Owning a car may be a growing part of your budget. The average annual cost of owning a vehicle just hit a record high of $9,282, according to a new study from AAA. That works out to $773.50 per month, about $36 more than in 2018.
Costs increased in all six categories AAA tracks, including fuel prices, maintenance, insurance costs, license and registration fees, and depreciation.
Since most people don't have tens of thousands of dollars stashed away to purchase a new car outright, borrowing money they need, or financing the car, is a popular option. Financing costs on new cars have increased 19% in 2019, representing the bulk of the ownership cost increases, according to AAA.
And prices of new cars could rise further. The Trump administration warned that it could enact tariffs on vehicle and auto parts imports, and that could tack on additional costs. "It's gonna push up the price of cars," Robert E. Scott, a senior economist at the Economic Policy Institute, recently told Grow about the prospect of new tariffs. "Consumers will pay more. That's going to affect buyers across the spectrum."
Focusing on the bottom line can help you stay practical, rather than emotional, about big purchases like a car. Here's how experts say you can cut costs, both before you buy and after:
This year, many dealers are trying to move a glut of unsold past-year models off their lots, which may lead to even more opportunities to spend less — especially as interest rates drop.
Still, South Dakota-based financial advisor Rick Kahler has some straightforward advice for those thinking of buying a new car: "Don't." That's mostly because new cars depreciate rapidly, and can quickly lose thousands of dollars in value within one year of being driven off a car dealer's lot. Plus, certified pre-owned (CPO) cars, a subset of the "used car" category, tend to cost significantly less. The average new car costs more than $32,000, but consumers could save an average of $14,443 buying a three-year-old used model over its new counterpart, according to Edmunds.
"Financially, the best thing you can do is buy a car that's two years old, maybe three, but that is definitely pre-owned," Kahler says.
You've gotta be "insane" to buy a new luxury vehicle, Kahler says.
Vehicles made by premium brands — including but not limited to makes like Lexus, Mercedes-Benz, BMW, Audi, Infiniti, Acura, and others — often demand a host of additional costs, ranging from higher insurance rates to, for some models, specialized fuel. Repairs and maintenance tend to be more expensive, too.
Insurance can be a big monthly expense, but there are ways to lower your rates. Some insurers offer a myriad of discounts, including for driving less, and even for those who take a defensive driving course. You can also boost your deductible to lower your monthly payment, a move that can save you up to 30%.
Even improving your credit score can help lower your rate.
For some people, the single biggest source of monthly savings could be to sell the car they have or trade it in for a less expensive model, says Moody. That gives you the opportunity to consider the most important factor in the car-buying process: your purpose, or, thinking about what you need the car for.
In that case, you're also thinking less emotionally and more practically.
"You might not need an SUV with a huge engine, all-wheel drive, and leather seats if you live in Los Angeles," he says. Instead, make a decision based on your individual, day-to-day needs and experience.
And again, don't be afraid to buy used. Vehicles are more reliable than ever before and, with a little TLC, you should be able to keep one on the road for years. "The average used car on the road is more than 11 years old," says Moody.
Owning a vehicle isn't optional for a lot of people — much of the infrastructure in the U.S. was built to encourage driving, and in some cases, laws even encourage it. Even the Supreme Court has called vehicle ownership a "virtual necessity." For that reason, more than 90% of U.S. households have at least one vehicle.
Here's how average car-related expenses break down:
- Car payment: The average new car in the U.S. costs more than $32,000, and the average monthly payment is $554. For used cars, those figures are $20,137 and $391.
- Insurance: Insurance costs vary wildly depending on where you live, your age, driving history, your credit history, and what type of car you drive. The average driver in the U.S. pays $941 per year.
- Fuel: Again, ultimately costs will vary depending on the type of vehicle you drive and how often you drive it. The average driver spends between $395 and $1,441 per year on gas, according to government data.
- Depreciation: Wear and tear reduces your car's value over time. That depreciation can erode as much as $3,000 of a vehicle's value per year, according to AAA, or 20% as soon as they're driven off the lot.
- Other costs: These can include registration, fees, taxes, tolls, and parking.
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