The real cost of owning a car: What you need to know
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For many people, owning a vehicle marks a significant step toward independence. Having your own car gives you the freedom to go where you need (or want) to go, without relying on others for transportation. However, before you take this big step, it's essential to understand the full cost of owning a vehicle. Beyond the purchase price, there are several factors to consider, including financing, insurance, maintenance and the ever-increasing cost of gasoline.
Financing your vehicle
If you can’t buy your car outright, you’ll need to consider the interest rate on a car loan. Auto loan interest rates can vary greatly depending on your credit score, where you live and whether you’re buying a new or used vehicle. The Consumer Financial Protection Bureau offers a helpful tool for comparing car loans to ensure you get the best deal.
Understanding the total cost of ownership
Beyond the financial considerations of purchasing the car, vehicles have additional costs. The American Automobile Association (AAA) compiles valuable statistics on the cost of driving in its annual "Your Driving Costs" report. This report breaks down the operating costs (gas, maintenance, tires), ownership costs (full-coverage insurance, license, registration, taxes, depreciation and finance charges), and total cost per mile for a variety of vehicles. According to AAA’s 2023 report, the overall average annual cost to own and operate a new car is $12,182.
To make informed decisions, use AAA’s driving cost calculator to compare vehicle ownership costs across different years, makes and models.
Fuel costs
Gasoline is a major expense for most drivers. As of June 2024, the national average gas price was $3.58 per gallon. Depending on how much you drive and your vehicle's fuel efficiency, gas can be a significant cost of operating your car. Use a fuel cost calculator to estimate your budget for gas. Additionally, consider ways to reduce your fuel consumption and costs, such as carpooling, using public transportation, choosing a fuel-efficient vehicle and maintaining your car regularly.
Insurance and maintenance
Regardless of how you get from place to place, it's crucial to keep track of your overall spending on vehicle ownership. This includes ancillary costs such as car insurance and regular maintenance. The cost of insurance is steadily climbing so comparing costs can minimize the impact on your wallet. Your age and driver history can have a big impact on your car insurance rate. According to NerdWallet, ‘the cost of car insurance levels out once a driver reaches 30, with an average of $1,769 a year for full coverage.”
A properly tuned engine, properly inflated tires and using the correct motor oil will reduce fuel consumption, thus saving you some money. When your car needs repairs, AAA can also provide estimates so you have a baseline of what to expect. By monitoring your expenses, you can manage your budget more effectively and keep more money in your pocket.
Additional resources
For more money-saving tips and resources, visit Michigan State University Extension. They offer a wide range of programs and articles on money management and personal finance for both youth and adults.
Conclusion
Buying your first car is an exciting milestone, but it's important to approach it with a clear understanding of the costs involved. By considering the total cost of ownership, exploring financing options, budgeting for fuel and keeping up with insurance and maintenance, you can make a well-informed decision that fits your financial situation. Take the time to research and plan, and you'll be well on your way to enjoying the freedom and independence that comes with owning your own vehicle.
