Vehicle Costs Can Put a Dent in Your Budget

Car buyers tend to focus on one primary thing when purchasing a vehicle – the price.  This is the one data point that almost everyone in the auto industry focuses on, and for those buying a new or used car or truck, this is a mistake.  Shopping for a vehicle based solely on the sales price is not a good move, and here’s why…

What Makes Cars and Trucks Expensive

If you were to buy a new car for $50,000, drive it for 4 years, and then sell it for $50,000, that would be ideal.  Your investment would have maintained its value, and you would not have suffered a financial loss.  But, as we know, the world doesn’t work that way—and this is unrealistic.  A more likely scenario is that you buy the same car for $50,000, and then 4 years later, you trade it in for $25,000 or less.  This results in a loss of $25,000 or more—or about 50% of your investment.  This reduction in value is called depreciation, and it’s what 99.9% of vehicle owners experience when they own a vehicle—and it’s one of the biggest reasons why it’s expensive to own a vehicle.

There are Many Costs to Owning a Vehicle

Depreciation, as mentioned above, is a major cost component of owning a vehicle, but there are many other costs on which consumers should also focus, such as:

  • Insurance
  • Maintenance/repairs
  • Fuel
  • Financing/interest
  • State and local taxes and fees

Together, these costs are what make cars and trucks are expensive to own and operate.  While there are many other costs, such as parking, tolls, car washes, etc., those listed above are the costs that really drive vehicle expenses.

Depreciation Will Leave a Big Dent in Your Vehicle

When purchasing a new or used vehicle, the purchase price is only the first cost of owning and operating a car or truck.  The costs listed above then begin, and that’s when vehicles start to become costly.

Depreciation occurs as soon as you leave the dealer’s lot.  This is especially the case with new cars, as the average new car loses 23% of its value in the first year alone.  With our example of a $50,000 new car, that’s a cost of $11,500, just in the first year.  Although this rate of depreciation will lessen as the vehicle ages, it likely will never stop, unless it becomes a classic. shows how depreciation occurs with its Depreciation Calculator, where you can see for yourself how much vehicle values fall, especially when new.

Depreciation is Only Half of the Story

Depreciation costs are big, representing 47% of the total cost of owning a vehicle over a 5-year period.  The next biggest cost of owning a vehicle is auto insurance.  This is an area where the costs can vary greatly. also has an Insurance Calculator that will provide you estimated insurance costs for over 250 vehicle models.  Much of the insurance cost will depend on the vehicle you are driving, but the cost will also be a function of your driving record, and the insurance company that you choose.  Insurance costs represent approximately 20% of the cost of owning and operating a vehicle.

If you actually want to drive your vehicle, it will have to have some fuel to power it.  You’ll also need oil changes, new brakes and new tires, and those aren’t free.  If something goes wrong with your vehicle—and it will—you’ll need repairs and likely new parts.  So, before you buy, check out CarEdge’s Maintenance Calculator, which will show you the expected maintenance expense and likelihood of a major repair for hundreds of models.  When it comes to maintenance costs, there is a huge difference in expense between vehicle brands, and CarEdge ranks all of the brands on their Maintenance Costs, so you can see the good, the bad, and the ugly.

Watch Out for Financing Costs

If you have the cash to buy a vehicle outright, do it.  Not many have this ability, however, and end up financing at least a portion of the purchase price.  The financing of a vehicle can either have very little, or a lot of impact on your cost of ownership, depending on how much you finance and at what rates.  Your credit score will affect your loan interest rate, and CarEdge explains to you what you can expect with your credit score.

As vehicles depreciate rapidly, many vehicle owners find themselves “upside down” in their car loan, where the balance on their loan is actually greater than the value of their vehicle.  This can be a problem for a lot of people, so CarEdge created a helpful Loan Calculator that allows vehicles shoppers to explore different loan terms with different vehicles, in an effort to avoid being in this “upside down” position.

Interest charges represent, on average, 11% of the cost of owning a vehicle, although this percentage can go much higher, if you try to buy a vehicle that is out of your price range, or you have a less-than-perfect credit history.  Oftentimes, over 20% of the cost of owning a vehicle is simply interest expense on the loan.

State and Local Taxes and Fees Can Take a Big Bite

States, cities, counties, and local townships all impose additional costs on vehicle owners.  Vehicle sales tax rates can be as high as 11%.  Many states, cities and local entities charge property taxes, excise taxes, transfer taxes, vehicle license fees, title fees, and other various fees, all increasing the cost of owning a vehicle.  Before you buy a car, check out all of the taxes and fees that are charged in your respective state.

Vehicle Costs Add Up to Big Bucks

Owning a vehicle can be expensive, and many of the costs cannot be avoided.  Depreciation, maintenance, insurance, financing, and fuel costs in total, average over 100% of the initial purchase price of a vehicle over a 5-year period.  So, in our example of the purchase of a $50,000 vehicle, it will cost the average vehicle owner $56,500 over a 5-year period, or over $11,000 per year—and that is before we include any state and local taxes and fees.  In this example, the costs would look like this:

Expense Category 5-year Expense Total % of Total Expense
Depreciation $26,600 47%
Insurance $11,300 20%
Fuel $9,600 17%
Financing/interest $6,200 11%
Maintenance/repair $2,800 5%
Total $56,500 100%

You have the ability to control and manage many of these costs, however, by making good decisions.  As we outline above, vehicles depreciate at very different rates, so finding a vehicle that holds its value better than others is a big step in keeping your vehicle costs low.  Choosing the right car or truck will also significantly affect your maintenance costs and fuel costs too.  CarEdge has a list of the vehicles that are the least expensive to maintain.

How you purchase and insure your vehicle are both important decisions where you have some choices, and can save some money.  Try CarEdge’s Financing Calculator to find a vehicle and loan structure that is right for you.  Also, compare insurance quotes so that you can find the best rates out there.

Costs More Important than Price

Vehicle-related costs can be managed—it’s just a matter of putting in some research.  With that, CarEdge has created a Cost of Ownership Dashboard which provides an extensive analysis of all of the costs of ownership for over 250 vehicle models.  The interactive tools on the Dashboard can be used to compare vehicles for their ability to hold their resale value.  They also have rankings to show the best and the worst for depreciation, insurance costs, maintenance costs, and total cost to own.