How Much Does it Cost to Own a Car?

Fran Majidi
January 15, 2019

There are so many options available for drivers to choose from these days that car ownership is slowly almost becoming a luxury, not a necessity … almost. While many are already taking advantage of car sharing options and using Uber and Lyft more than ever, car ownership is still the easiest way to commute to work, go shopping and run other errands. If you’re in the market to buy a new car, we want you to anticipate all the costs associated with car ownership, ranging from car and fuel costs to insurance cost. The average cost of owning a car per year is $10,000 a year, according to AAA, which is roughly 2% higher than it was in 2018. We decided to take a look at the breakdown of this cost to see what it is that we’re spending all this money on. Hopefully this information will help you decide what you can and cannot buy.

The Car

The average new car cost today is around $36,000, which can range from a payment of around $1000 a month to $500 a month with zero down. The average cost of owning a car per month go down if it's a less expensive car. It’s most likely that the owner is financing or leasing that car for 36 to 72 months. The cost of ownership then breaks down differently for different users based on their decision to keep the car after it is paid off in full or if they decide to buy another car at around the same annual cost. While car prices depend on variable factors, you can usually expect prices to rise slightly every year. For example, car prices overall jumped significantly and were up 4% at the beginning of 2018, compared with prices in 2017.

The average car owner keeps a car for about 10 years. The people who keep the car and maintain it spend less each year in car costs, despite having more repair and maintenance costs for keeping an older car.

Generally speaking, it’s cheaper all around to buy a used car. Your car will never be as expensive as it was the minute you laid eyes on it. And that value drops hard the minute you drive off the lot.

New car prices can be crushing if you’re not living on a comfortable salary. According to Experian, the average cost of a car payment in 2018 was $523 (not counting other variable costs) while AAA went as high as estimating a total cost of $700+!


Registration fees vary depending on state but just to give you an example, it costs $58 to register a car in California, plus there is a $25 California Highway Patrol fee (CHP), Transportation Improvement fee (TIF), title fees, and taxes. The TIF is based on the value of your car:

  • 0 to $4,999: $25.
  • $5,000 to $24,999: $50.
  • $25,000 to $34,999: $100.
  • $35,000 to $59,999: $150.
  • $60,000 and up: $175.

Sales Tax

There is always a city and state sales tax applied to the sale of a car, which can cost anywhere between 2 and 10% of the price of the car, depending on where you live. Let’s say you live in Louisiana and have a 10% sales tax on a $30,000 car. You’re looking at adding another $3,000 to the price you decided you can afford to pay, just in taxes alone. Remember to add this to the price of the car when trying to assess what you can and cannot afford.


The older a car gets, the more maintenance it needs. If you’re buying a used car, make sure to buy a warranty. After your car is paid off, the gradual wear and tear will eventually translate to higher maintenance costs. You’ll likely be paying for repairs in a steady incline in terms of cost. In short, the older the car gets, the more money you’ll spend on repairing it, but you’ll likely still spend less money on repairs than in buying a new car. Why? Because insurance.

Unless you buy an extended one, the warranty on a car is usually good only for 36,000 miles or 3 years. If you’re planning to pay for repairs out of pocket after your warranty expires, we suggest that you set aside money for this reason in advance, to avoid putting repairs on interest-earning credit cards.

Car Insurance

Insurance is a car cost and sometimes an overwhelming one. The main reasons why it’s so expensive to insure a new car is that your insurance rate is based on the value of the car, which is most expensive the minute you decide to buy it. Meanwhile it is continually depreciating in value. This gradually decline in value is the main reason your insurance premiums are less expensive each year (unless, of course, you were involved in accidents).

Another reason that Auto Insurance premiums are so high for new cars is that most lienholders (the folks who technically still own the car) require that you have full coverage on a financed or leased vehicle, meaning you have no choice but to buy Comprehensive and Collision coverages in addition to standard Liability.

Auto Insurance costs tend to drop significantly after a car is paid off in full because most people only buy Liability insurance when there is no longer a lienholder. You’re no longer obligated to have full coverage (Comprehensive and Collision) and the car is no longer as valuable as it once was.

Over the past year, average Car Insurance rates have increased by 3% overall. The raise in rates is due to many factors, but distracted driving is still the number one reason for the rise in accidents. If you’re looking to decrease your Auto Insurance rate over time, never text and drive.

Gas Money

The average American spends $2,000 a year at the pump. In summer of 2018, it was estimated that the average American will spend $200-$400 more in gas prices due to a whole host of factors, which include politics and more politics. The range of the increase also depends on how much you drive as well as the make/model of your car. It’s no secret that gas prices are very high, and the word around Washington is that prices will continue to rise as tensions continue to flare in the Middle East.

So where does that leave you? Hopefully, looking for a shorter commute, which is just about the only factor you can control. Other than that, you can sell your car and buy something that is more gas efficient or is a hybrid. Better yet, consider buying an electric vehicle (EV). Even though they are more expensive than gas-powered cars on average, you no longer have to figure gas into your budget and may still be ahead. Charging an electric car is much less expensive than paying for gas. Also, many manufacturers of electric cars are offering rebates and incentives for a new car.

How Can I Lower My Car Costs?

If you’re working with a small budget, you may want to forget about buying a new car. Buying a used car with an extended warranty may be the best option for you if you’re financing. If you’re buying a car under $10,000, try to buy the car upfront so that you’re not forced to buy full-coverage insurance. And choose the car that is most gas efficient or not dependent on gas at all. You can do all this research yourself online before you purchase.

It’s also true that you can have too much insurance. Say you have a car that is 10 years old and worth only about $2000. There is probably no reason to buy Collision insurance because what you’ll be reimbursed for is the total value of the car. You may be paying more in insurance than the car’s worth if you buy too much coverage! It’s worth crunching the numbers before you elect coverages with your agent.

If your monthly payments are still too high, you can increase your deductible. That’s the amount you have to pay before insurance kicks in, after you have an accident. Usually you have the options to choose a $500 or $1000 deductible. If you choose the option for $1,000 deductible, you’ll pay less for Car Insurance each month but you will have to take care of $1,000 worth of damages out of pocket before your insurance company reimburses you.

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