Getting your first car is a significant milestone, marking your entry into adulthood alongside other responsibilities like renting your first apartment and navigating taxes. However, with the average price of new cars hovering around $50,000 and soaring car insurance rates, owning your dream vehicle can quickly turn into a financial burden. The average cost of owning a car is putting a strain on household budgets across the country.
So, how much does it really cost to own a car? To understand the full picture, we should start with the initial purchase price. In January 2025, the average transaction price for a new car was $48,641, while used cars averaged $25,721. While the prices of used cars have slightly dropped due to the pandemic’s impact on manufacturing, the overall market remains limited. However, the sticker price is just the tip of the iceberg, as there are various additional expenses associated with vehicle ownership.
A study by Bankrate in August 2024 revealed that Americans spend an average of $6,684 on hidden car ownership costs annually, on top of their lease or loan payments. These costs encompass car insurance, fuel, taxes, and maintenance and repairs. As of February 2025, the average annual cost of full coverage car insurance has risen to $2,670, pushing the updated hidden expenses to $7,025. When factoring in monthly payments, the yearly expenses for new cars amount to about $15,869, and for used cars, it totals $13,265.
The expenses linked to owning a car go beyond just fuel costs. Factors such as insurance, purchase price, financing, and gas prices all contribute to determining the overall cost. Car insurance averages $2,670 annually for full coverage and $773 for minimum coverage, varying based on location, vehicle type, driving history, chosen insurance company, and coverage levels. Comparing quotes from different insurers and selecting the appropriate coverage can help avoid unnecessary costs.
When it comes to financing, the average monthly loan payment for a new car is $737, while used car owners pay around $520 per month. Choosing a high-quality used vehicle could be a more budget-friendly option for those with limited financial resources. Gas prices, currently at $3.16 per gallon, fluctuate throughout the year, impacting annual costs based on factors like vehicle efficiency and local gas prices.
Understanding and managing these costs can help you make informed decisions about car ownership and ensure that it remains a financially feasible endeavor.
In comparison, drivers in Indiana pay an average of $2,913 per year for gas despite the lower price of $3.68 per gallon due to their higher mileage, averaging 20,560 miles per year.
Car repair and maintenance
According to AAA’s 2024 Your Driving Cost (YDC) report, the average price of routine maintenance for a 2024 medium sedan is 10.89 cents per mile, with an average of 15,000 miles driven annually. This equates to an average annual cost of car maintenance of approximately $1,634. Your own costs may vary based on factors such as your vehicle type, repair costs in your area, and your annual mileage. Keeping track of maintenance expenses like oil changes, tire rotations, and windshield wiper replacements can help you plan and budget for these costs.
Taxes
Auto tax rates vary by state and even between municipalities. Some states, such as Alaska and Delaware, do not have a typical tax for vehicle purchases. Alaska has a motor vehicle registration tax (MVRT) while Delaware has a gross receipt tax for the seller of goods. The national average annual car tax is $1,182, but your tax rate may differ based on your location and type of vehicle.
Other vehicle expenses to consider
Aside from maintenance and taxes, there are other factors that impact vehicle ownership expenses. Registration fees vary from state to state, with costs based on factors like the vehicle’s age, horsepower, or weight. Depreciation, the decrease in your car’s value over time, is another important consideration. On average, annual depreciation costs for a vehicle are $4,680. Understanding these additional expenses can help you better estimate the total cost of owning a car.
Calculating the total cost of car ownership
To determine the total cost of owning a car, start with the initial vehicle cost and factor in interest paid over the life of your car loan, insurance premiums, fuel expenses, registration fees, and regular maintenance costs. Estimating depreciation can be challenging due to various factors, but using resources like Kelley Blue Book values can provide a rough estimate. By considering all these components, you can calculate a monthly and annual estimate for your total car ownership expenses.
First-hand insights: Is car ownership worth it?
As the costs of car ownership increase, some individuals are questioning the value of owning a vehicle. Seeking insights from forums like r/MoneyDiariesACTIVE can offer practical tips and perspectives on reducing car ownership expenses.
Some Reddit users shared their experiences with car ownership costs. One user mentioned that high gas prices were a significant expense and that remote work had reduced their monthly gas spending to $60. Another user discussed being a one-car household for 8 years, detailing their car costs over the last 6 months. A third user highlighted the financial benefits of moving from a car-centric area to a city with good public transit, estimating savings of around $900 per month.
Additionally, to save on car ownership costs, consider shopping around for cheaper car insurance, choosing a vehicle with lower overall costs, refinancing your car loan for a better rate, consolidating driving trips to save on maintenance and gas, and maintaining your car to prevent costly repairs.
Regular maintenance can help prevent expensive repairs in the future by detecting issues early. Knowing when to replace a car is essential, as vehicles have a limited lifespan. Changing family or lifestyle needs, increased maintenance costs, and poor fuel efficiency are all factors to consider when deciding if it’s time for a new vehicle. Budget changes should also be taken into account, as keeping up with car payments is crucial. While new models offer advanced safety features and improved fuel efficiency, they come with higher upfront costs and maintenance expenses. Depending on your circumstances, replacing your car could provide financial peace of mind or lead to additional expenses. It’s important to weigh the pros and cons before making a decision.
The decision to replace a vehicle can be a significant one, with factors varying from driver to driver. While the prospect of getting a new car may bring excitement, it also comes with potential additional expenses. These could include a new down payment, the possibility of taking on another loan if your prior vehicle was fully paid off, and potentially higher insurance costs compared to your previous car. On the flip side, opting for a more fuel-efficient vehicle could lead to savings on gas expenses and potentially reduce concerns about frequent repair costs and breakdowns.
When considering which cars have the lowest cost of ownership, data from AAA suggests that small sedans generally offer the lowest overall cost, followed by subcompact SUVs. It’s important to look beyond just the initial purchase price and also factor in ongoing costs such as gas, maintenance, and auto insurance. As per a study by Bankrate analyzing average rate data from Quadrant Information Services, vehicles like the Subaru Outback, Honda CR-V, and Toyota Tacoma are among the top three options for cheaper full coverage car insurance.
The current high prices for both new and used vehicles can be attributed to several factors. The pandemic led to a production shortfall of 8 million cars between 2021 and 2022, with experts forecasting continued shortages in the used car market until at least 2025. Many new cars command price tags exceeding $60,000, further driving up demand for pre-owned vehicles. Factors such as increased interest rates and limited supply have contributed to the surge in used car prices. Additionally, escalating costs of raw materials have played a role in the overall uptick in vehicle prices. Potential import tariffs affecting new vehicle costs and repair parts could further drive up prices in the coming years.
When it comes to vehicle depreciation, rates can vary based on factors like the make, model, and market demand. Generally, new cars see an average depreciation of around 20% in the first year, largely due to the immediate drop in value upon leaving the dealership. Annual depreciation typically ranges from 15 to 20% in the subsequent years, with a more gradual decline in cumulative depreciation after about five years. On average, a vehicle may lose roughly 50% or more of its value within the first five years. It’s important to note that these figures are estimates, and actual depreciation can be influenced by factors such as mileage, the vehicle’s condition, and prevailing market trends. Consistent maintenance and upkeep can also impact a vehicle’s resale value.
Setting a realistic budget for a new car can present challenges, particularly given the high costs of vehicles and insurance. Ideally, your auto loan payments should amount to 10-15% of your salary, with the total cost of car ownership not exceeding 20% of your income. According to Bankrate’s 2025 True Cost of Auto Insurance report, the average American household spends around 3.39% of their income on full coverage car insurance, with certain states like Louisiana seeing figures as high as 6
