although determining ways to afford a vehicle may not seem obvious, there are steps you can take to help combat the rising costs of car ownership.

Inflation and car ownership statistics

Inflation impacts car ownership in various ways, and some categories within the ownership experience are impacted more heavily than others. It may be helpful to keep each category in mind as you are putting together your monthly and annual car ownership budget. Inflation is impacting numerous aspects of the ownership landscape, so there may be areas where you need to adjust your budget.

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  • Loans/financing: The CPI is up over 35% for used cars and trucks as reported by the BLS, versus new vehicles, which are up 12.5% (from March 2021 to March 2022). As sticker prices increase, so do the monthly payments for financing. In 2021, loan payments for new cars averaged $576 per month from $563 previously — a record high, according to Experian. Used cars saw a similar impact, with average monthly car payments jumping to $413 per month versus the previous $395. Similarly, AAA found the average cost of new vehicle ownership increased by 5%, or $433.
  • Insurance: Car insurance premiums increased over 5% from 2021 to 2022, with drivers now paying an average of $1,771 per year for full coverage, according to Bankrate’s average cost of car insurance In 2021, drivers paid an average of $1,674 annually for full coverage. The BLS noted a similar increase, finding the CPI for car insurance increased about 4%.
  • Vehicle maintenance and repairs: Motor vehicle maintenance and repair costs increased nearly 5% year-over-year in March 2022, according to the CPI.
  • Gas: Gas prices show a 48% CPI increase when comparing March 2022 to March 2021. AAA reports that the average price per gallon of gas was $3.07 just last year. The national average for a gallon of gas is now $4.98 as of June 20, 2022, which is not far off from the U.S. all-time high of $5.02.
  • Depreciation: Average depreciation for the top five selling 2021 vehicle models over five years was $3,900 after 15,000 miles driven per year, according to the AAA Your Driving Costs report.
  • Taxes, registrations and licenses: There are state-required taxes, registration and license fees due when purchasing your vehicle and annually. The 2021 weighted average for these fees is $669 per vehicle, according to the AAA Your Driving Costs report.

Most expensive cars to own

AAA reported on the total cost of vehicle ownership, including which vehicle types are the most expensive to own. The study analyzed costs across several categories, including financing, maintenance and fuel costs. Half-ton pickup trucks were at the top of the list for most expensive vehicles in the study, with average annual ownership costs of $10,839.

When looking to purchase a vehicle, you should consider the entire cost of ownership rather than only the sticker price. Nonetheless, some cars are more expensive to own than others. The CPI indicates that inflation currently impacts used cars more than new vehicles, by about 23% more.

The next two most expensive vehicles to own were large sedans, which were slightly less expensive at $10,403 in average annual ownership costs, and medium-sized SUVs at an average of $10,265 per year. The high ownership costs across these vehicles are mostly driven by fuel usage and financing charges. For example, maintenance and fuel costs for a half-ton pickup truck average 24.96 cents per mile versus 15.67 cents per mile for a small sedan. Additionally, finance charges for a half-ton pickup truck compare at an average of $945 annually versus $419 annually for a small sedan.

Least expensive cars to own

If you want to look at ways to lower your overall car ownership costs, you could consider looking at the three least expensive types of cars to maintain. The same AAA study found small sedans, hybrids and electric vehicles to be the least expensive. Average annual ownership costs for small sedans came in at $7,114, with hybrids and electric vehicles coming in at $7,736 and $8,320 per year, respectively. Overall fuel and maintenance costs were least expensive for electric vehicles, with an average cost of 11.36 cents per mile. For hybrids and small sedans, fuel and maintenance costs averaged 14.71 cents per mile and 15.67 cents per mile, respectively.

Purchasing a car that is too expensive can put a strain on your budget, which becomes especially challenging during a high inflation period. Understanding which cars have a sticker price you can afford, as well as the most manageable total ownership costs throughout the year, could help you avoid future financial hardship.

How to save on car insurance costs

Because of the impact of inflation on so many aspects of car ownership and household budgets, some Americans can no longer afford car insurance. As shown through Bankrate’s analysis and the CPI, the annual cost of car insurance continues to creep up. The average cost of car insurance is now $1,771 per year for full coverage, while minimum coverage averages $545 per year.

Vehicle owners trying to cut costs without sacrificing adequate coverage can implement several strategies to save on car insurance.

  1. Stay insured: It may be tempting to eliminate car insurance from your budget altogether, but being continuously insured is a legal requirement in most states and can help you maintain lower costs of coverage in the long run. A lapse in coverage could cause insurers to perceive you as a higher risk to insure, leading to higher premiums. Additionally, getting into an accident without coverage could leave you financially vulnerable with high out-of-pocket costs. Maintaining coverage creates a financial safety net for yourself and may even qualify for additional loyalty discounts.
  2. Bundle your insurance policies: If you have another policy, such as homeowners, condo or renters insurance with another provider, try bundling all policies with one company. The discounts can be significant, with some of the top car insurance companies offering up to double-digit savings. Not only could bundling help save money, but it can also save time by streamlining your payments.
  3. Shop around: Shopping around and comparing rates from multiple providers, even while currently insured, is a great way to ensure you are paying the cheapest car insurance rates Rates vary from company to another, which can be a big advantage to you. When you shop around, you can compare the exact coverage levels and options, giving you a clearer picture of premiums.
  4. Raise your deductible: Certain auto coverage types have deductibles, including comprehensive coverage and collision coverage. Your deductible is the out-of-pocket cost you would pay if you need to make a claim. If you raise the deductible amount, your premium will decrease since you are taking on more financial responsibility. However, be sure that your deductible remains an amount you could comfortably pay in the event of a claim.
  5. Ask about low-mileage discounts: With more people working from home or commuting to the office less frequently, you may be able to qualify for a low-mileage discount. Annual mileage usage is one of the factors used to determine your rates, so there could be further savings if you have altered your driving habits. When inquiring about a low-mileage discount with your agent or provider, ask about any other discounts you may now qualify for that may not have applied to you when you first secured a policy.

Inflation impacts most aspects of everyday life, including making car ownership more expensive. Increases in the cost to own a car are seen in multiple facets, including sticker prices, refueling costs, maintenance and insurance premiums. While the increased costs may sometimes feel overwhelming to your finances, you can take a few steps to help offset some of them.

If you are looking into how to finance a car, be sure to take time to shop different lenders and be mindful of how your loan term affects interest rates. By researching different vehicle’s annual ownership costs and carefully selecting your auto insurance so that you are adequately covered, you can help best prepare your budget to handle the total cost of car ownership.

Written by
Sara Coleman
Former Insurance Contributor
Sara Coleman is a former insurance contributor at Bankrate. She has a couple of years of experience in writing for insurance domains such as The Simple Dollar, Reviews.com, Coverage.com and numerous other personal finance sites. She writes about insurance products such as auto, homeowners, renters and disability.
Edited by
Insurance Editor