How Much Does a Car Cost

The idea of owning a car can be appealing — a car gives you the ability to get where you want to go, lets you answer the call of the open road and just provides a place to put your groceries. But there are a lot of costs beyond the upfront purchase price, so let’s do a deeper dive to answer the question: how much does a car cost?

How Much Does It Cost To Buy A Car?

The price of a car depends, of course, on what kind of car you want to buy. Costs increased dramatically during the pandemic — in 2023, the average new car cost was $48,763, according to Kelley Blue Book. Before the pandemic, the average new car sold for $37,876 — an increase of 29%. 

Buying a car can lead to a fair amount of debt — the average monthly payment for a new vehicle is $729, one study found, while the average monthly payment for a used car is $528. The majority of cars sold in the second quarter of 2023 — 59% — were used vehicles, while 41% were new.

When you buy a car, be sure to consider additional costs beyond the sticker price, such as sales tax, which varies by state and can significantly impact the final amount. Other costs include registration fees, which include the vehicle's title and license plate, and documentation fees, which are charged by dealerships for processing paperwork. These types of costs are typically part of the buying process and should be factored into the budget to avoid surprises. 

Ultimately, though, your credit score affects what you end up paying. It may be possible to qualify for an auto loan (for both new cars and used cars) with a lower credit score — or even bad credit. A lower credit score means you'll have a higher monthly payment due to higher interest rates, which likely translates to paying more for your car over time.

Common Car Ownership Costs

Buying a car is a complex operation, but there are steps you can take to make it easier — and maybe save some money in the process. That said, you have to be mindful and take a lot of factors into consideration, so here are some of the costs you should consider when you are thinking about buying a car. 

Car Insurance

When you buy a car insurance policy, it’s critical to understand the different types of car insurance, especially your state’s minimum coverage laws. Most states require liability coverage at the very least.

On average, full coverage monthly payments are around $179, while state minimum liability coverage costs about $39 a month. Your driving record also affects your insurance costs — the better your record, the lower your costs may be. To get a handle on your insurance, it’s best to work with a licensed insurance professional to ensure you have the right coverage.

Fuel

Your annual gas costs vary depending on several factors. If you’re driving a large truck that doesn’t get great mileage, for instance, you might be spending up to $300 a month. Conversely, a fuel-efficient car could keep you in the $100 – $150 per month range.

Something else to consider is that electric vehicles often boast lower operational costs. These increasingly popular vehicles can cost more upfront, but the cheaper fuel cost can make them better deals in the long run. Another relevant factor is the amount of travel you’ll be doing, with longer commutes or frequent road trips leading to higher costs.

Various driving habits also contribute to fuel consumption, as an aggressive driving style may lead to increased fuel usage. Additionally, external factors like traffic congestion and road conditions play a pivotal role in determining fuel efficiency. Regular vehicle maintenance, including proper tuning and tire inflation, can help you keep your fuel expenses lower.

Maintenance And Repairs

The average annual expenditure on car maintenance and repairs can cost between $500 to $1,000, but the figure can vary based on various factors. Older vehicles tend to incur higher maintenance costs due to wear and tear, potentially averaging around $1,000 to $2,000 annually, compared to newer cars that may require approximately $500 to $1000 in upkeep per year. (New cars also often come with warranty plans that will lower maintenance costs for the first few years.)

The amount of driving you do also plays a significant role in a car’s maintenance needs, with higher-mileage vehicles often necessitating more frequent repairs. Additionally, state inspection requirements and regulations can significantly impact costs. Stringent inspection criteria might prompt additional repairs to meet compliance standards, contributing to a higher overall maintenance bill for car owners.

License/Registration/Taxes

License, registration and tax costs are impacted by myriad factors, including vehicle sales prices as well as state/local tax rates. Some of these fees are one-time costs, while others must be paid annually. 

How To Budget For Car Costs

As you can see, there are many expenses that make buying a car more expensive than just what you pay upfront. Thankfully, there are ways to save on your expenses and bring down the overall price. 

• Consider setting aside a dedicated fund for car repairs, which will keep you from being blindsided by emergency costs.

• Research and compare maintenance costs and fuel-efficiency before purchasing a vehicle.

• Look for ways to save on car insurance, including: 
  • Shop around to see if you qualify for various discounts or bundling options, which can lower your auto insurance premiums.
  • Consider raising your deductible, which can lead to lower monthly premiums.

• Look into refinancing your car loan if some particular situations arise, including:
  
  • Interest rates have dropped dramatically
  • Your credit score or financial situation has improved
  • You want to shorten the term of your loan or
  • You need to cut your monthly budget.

The Cost Of Owning A Car: FAQs

Owning a car can be complicated for many reasons. Here are some common questions that arise when dealing with the costs of vehicle ownership:

How much should I spend on a car?

To get an idea of how much you should spend on a car, a good rule of thumb is to pay no more than 35% of your annual pretax income. So, if you make $50,000 before taxes per year, your car purchase price should be around $17,500. It’s not etched in stone, of course, but it’s a good guide to use as you consider buying a car.

What is the cheapest car to own?

The cheapest car to own varies based on factors like initial cost, fuel efficiency and maintenance requirements. Generally, smaller, compact cars with good fuel economy and lower maintenance costs are considered to be the best values over time due to their affordability and reliability. 

Is it better to lease or buy a car?

Deciding between buying or leasing a car depends on your preferences and financial circumstances. Buying a car offers long-term ownership and potential equity, while leasing a car provides lower monthly payments and the ability to drive a newer car more frequently. Consider your budget, driving habits, and long-term goals to determine which option aligns best with your needs. 

The Bottom Line: The Cost Of Car Ownership Can Be Worth The Investment

Owning a car is much more complicated than just signing a contract, walking away with the keys and hitting the road. It requires thoughtful planning to make it an economical, positive decision. 

To create a budget and track how much your spend on your car, don’t forget to download the Rocket Money^SMapp today!