How to Calculate the Total Cost of Car Ownership


Kelley Blue Book lists the average price of a new car in America at over $33,000. While the advertised price and monthly payments are upfront expenses, the other costs of owning a vehicle may go unnoticed. There are many things to consider when evaluating the total cost of car ownership including the following:

Overall Costs of Owning a Car

The average monthly payment based on Experian Automotive is $482. But this is only the actual cost of the vehicle. AAA’s driving cost’s study determined that for a vehicle that is driven 15,000 miles a year, all costs of ownership total up to be $8,698 a year or $725 per month, nearly double the car payment. Costs vary depending on the type of vehicle and its age. Older vehicles may have lower or no payments, but higher maintenance and repair costs. The AAA study found SUV’s cost 58% more than a sedan.

Ongoing Costs of Ownership?

Fuel. What grade of fuel do you use and how many miles do you drive? The cars mileage will largely impact the variable costs of operating the vehicle. AAA notes that fuel costs average $1,682 a year and varies based on the car you drive. Newer cars tend to get better mileage, saving you money in the long run.

Tires. According to AAA, the average cost of tires is $147 annually for those driving an average of 15,000 miles per year. That means replacing tires every four years which can cost $60 and up depending on the tires you select and who installs them.

Maintenance. Oil changes, tire rotations, battery inspections, and tune-ups add up to an average of $767 per year to keep the car safely on the road. Failure to maintain the vehicle could lead to higher costs and expensive repairs down the road.

Repairs come into play once the car warranty expires. Nearly all car parts wear out and require replacement. Older vehicles may have more repairs, but the costs may be lower than new vehicle repairs that require expensive computer systems to troubleshoot.

Taxes and fees. Every year owners pay property tax on the vehicle, above and beyond the sales tax and fees charged at the time of purchase. On average AAA estimates, owners pay $665 a year in state and local taxes and fees, including licenses and registration costs.

Insurance costs factor in the type of car you drive, along with your driving record, miles which you drive, zip code where you live, and other risk factors. Mandatory insurance coverage can range from $30 to $400 a month and must factor into the total cost of ownership.

Interest on a vehicle loan. The interest rate and the loan term will determine the total interest paid to drive your car. The average length of car loans is now 67.2 months or 5.5 years with an average interest rate of 4.56%. Taking out a high-interest loan can double the cost of buying a car and the longer the loan term, the more you will pay in interest.

How Do You Compare?

Taking the above factors into account will help you calculate the cost of owning a car. Whether you are deciding whether to trade up or keep your current car or wanting to downsize to one less vehicle in the home, understanding the total costs will help you make better financial decisions on car ownership.