What Is the True Cost of Car Ownership?

True Cost of Car Ownership

Updated: May 10, 2020

The actual cost of car ownership goes much further than your monthly payments. Cars need consumables, like gas, brakes, and tires. To keep them street legal, you will also need to pay for insurance and registration. On top of all of that, you also have depreciation expense or how much value your car loses. The total costs can escalate quickly. If you genuinely want to buy a car, make sure you have accounted for all the costs and make an informed decision.

True Cost of Car Ownership

The 7 Major Costs of Owning a Car

  1. Registration and Title Fees

    You can’t legally drive the car until you get administrative things out of the way. The first is getting the state’s transportation agency to register and provide a title for it. (This may be a department or bureau of motor vehicles, depending on where you live.) Each state applies its own formula to calculate the registration and title fees. You can click here and check how much the charges should be in your state so that you can budget accordingly. Your state’s transportation agency website may also have the prices and forms available. If you are buying a new car, you will also need to pay sales tax on top of the purchase price.

  2. Insurance

    In a 2019 study by ValuePenguin, the average American paid $941.65 per year for car insurance. Like interest rates, car insurance rates fluctuate drastically between individuals. There are so many factors that insurers consider: age, credit score, marital status, where you live, and work. They also consider how you use your vehicle, and how many miles you place on your car. To get an accurate insurance cost, you should get a quote from an auto insurance agent or a broker.

  3. Fuel expenses

    You must consider fuel expenses (unless you drive an electric car). Gas prices vary between companies, locations, and even times of the day. Your fuel cost will be tied to the fuel economy (mpg) of the car. It is also affected by road conditions and locations where you fuel. One thing: don’t base your fuel costs on information on fuel economy labels from the Environmental Protection Agency (EPA). Those labels are way too low.

  4. Maintenance

    There are two types of maintenance: preventative and corrective. Preventative maintenance is things you do beforehand to extend the life of the vehicle or promote safety. This may include oil changes, tire rotation and changes, and windshield wiper replacement. Corrective maintenance is things which you fix after a problem occurs. Replacing a spark plug or broken taillight bulb, or repairing your bumper after an accident qualifies as corrective maintenance. In general, luxury cars have higher maintenance costs. You may be able to perform some maintenance yourself. In other cases, it may be better and cheaper to leave some things to the experts.

  5. Depreciation

    This is the decrease in your car’s value over its useful life. Depreciation is a single most significant expense of owning the vehicle. A car can lose 20%-30% of its value over the first year. For the next five years, you can expect the value to decline between 15% to 18% each year, according to Black Book. Depreciation depends on characteristics of the car: total mileage, make, model, and the car’s condition. For reference, review the vehicles with the highest and lowest depreciation. You can also find out how much your vehicle depreciated by subtracting its resale value from how much you paid.

  6. Travel Expenses

    These are all the other incidental costs of owning the car. Parking fees, cleaning costs, and toll costs would be examples.

  7. Interest Costs

    If you are financing or leasing the vehicle, you will also need to add interest costs to total ownership costs. As of 2019 the average APR on a new car loan is 4.21%. For example, if you buy a $36,000 car and finance it for 60 months, your interest costs will be $4014.60.
    Would your interest rate be 4.21%? It depends on several factors. The interest rate you pay is determined by how much risk the lender will take on. Lenders consider your credit score, the loan term, and the age of the car to calculate your interest rate. In general, the annual percentage rate (APR) of an auto loan falls within 3%-10%.
    Want to estimate the monthly payment and total interest of your auto loan? Check out our auto loan calculator. You should also use our car affordability calculator to determine better of how expensive of a car you can afford.

true cost of car ownership calculator

The Opportunity Cost of Owning a Car

One major thing that many people overlook when calculating the true cost of owning a car is an opportunity cost. Your opportunity cost is the value of the money that you lose by choosing one option over another. Consider the opportunity cost of buying a car versus investing the same amount for your retirement today. This is very important if you’re trying to build wealth since purchasing the vehicle will negatively affect this goal. To learn more about opportunity costs, check out this article on the Time Value of Money and Compound Interest. Then use the information in the materials to help you decide if you’re ready to purchase your next car.

Total Cost of Car Ownership Example

Jeep Wrangler with $36,000 purchase price and 48-month financing at 4.5%.

Sales Tax (7%)$2,520
Interest Cost$3,404
Registration 4 years$404
Gas 4 years$10,920
Insurance 4 years$4,200
Depreciation 4 years$14,411
Regular Maintenance 4 years$4,000
Cleaning, Parking, Tolls ~$1000
Repairs ~$1000
Total Cost of Ownership$41,859

Jeep Wrangler is one of the least depreciated cars on the market with 12% per year. We used it as an example to show you the significance of the depreciation effect. The more expensive the car is, the bigger this expense will be.

Notice we didn’t add opportunity cost. Let’s say within these 48 months instead of buying a new car, you spent $20,000 on transportation and managed to save the rest at 5% while making a monthly payment to your savings account.

$41,859-$20,000=$21,859/48=$455 per month contribution

After four years total saved: $24,121

After 10 years (without payments): $32,539

After 20 years (without payments): $53,529

As you can see, even with our conservative assumption of 5% per year and contributions for only 48 months – the opportunity cost is high.


When you’re thinking about purchasing a car, you must consider the actual cost of car ownership. Without doing this, you may end up with a vehicle that you truly can’t afford. Review all the expenses so that you can budget correctly for the vehicle that meets your needs. Taking the time to figure this out beforehand means that you can manage your short and long-term finances better.

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.