How much does it cost to own a car?

The numbers tend to pile up pretty quickly, but many people don't really consider the full cost when buying a car. Learn tips on owning a car here.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Unless you own a boat, chances are that your car is the biggest-ticket item you own after your house. It's a major expense that most people can't avoid, because unless you live in one of a handful of big cities with excellent public transportation or ridesharing services, you need your own car to get around.

Most Americans finance a car because few have the cash on hand needed to pay for such a major purchase. That payment—which generally includes fairly significant interest—is only part of what gets spent on car ownership each month.

In most cases, people also have insurance (a few states don't require it), maintenance costs, gas, and maybe a parking expense, depending upon where you live. The numbers tend to pile up pretty quickly, but many people don't really consider the full cost when buying a car.

What Does the Average American Spend?

The average American spends $653 a month for car payments and car-related expenses, according to a survey of 2,000 U.S. adults done for The Zebra, an insurance comparison tool. That's a fairly hefty $7,836 per year to own a car and keep it on the road.

To put that into perspective, the average American makes $46,800 annually, according to Bureau of Labor Statistics data. That means car expenses eat up 17% of the average earner's total income.

Of course, it's possible to spend a lot less. It's actually probably smarter for most Americans to spend well below this number, but that requires making smart decisions.

How to Save on a Car

When you buy a car, it's important to balance affordability and reliability. It's almost never a good value to buy a new car, because cars depreciate by 20% the second you drive them off the lot. Imagine buying a stock that loses 20% in value guaranteed once you buy it, with a near guarantee it will be worth less as time goes on. You want to be on the right side of the depreciation and, generally, that means buying a one-year-old car or maybe one slightly older. That's generally the sweet spot for getting something in good condition where someone else has taken the depreciation hit.

Before buying a car, you should also do your homework. Some vehicles have lower average repair needs and/or costs. Others cost more for even a simple oil change.

Use resources like Consumer Reports' annual used car buying guide to see the track record of the vehicle you plan to buy. Cars can be tricky, as traditionally reliable models may have the occasional bad year. You will also want to figure in gas mileage, since vehicles in the same class can vary greatly.

And when it comes to getting a loan, not all loan sources are created equal. If you have excellent credit you will generally get better rates, but get offers before going to the dealer. Credit unions often offer a better deal than traditional financing options, and you're not required to use the dealer's financing (though some dealers may act like you are).

Consider a car a necessary expense, but do what you can to keep those costs in check. That's possible if you're willing to drive the best car for what you need rather than the coolest or newest vehicle you can only sort of afford.

Topics:
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print
Article copyright 2019 by Daniel B. Kline from The Motley Fool. Reprinted from June 15, 2019 issue with permission from The Motley Fool.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third-party provider of the reprint permission and Fidelity Investments are independent entities and are not legally affiliated.

Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

896699.1.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.
piggy

Get more insights from MyMoney

Just sign up and we'll email our latest thinking every 2 weeks.
Not sure? Learn more
We understand that privacy and security are important to you and will only subscribe you to the MyMoney newsletter. See our Privacy Policy.

Here's what we suggest you explore next

Financial Tips from Personal Finance Journalist Jean Chatzky

Take the guesswork out of managing your money. Follow these 4 short and sweet rules from money guru Jean Chatzky to help you make better decisions with your finances.

Now you can start investing with just $10!

We've lowered the investment minimum for Fidelity Go®—making it simple and affordable for everyone to invest.

You might also like

Paying for college: How much is too much?

Paying for college involves knowing the potential financial and personal benefits. Learn how to consider your childs career goals, while financially planning ahead here.

Proper planning can help put a college education within reach

Learn how to step up your college financial planning by knowing the differences between a colleges' published prices and net prices. Read more here.

4 financial conversations to have with your partner before parenthood

Having a baby with your significant other is exciting and deserves to be in agreement on certain topics. Consider these 4 key financial conversations before having a baby.

Don't have the time or money to invest? How about now?

You told us investing was out of reach. So we lowered the investment minimum for Fidelity Go® to just $10!