Financing 101: Understanding the Total Cost of Owning Your Next Car

Posted Tuesday, Nov 15, 2022

The simplest method to ensure your car budget is in order is to calculate the total cost of owning a vehicle. The average monthly payment for car financing is $667 in the second quarter of 2022, based on data from credit reporting agency Experian. But the actual expense of owning a car is much higher than this number.

According to the American Automobile Association (AAA), the average annual cost of car ownership for vehicles driven 15,000 miles per year is $10,728 in 2022, or $894 per month. This figure includes depreciation, loan interest, fuel, insurance, maintenance, and fees.

How to Determine the Total Cost of Car Ownership

Gas. If you need to know how much you're spending on gas, you should divide your monthly mileage by your car's fuel efficiency rating, which you can easily find online. Multiply that figure by the local price of gas per gallon. 


Repair and Maintenance. If the original manufacturer's warranty still covers your vehicle or if you have an extended warranty, you don't have to pay for repairs. A typical warranty is good for three years or 36,000 miles.

According to AAA, the average monthly cost of repairs, maintenance, and tires for a new vehicle is $121. Examples of standard maintenance services are oil changes and tire rotations, typically performed every 5,000 miles or thrice per year. Set aside some cash for repairs if a warranty doesn't cover your car. 


Taxes, Registration Costs, and Other Expenses. Car financing includes taxes, registration, and other miscellaneous expenses. Determine the amount needed to renew your vehicle's registration annually and divide it by 12. You should also include other expenses such as parking fees.



Depreciation does not involve a monthly payment, but it's an important concept related to car financing. Cars often lose value over time, increasing the overall cost of ownership. That's the truth. 

You can find your car's resale value through an online service to get an idea of how much your car has depreciated. You can also get a cash offer from a local dealer or an online buyer and then compare the amount to how much you paid for the car. 

There are things you can do to control depreciation. Generally, however, you have little influence over this expense once you become a car owner. Buying cars that retain their value for a long time can save you money in the long run.


Save on Your Biggest Car Expense

You can see how much of your monthly money is spent on your car by looking at the total cost of ownership. It's ideal to allocate 15% to 20% of your gross income for car expenses.

You should first look at your big-ticket items (car financing and insurance premiums), especially if you notice you're going over your car budget or aim to cut expenditures. To find ways to save money, you should compare car insurance costs or consider refinancing your car loan.

You can talk to our in-house finance experts at Lucky Car Ducky in Fresno, CA, to know more about car financing. We also have helpful finance tools on our website. Plus, we can help you find the perfect set of wheels you can drive for a long time. Come and see us soon.