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Your car may cost you more than you think.

Key points

  • The annual cost of owning and operating a new car has jumped to over $10,000.
  • Small sedans and electric cars are the most affordable, partly due to lower fuel costs.
  • Car insurance and financing costs have also increased.

For most people in the United States, owning a car is not a luxury; it is absolutely necessary to simply go to work, the grocery store or other daily activities. Unfortunately, this necessity often means devoting a large portion of your personal finances to your vehicle and its maintenance.

But what exact part of our budgets does it go to the purchase of a vehicle? More than you probably think – and that number is growing every year.

According to AAA data, American drivers spend an average of $10,728 a year to own and operate a new car. That’s over $1,000 more than the $9,666 we spent last year.

$894 per month is spent on the purchase of a new vehicle

In its study, AAA looked at 45 different vehicle models, covering a range of mid-priced best-selling options. He compared six categories:

  • Fuel
  • Maintenance and repairs
  • Depreciation
  • Insurance
  • Fees and taxes
  • Financial expenses

A good portion of your ownership costs, especially for a new vehicle, will be lost due to depreciation. It is the amount of the car’s value that is lost each year as it ages. But it’s rising fuel prices that have driven much of the year-over-year rise in the cost of owning a new car.

Electric vehicles have the second lowest cost of ownership

If you’ve thought about going electric every time you’ve been to the gas station lately, you’re not alone. Another AAA study found that a quarter of car buyers plan to make their next vehicle fully electric. Among these respondents, no less than 77% say that savings on fuel costs are the main incentive.

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And they’re not wrong in thinking that the change could save money. Electric vehicles have the second lowest cost of ownership according to AAA. And a big part of that is fuel savings. Driving 15,000 miles per year and costing an average of $0.184 per mile, a fully electric vehicle would save you around $2,100 per year in fuel.

There are, however, other considerations. For one thing, electric vehicles are more expensive to purchase than comparable-sized gas-powered models. There are also practical considerations, such as the range of your vehicle, the availability of charging stations and the inevitable cost of battery replacement.

Insurance and financing costs also increase

While fuel has been a big contributor to the year-over-year increase in ownership costs, it’s not the only place the numbers are rising. Just about everything that goes into owning a car has become more expensive lately.

Road traffic has returned to pre-pandemic levels, and it seems many people have forgotten the rules of the road while at home. Accidents have increased dramatically, and with that, car insurance costs are skyrocketing. Increases of 15-20% are not uncommon.

The purchase price of a new car has increased significantly in recent years. Much of this increase can be attributed to inventory shortages.

Essentially, dealers have no incentive to offer discounts because they’re already struggling to keep popular models on their lots in the first place. In-demand vehicles not only have waiting lists, they sell well above MSRP — so much so that manufacturers have actually had to berate dealers in some cases.

Even if you can find a way to pay the MSRP of your new car, recent interest rate hikes mean your car loan will cost you more than it did at this time last year, or even six months ago.

Ultimately, buying and using a late-model used car is still your most economical option. But with used car inventory as scarce as new cars, it may not be as easy to find one as it once was. In many cases, your best bet may be to stick with your current vehicle if possible.

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