The impact of inflation on the cost of owning a car
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Owning a car is a significant expense — between purchasing the vehicle, paying car insurance premiums, getting repairs and refueling. In an age of record inflation, owning a car comes with even greater sticker shock. The current inflation rate sits at 7.1 percent, compared to the normal acceptable inflation rate of two percent. In addition, the cost of cars has increased 9.2 percent, according to the latest Consumer Price Index (CPI) data.
Inflation data for owning a car
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 monthly budget.
Loans and financing
- The CPI is down 3.3 percent for used cars and trucks since last year, versus new vehicles, which are up 7.2 percent (from November 2021 to November 2022).
- As sticker prices increase, so do the monthly payments for financing. In June 2022, loan payments for new cars averaged a record $712 per month, up from $576 in 2021.
- Used cars saw a similar impact, with average monthly car payments jumping to $515 per month versus the previous $413. Similarly, AAA found the average annual cost of new vehicle ownership increased by 10.9 percent, or $1,062 per year.
- Car insurance premiums increased over 5 percent 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 auto insurance. In 2021, drivers paid an average of $1,674 annually for full coverage.
- The BLS found the CPI for car insurance increased about 13.4 percent year over year in 2022.
Vehicle maintenance and repairs
- Motor vehicle maintenance and repair costs increased nearly 12 percent year-over-year in November 2022, according to the CPI.
- Gas prices show a 10.1 percent CPI increase between November 2021 and November 2022.
- 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 $3.19 as of December 15, 2022, much lower than the U.S. all-time high of $5.02 in June 2022.
- 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 2022 weighted average for these fees is $675 per vehicle, according to the AAA Your Driving Costs report.
Advice for someone wanting to buy a car
If you’re in the market for a car, you may be concerned about car price inflation. Bankrate’s chief financial analyst, Greg McBride, says:
It hasn’t been a great time to buy a car because limited supply has driven vehicle prices up significantly, but this is starting to reverse a bit in the used car market. If you have the luxury of waiting, the environment for used car buyers should continue to improve with prices easing and buyers having more negotiating power.
McBride goes on to say, “If you’re in a pinch and need a car right away or insist on having a new car, then expect to pay up. Dealer inventory is still limited enough to keep prices elevated and new car buyers have little room to haggle on price.”
“Auto insurance is another expense on the rise. Whether you’re getting a new vehicle or keeping the one you have, chances are your premiums have marched higher in the past couple of years. Shop around and compare among auto insurance carriers to see if there is a better deal out there. Oftentimes, there is,” McBride advises.
Most and least expensive cars to own
- Most expensive new car to buy: LA Voiture Noire (Carzing)
- Least expensive new car to buy: 2022 Chevrolet Spark LS (Cars.com)
- Most expensive brand to maintain: BMW (Savvy)
- Least expensive brand to maintain: Mazda (Reader’s Digest)
AAA reported on the total cost of vehicle ownership across several categories, including financing, maintenance and fuel costs. Half-ton pickup trucks topped the list of most expensive vehicles, with an average annual ownership cost of $10,839. 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.
These vehicles are expensive to own mostly due to high financing charges and fuel costs. Those costs illustrate the importance of looking at the entire cost of owning a vehicle rather than just the sticker price. Keep in mind that your make and model will also impact the cost for your car insurance.
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 the following:
- 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.
How to save on car insurance
Because of the impact of inflation on so many aspects of car ownership and household budgets, some Americans can no longer afford auto 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.
- Stay insured: It may be tempting to eliminate car insurance from your monthly 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 you for additional loyalty discounts.
- 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.
- 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.
- 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.
- 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 car 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.
Frequently asked questions
The best time to buy a car depends on your individual needs. Right now, car price inflation is high and used and new car prices haven’t quite returned to normal after skyrocketing during the pandemic-era supply chain interruptions. If you need a car now, you may want to adjust your budget, consider financing, and find a way to make it work. However, if you can wait, you may want to hold off until used and new car prices come down a bit.
It depends on what you’re looking for. If you want the latest features and lower initial maintenance costs, a new car may be the right fit. If you’re looking for a lower initial price and a lower insurance premium, you may want to consider a used vehicle.
The national average cost of auto insurance is $1,771 per year for full coverage. Your actual car insurance rate will differ, as there are many factors that impact your cost for car insurance.
From the second to fifth year of ownership, a car loses approximately 10 percent of its value each year. To find the exact value of your used car, you can use online sources such as Carfax’s history-based value tool, Kelley Blue Book and Edmunds.