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4 smart ways to save thousands of dollars on your car

Twenty/20

Even when you try to be frugal with your choice of car, that doesn't always pan out—because buying a car can become an emotional decision, rather than just a practical one.

"When my wife and I went to go get a new car," says Brian Moody, executive editor at Autotrader, "I had this idea where I wanted to get an old station wagon, fix it up, and make it super safe and reliable."

But his wife wasn't on board. Instead, he says, she wanted a newer vehicle, which she thought would be safer, more reliable, and have more features. In the end, they decided to buy an SUV, a Nissan Rogue.

That mentality that new cars are better is how many consumers end up with a budget-busting vehicle in their driveway. The average American spends $9,576 per year to own a car, according to the government's latest-available consumer budget data, from 2017. That's a 5.8% increase over the previous year.

How to save money on your car

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:

1. Buy pre-owned

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, whereas a pre-owned model that's only a few years old can be found for nearly $10,000 less.

"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.

2. Avoid luxury brands

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—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.

For example, annual insurance premiums for a Toyota Camry in Pennsylvania add up to $1,344, according to Insure.com. Insuring a Porsche 911 in the same state is nearly $2,700 per year.

3. Look for ways to lower your insurance rates

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.

4. Sell your car and start over

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.

Monthly car expenses: a breakdown

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:

  • 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 $400 and $1,440 per year on gas.
  • 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.
  • Other costs: These can include registration, fees, taxes, tolls, and parking.

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