How Do You Calculate the Total Cost to Own and Drive a Vehicle?

Buying a vehicle is an exciting yet daunting purchase for most. The car itself is already expensive enough, and the price tag gets steeper if you factor in maintenance, fuel, and insurance. But don’t worry, as we’re here to calculate the annual cost of driving a car.

How Much Do I Need to Own and Drive a Car?

The average monthly payment for a new vehicle is $720, while a used car costs $530 a month to finance. If you factor in maintenance, fuel, and insurance, the total cost of driving a vehicle amounts to $5,800 per year. If you include expenses like parking tickets and accessories, the total cost shoots over $6,000 annually.

Here’s a closer look at the factors you should consider in calculating the total cost of vehicle ownership per year.

Purchase Cost

The average cost of new cars cost $48,000, while second-hand vehicles clock in at a little over $26,000.

If you’re still on the fence about what vehicle to get, consider these factors before buying your new ride:

Price

The year, make, and model of the vehicle are three of the biggest factors for the price of the car. Choose a vehicle that has a price in your budget range, as there are other financing-related factors you have to consider, such as maintenance, insurance, and miscellaneous expenses.

Another thing to keep in mind is that price doesn’t always equal value. Some vehicles may be cheaper to purchase but cost more to maintain. For example, the Toyota Prius may cost more than a gas-powered sedan but it is significantly more fuel-efficient than other models in the same price range.

Resale Value

You should also consider the resale value of your vehicle. Your options for resale are versatile, as it doesn’t have to be a straight-up transaction. Some owners even settle for trading in their older vehicles for newer models.

New vehicles depreciate in value within the first two years, but not all vehicles depreciate at the same rate. Toyota, for example, is well-known for its vehicles that maintain a high resale value even after years of use.

Insurance and Financing Costs

Vehicle owners pay an average of $2,000 per year for full insurance coverage and $600 annually for minimum coverage.

You also have to consider financing and how you plan on paying for your vehicle. There are a handful of options to choose from, but here are some of the most common financing options for you.

Loans

Loans allow you to borrow money to finance your new vehicle. The three factors to consider when taking out a loan are the amount of money to be borrowed, the annual interest rate to be applied to the loan, and the length of time you’d have to pay it off.

This method allows you to spread out your payment into installments if you don’t have the money to pay upfront. If you’re unsure where to get loans, you can ask local banks and car dealerships.

Lease

The key difference between purchasing a car and leasing it is that the latter involves pay to use the car instead of owning it. Since you don’t own the vehicle, you’re not getting any equity from it.

There’s also the option of buying the vehicle after you finish your contract, but that will cost you more than purchasing it from the start. In addition, most contracts have clauses that charge per-mile fees.

Lastly, you need to keep the vehicle in tip-top shape since it’s not yours. Otherwise, you’ll get charged for wear and tear, depending on what’s written on the contract.

Refinancing

Refinancing refers to altering the clauses and agreements within your loan contract. People often do this to free themselves financially from the burden of paying monthly dues.

You can extend the length of the loan to lessen the monthly payments, or you can do the opposite and reduce the term and increase the payment if you can afford to.

Fuel and Energy Costs

The price of gas naturally fluctuates, so the average price car owners pay each year differs. But generally, they spend about $3,000 annually on fuel.

If the annual price is a bit steep, check out the following driving practices to ensure better fuel economy:

Inflate Your Tires

It could save you fuel and money down the road. You can improve your gas mileage by 0.6% on average—up to 3% in some cases—by keeping your tires inflated to the proper pressure. Under-inflated tires can lower gas mileage by about 0.2% for every 1 psi drop in the average pressure of all tires.

Reduce Weight

Avoid keeping unnecessary items in your vehicle, especially heavy ones. An extra 100 pounds in your vehicle could reduce your MPG by up to 2 percent. The reduction is based on the percentage of extra weight relative to the vehicle’s weight and affects smaller vehicles more than larger ones.

Avoid Revving

That can mean a big dent in your wallet if you aren’t careful. When you rev your car engine, you cause your engine to work harder. This pulls more air in and pushes more fluids throughout your engine. All of that takes gas, which means you might find yourself at the pump sooner than you expected.

Use Your Brakes Smartly

Aggressive driving forces your vehicle to switch gears at a faster rate than is optimal for fuel efficiency. EPA testing indicates that frequent heavy braking and quick acceleration could reduce your fuel economy by as much as 33% during highway driving.

Don’t Stay Idle

Idling uses up to ½ gallon of fuel per hour (although it varies depending on the type and size of the engine). It may not seem like much, but idling for a few minutes everyday can cost you several dollars per week. MYTH: Engines need to warm up by idling, especially in cold weather.

Maintenance and Repair Costs

The average cost of car maintenance and minor repairs totals roughly $800 a year for car owners. This only accounts for regular checkups and occasional repairs, but it can easily go above $1,000 per year, depending on your driving habits.