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Understanding all the costs associated with owning a car can help you figure out what you can really afford.
Car shopping can be exciting. That new car smell, those shiny dials and the special limited-time sale mean you should act fast, right?
Before you sign a purchase agreement, consider the total cost of owning a car. In addition to your monthly car payment, you’ll likely be shelling out for ongoing costs like gas, car insurance and regular maintenance.
Let’s take a look at the various expenses and how they can add up.
Your monthly loan payment
The first and most obvious cost of owning a car is your monthly loan payment. While some people may pay cash for their vehicle, many opt to finance the cost by taking out an auto loan.
The larger your down payment, the less money you’ll need to borrow. Making a down payment can also reduce your monthly payment and the total amount of interest you’ll pay on the loan. Some lenders may require you to make a down payment if you have credit that needs work, or if your loan-to-value ratio — the amount you borrow versus the value of the car — is too high.
Here’s an example of how making a down payment on a car can reduce your monthly payment.
|Vehicle cost (with taxes and fees)||$37,300|
|Your down payment||$5,000|
|Total car loan amount||$32,300|
Since your monthly loan payment is largely based on your loan amount, a larger down payment will help lower your monthly payment. Your lender will typically use your credit reports and scores to help determine your interest rate. The better your credit, the better the rate lenders are usually willing to give.
Another factor influencing your monthly payment is the length of the loan. The longer you stretch out your loan period, the lower your monthly payment will be. But with a longer loan term, you’ll pay more in total interest.
This example shows how the interest and loan term can affect the total amount you could pay for your car loan.
|Total car loan amount||$32,300|
|Loan term||5 years|
|Total monthly payment||$648|
|Total paid on loan||$38,880|
Additional costs of owning a car
Let’s say you can afford $648 a month — but what about other costs associated with car ownership? That monthly payment is only one expense to consider. Here are several more.
Car insurance is required in most states. A variety of factors, including your driving history and age, can influence the cost of your car insurance. An insurance agent can give you a quote for the vehicle you’re thinking about buying. The average car insurance premium in the U.S. was $1,062 annually, or $88.50 per month, in 2016, according to the National Association of Insurance Commissioners’ Auto Insurance Database Report released in 2018.
Here’s how your monthly car insurance premium can add to your monthly cost of owning a car.
|Total monthly car loan payment||$648|
|Average monthly car insurance premium||$88.50|
|Total monthly cost of owning a car||$736.50 per month|
Another big variable in the cost of owning a car is fuel. If you drive a lot, consider the miles-per-gallon ratings of the car you want to buy. Fueleconomy.gov features tools that allow you to look up the miles per gallon for a specific make and model or find cars that get a specified minimum miles per gallon. The Bureau of Labor Statistics found that consumers in 2017 spent an average of $1,968 per year, or $164 per month, on gas, other fuels and motor oil.
Fuel expenses also contribute to your monthly cost of owning a car.
|Monthly car loan payment and car insurance premium||$736.50|
|Average monthly fuel cost||$164|
|Total monthly cost of owning a car||$900.50 per month|
Even if your car is brand new, you’ll likely still have some maintenance costs. For example, if you don’t change the oil yourself, you might need to pay for oil changes. In 2017, AAA found that, on average, new vehicles cost $1,186 each year to maintain and repair.
In this example, maintenance, car insurance and fuel add $351.50 to the monthly cost of owning a car.
|Monthly car loan payment, car insurance premium, fuel, maintenance||$900.50|
|Average monthly maintenance cost||$99|
|Total monthly cost of owning a car||$999.50|
Other potential costs
Additional costs to consider can include …
- Vehicle registration fees — These fees may be annual or biennial. Some states charge a flat registration fee, while others use factors like your car’s age or fuel efficiency to determine your fee.
- Vehicle property tax — Some states also charge a vehicle property tax, based on your car’s value.
- Parking — Depending on where you work and live, you might need to factor parking costs into your budget. Parking costs vary by city. The median monthly parking cost was highest in New York City at $616 and lowest in St. Louis at $85 per month in 2018, according to Parking Property Advisors and Parkopedia. In the middle of the road was Nashville, at $175 per month.
Alternatives to owning a car
If you can get away with not owning a car, public transportation might be less costly. For example, a subway ride in New York City is $2.75 — or you can get a 30-day unlimited ride pass for $121. And a monthly outer express bus pass in Boston costs $168.
If you live in a bike-friendly town or city, biking can be a lower-cost — or even free — option. Companies like Lime now make it easy to rent a bike or scooter for around $1 to unlock, with an additional charge per minute.
The advertised price of a vehicle is just one consideration when calculating the total cost of owning a car. Expenses like car insurance, gas and maintenance can drive up your monthly costs. Before you buy, do a little research to get a sense of potential costs and to help make sure you can stick to your car budget.