The sticker price of a car—whether new or used—is just the beginning. Between insurance, maintenance, gas, and financing, the costs pile up quickly. For most people, a car is the second-largest household expense after housing costs like rent or a mortgage. While expenses vary by location, the lifetime cost of owning a car often exceeds its initial price. Think of the purchase price as a down payment; you’ll be paying for that car as long as you own it, whether you financed it or not. Here’s a breakdown of the true costs of car ownership.
Sticker Price
The sticker price includes the manufacturer’s suggested retail price, plus accessories and transport costs. It’s the starting point for negotiations with a car salesperson. Typically, the salesperson begins at the sticker price, while the consumer counters with the invoice price. Unless you’re eyeing a trendy, high-end, brand-new model, you can often avoid paying the full sticker price by doing your homework and negotiating.
Taxes and Tags
Taxes and registration fees are unavoidable and vary by state. Tags typically cost $20 to $40, though some states charge more. Sales and use taxes, however, can add hundreds or thousands of dollars to your purchase, making them the more significant expense.
Financing Charges
Many people finance their cars, and interest rates—typically 4% to 8% based on your credit score—add a substantial cost. Before visiting a dealership, compare loan terms from banks or credit unions, as dealerships often offer higher rates than you might qualify for elsewhere. Always shop around to secure the best deal.
Insurance
Insurance is often the largest monthly expense beyond the car payment. Costs depend on your location, vehicle type, driving record, and whether you include collision coverage. Urban areas, like Philadelphia or Detroit, can see annual premiums of $2,000 to $3,000 or more, while suburban or rural areas are generally cheaper.
Ongoing and Unexpected Costs
Gas
With gas prices fluctuating between $2 and $3 per gallon, filling up can cost $30 for a small car or $50 for a larger one. Depending on your driving habits, gas mileage, and location, monthly fuel costs can range from $60 to $80 for fuel-efficient cars or over $100 for less efficient models.
Maintenance
Cars require regular upkeep, from oil changes ($30–$40 every 3–6 months) to new tires ($30–$100 per tire, more for trucks or SUVs). Annual inspections typically cost $30–$50, but repairs like new brake pads ($100 or less) or a transmission replacement (potentially thousands) can inflate costs. Unexpected issues, like a broken electric window ($500 to replace), can also hit your wallet hard.
Fender-Benders, Dings, and Scrapes
Even minor damage, like dents or scratches, can cost hundreds to repair, as mechanics often need to replace entire panels. A seemingly undamaged bumper might hide a bent support bar, costing over $1,000 to fix. If another driver is at fault, their insurance should cover it—assuming they’re insured. However, reporting even a small accident could raise your premiums.
Parking
In urban areas, parking is a major expense. Renting a garage spot in cities like New York can cost up to $1,000 per month. Even street parking permits, while cheaper at $15 per year in some places, don’t prevent tickets elsewhere, which can range from $20 to $80 per violation.
Depreciation
Often overlooked, depreciation affects your car’s value, especially if you plan to trade it in. A new car can lose 35% of its value in the first year and about 10% annually thereafter, significantly impacting its trade-in value.
Tickets
Even careful drivers risk tickets or citations for speeding, parking violations, or expired inspections. Tickets can cost $100 or more, depending on the offense and location.
To mitigate these costs, consider these money-saving tips:
Question Collision Coverage
Collision coverage may not be necessary for older, low-value cars (100,000 miles or more), as insurers may total them after minor damage. Comprehensive coverage, required in most states, protects against theft, vandalism, and other non-collision issues, often making collision coverage less essential.
Choose Cars with Affordable Parts
Some cars have pricier parts than others. Consult a current Consumer Reports car-buying guide for detailed breakdowns of part costs to reduce future repair and maintenance expenses.
Avoid Dealership Repairs
Dealerships charge more for repairs than local shops. Seek recommendations to find a reliable, cost-effective mechanic.
Research Thoroughly
Before buying, research reliability, part costs, insurance rates, and gas mileage using Consumer Reports. Choose a car that balances economy with your needs.
Bring Key Information
Arrive at the dealership armed with your credit report, online car quotes (from Cars.com, InvoiceDealers, Yahoo! Autos, Edmunds.com, Autos.com, or Car.com), invoice pricing from FightingChance.com, a pre-approved loan, the car’s Blue Book trade-in value, and an extended warranty quote from Warranty Direct. These tools strengthen your negotiating position.
Visit Multiple Dealerships
Everything at a dealership is negotiable. Secure the lowest offer, then visit other dealerships to see if they can beat it. Don’t fall for claims that no one else can match their deal.
With careful planning, your car can serve you well without breaking the bank. Before you buy a car, account for all ongoing and unexpected costs to ensure your budget can handle them. With research, preparation, and a bit of luck, you’ll find a car that meets both your needs and your financial goals for years to come.