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How much does it cost to own a car?

Mechanic looks under the hood of a car
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Mechanic looks under the hood of a car
Andrey_Popov/Shutterstock
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While the sticker price of a car will guide you toward the make and model that’s right for you, it’s not the only expense you need to keep in mind before making the purchase. The cost of maintenance and repairs, fuel, auto insurance and annual registration renewals should also be considered when deciding which vehicle best suits your needs and budget.

How to estimate the true cost of car ownership

To estimate the true cost of car ownership, you’ll need to consider many factors, including maintenance and repairs, car insurance, gas expenses, registration, fees, taxes and car depreciation. By doing your research ahead of time, you won’t be blindsided by the laundry list of fees and will know that you can truly afford what you are driving off the lot.

Maintenance and repairs

Scheduled car maintenance can cost less than $100 per visit, though that price will rise with older cars. Edmunds’ car maintenance calculator can help you determine average costs based on your car’s make, model and mileage.

While today’s cars can go 5,000 miles or more between regularly scheduled maintenance visits, it’s a bad idea to stretch the time between car service visits to save a few dollars on car maintenance costs. You should always follow the manufacturer’s car maintenance schedule found in your owner’s manual to get maximum life out of your car and ensure that the manufacturer can’t void your new car warranty.

Car insurance

Although not all 50 states require their drivers to purchase car insurance, for most drivers it is an important consideration when calculating the true cost of car ownership. Car insurance can save you tens of thousands of dollars in the event of a collision, and the average driver pays around $138 per month.

The best way to determine your auto insurance costs is by comparing quotes from a few companies. Your insurance rate can vary based on your age, accident history, yearly mileage, gender, vehicle and more.

Gas expenses

The cost at the gas pump varies due to demand, taxes and location. But as a car buyer, you can prepare for the expected cost by looking at your car’s fuel economy on FuelEconomy.gov.
A “good” gas mileage for nonhybrid cars hovers around 20 to 30 miles per gallon, while hybrid and electric vehicles can get closer to 50 to 100 miles per gallon or more, according to Car and Driver’s research.

You should also consider the fuel octane and type of fuel needed. A high-performance vehicle will require higher-octane premium gas, which could influence your monthly budget. Still, you could save on gas by shopping around for the best deals before filling up at the pump.

Registration, fees, taxes

When you buy a car, there will always be additional fees that are added once you are ready to sign the contract. The main three are the vehicle registration fee, documentation fee and sales tax.

The registration fee varies by state; in some states, registration costs are under $100 per year, but other states charge closer to $200. That cost can also be influenced by the price, age and weight of your vehicle.

The documentation fee covers the paperwork that comes with a new vehicle purchase. Many dealerships use this fee as a chance to get extra money. Some states impose a documentation fee limit of $100 to $200, but many states do not regulate documentation fees. Check your state’s rules ahead of time to be prepared to negotiate if that number is too steep.

Sales tax also varies by state. Residents of California can expect a maximum 10.25 percent tax on their car, while buyers in Michigan have taxes capped at 6 percent. A car tax rate calculator can help you avoid surprises when it comes to signing the contract.

Depreciation

Your car’s depreciation is the rate at which it loses value over time. It shows the difference between how much it is worth now compared to when you first purchased it. It’s an important factor because you could be losing money if your vehicle has a high depreciation rate.

Edmunds’ cost of car ownership calculator can help you determine the depreciation of potential vehicles over a five-year time span, since some cars depreciate faster than others. In general, new cars depreciate faster than used cars.

How to minimize your vehicle costs

Along with doing your homework before signing a contract, there are many day-to-day ways to minimize your vehicle costs after the car is yours:

  • Don’t drive too fast: Speeding, rapid acceleration and sudden braking all lower your car’s gas mileage. Driving the speed limit — or slightly below — will help you save money at the gas pump.
  • Pick a reliable mechanic: Shop around with a few mechanics and look at online reviews before choosing one. Having a relationship with a trustworthy mechanic will ensure fair costs.
  • Follow the maintenance schedule: It can be tempting to skip routine maintenance and service visits, but following the manufacturer’s recommended schedule can prevent your car from breaking down. Plus, you can possibly avoid costly repairs.
  • Take a defensive driving course: Many insurance companies offer discounts to drivers who successfully complete online defensive driving courses.
  • Don’t overdo the air conditioning: Using your vehicle’s air conditioning when not needed can dramatically impact its fuel economy. When it’s possible, roll down the windows instead of cranking up the air.
  • Shop around for auto insurance: Some providers offer far more affordable rates on auto coverage than others. So, take your time and shop around for the cheapest car insurance option for you.
  • Consolidate your route: Mapping your routes out in advance helps minimize unnecessary trips, curbing fuel costs.
  • Earn gas loyalty rewards: Take advantage of loyalty reward programs offered through select credit card issuers and gas stations.

Experts recommend that you spend no more than 10 to 15 percent of your take-home pay on an auto loan. You must also factor in the cost of maintaining the vehicle, which shouldn’t exceed more than 7 percent, bringing the total to between 17 and 21 percent of your take-home pay.

How to save on your car loan

Shopping around to find the best deal on an auto loan can also help you minimize car ownership costs. Before you begin your search, check your credit score to see where you stand since lenders use it to determine what rate to offer you.

If your credit score isn’t up to par, get a copy of your credit reports from the three major credit bureaus — Experian, TransUnion and Equifax — and review the contents. File disputes if you spot errors and identify any areas of your credit report that you need to work on that could be dragging your credit score down. If your score isn’t quite up to par and you need a car loan now, refinancing later on is also a potential option.

Next, get rate quotes to find the best deals on financing. Many lenders let you get preapproved online without hurting your credit score, and you can also use these rate quotes as leverage when you negotiate a purchase price at the dealership.

When you are ready to apply for a loan, select the lender with the terms to seal the deal. Be mindful that the longer the loan term, the more interest you will pay, even if you get a more affordable monthly payment.

The bottom line

Car maintenance costs, insurance and added fees can leave you in a tough financial spot if you’re not prepared for them. Plan ahead and review your budget to ensure you can truly afford the vehicle you’re purchasing. Also, check current auto loan rates before you apply for a loan to get the best deal on financing.

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Written by
Allison Martin
Allison Martin's work began over 10 years ago as a digital content strategist, and she’s since been published in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com.
Edited by
Auto loans editor