Owning a New Car Costs Over $12K per Year, Study Shows

It's that time again: AAA's annual look at the latest Your Driving Costs (YDC) data. And in what will likely be a shock to no one, the average cost of owning a new car has gone up yet again.

Last year, we were saddened to see a $1,000 year-over-year annual increase. This year, it's worse. The new car that cost an average of $10,728 a year to own in 2022 will now set you back $12,182 -- that's an increase of $1,454, or nearly 12%.

From a monthly perspective, that amounts to $1,105 a month to own a new car. (While I would have once joked about that being a rent/mortgage payment, housing costs have gotten so high that it wouldn't be funny -- or true -- anymore.)

What costs are considered?

One important thing to consider is how AAA is calculating this number. I mean, what is it actually including? Turns own, it's a pretty thorough list:

• Depreciation
• Finance fees
• Fuel/charging costs
• Insurance
• Taxes and registration fees
• Maintenance and repairs (including tires)

As you can see, AAA's ownership cost is looking at the money you're losing and not getting back. To put it another way, imagine you added up all the money you spent on your vehicle from the time you bought it to when you sold it. Then, subtract the price you paid to buy it. Now, divide the rest by the number of years you owned it. That's the number this study is estimating for the average new car.

Inflated sales prices, rates, and insurance costs are to blame

AAA's analysis attributes the jump in ownership cost mostly to higher purchase prices, which impacts your financing costs. The average MSRP (manufacturer's suggested retail price) of new vehicles in the study rose 4.7% over last year to a whopping $34,876. 

Depreciation gets a mention, with AAA saying the projected rate of depreciation for new vehicles is $4,538. That's up 24% from last year, likely due to the used car market starting to stabilize after COVID-era tumult.

Higher interest rates may also be partially to blame for increased ownership costs. The average rate on an auto loan has gone up by more than 2% since this time last year, topping 7.8% for a 60-month loan as of August 2023. If you have a $30,000, 60-month auto loan, a jump from 5% to 7% APR could mean an extra $30 on your monthly bill and more than $1,500 in interest over the life of your loan.

You probably also don't need to be told that auto insurance rates have increased quite a bit over the last few years. (My own went up more than 20%, despite filing zero claims.) That extra expense can add a significant amount to your overall ownership costs.

How to keep car costs down

Certain parts of car ownership are out of your control -- besides having good credit, you can't really impact loan interest rates, for instance -- but there is a lot you can do to minimize your losses:

• Pick the right vehicle. Depreciation is impacted strongly by the specific make and model of your vehicle. If a vehicle has a good reputation, it will resell for higher prices even as it gets older. Choosing a vehicle known to be more reliable also means it will likely be cheaper to repair and maintain.
• Keep up with regular maintenance. Car repairs can get expensive quickly when things break. You can help prevent (many) things from breaking by having your vehicle serviced according to the manufacturer's recommendations. (You can find these in the owner's manual that came with the vehicle. If you don't have it, you can likely find it online.)
• Shop around for your insurance. Auto insurance is a huge part of the cost of owning a car, and it gets higher every year. Before blindly renewing your current policy, take a few minutes to compare auto insurance rates with a few companies (or pop into an insurance agent's office to have them do it for you). You could easily shave $100 or more off your insurance by switching companies.
• Shop around for your lender. You absolutely don't need to finance your car purchase through the dealer. Sometimes they have decent terms, but you'll often be better off getting an auto loan from your favorite bank or credit union. It may offer you better interest rates and fewer fees.
• Don't get blinded by flashy -- but ultimately useless -- features. Manufacturers are adding all kinds of nonsense to vehicles these days. But how big of a screen does your car really need when you only drive it to and from work, Target, and that bagel shop down the street? Avoid paying extra for things you won't use enough to get value from them.

If you're lucky enough to be shopping for a new vehicle, give the decision the gravitas it deserves. This is an expensive purchase you will need to live with for many years. It's easy to get swept up in the fun of a fancy new car, but keep a firm hold on your finances. That new car smell will wear off long before your loan is repaid!