The expenses involved in possessing a motor vehicle
In the current car market, prices are gradually decreasing after the pandemic-driven vehicle shortages. However, owning a car comes with more expenses than just the initial purchase price or monthly loan payments.
The average comprehensive cost of owning a car includes monthly payments, fuel, maintenance, registration, taxes, insurance, and depreciation. These expenses often exceed the monthly loan payment by a significant margin.
A new car’s average monthly payment was $745 in early 2025, with leasing cheaper at $595/month, and used cars averaging $521/month. But these payments are only part of the total cost.
According to AAA’s 2024 Your Driving Costs study, owning a new vehicle driving 15,000 miles per year costs about $12,297 annually (or $1,024/month). For used cars, the average is about $12,182 per year, covering insurance, maintenance, fuel, and depreciation.
Depreciation is typically the single largest cost after the purchase price and loan interest. This reflects the loss in resale value over time and can amount to several thousand dollars annually, impacting overall ownership cost significantly.
Fuel costs vary widely by vehicle type. For an average gas car, annual fuel costs are around $2,220 (15,000 miles/year), while electric vehicles (EVs) are much cheaper, about $675/year, offering savings of several thousand dollars over time.
Regular maintenance, repairs, and parts replacements add hundreds to thousands of dollars yearly. EVs tend to require 31-50% less maintenance than gasoline cars, which can reduce these expenses.
Insurance costs depend on factors like vehicle type, driver profile, and location, but they usually represent a substantial annual cost included in the $12,000+ annual figures cited.
Registration, taxes, and fees include upfront costs like sales tax, registration fees, “doc” fees, dealer fees, and possibly extended warranties. These add to the initial expense and sometimes to ongoing yearly fees.
Additional considerations include state-specific taxes, vehicle inspection fees, and optional add-ons such as service contracts or extended warranties, which impact overall ownership costs.
Affordability advice typically suggests keeping car payments under 10% of take-home pay and total car expenses (payments plus insurance, fuel, maintenance, etc.) under 15-20% of monthly income.
In summary, the true cost of owning a car in 2025 averages around $1,000+ per month or about $12,000 annually, incorporating:
- Car loan or lease payments
- Fuel (or electricity for EVs)
- Depreciation
- Maintenance and repairs
- Insurance
- Registration, taxes, and fees
Electric vehicles may reduce fuel and maintenance costs but often have higher upfront prices, partially offset by federal tax credits. This comprehensive view helps consumers budget realistically beyond just the sticker price or monthly loan payments.
- To effectively manage the costs associated with car ownership, a personal-finance app with a credit calculator can be useful for comparison between various loans, savings, and spending.
- Saving for the upfront costs such as registration taxes, fees, and possibly extended warranties is essential when considering buying a new car.
- When evaluating car insurance, personal details like driver profile and location play a significant role in determining the premiums, and it's important to compare multiple providers to find the most affordable coverage.
- By keeping car payments under 10% of take-home pay and total car expenses under 15-20% of monthly income, consumers can make informed decisions to maintain financial stability.
- An examination of the long-term costs reveals that electric vehicles may require less maintenance and have lower fuel costs, but their higher upfront prices can be offset by federal tax credits, making them financially attractive in the personal-finance landscape.
- Factors such as state-specific taxes, vehicle inspection fees, and optional add-ons like service contracts or extended warranties should be considered when calculating the complete costs involved with owning a car.
