Financing, insurance, maintenance, and other expenses carry a big price tag
BOISE – (September 12, 2019) – Vehicle owners may enjoy the freedom of instant mobility, but they could be paying a premium for the privilege. On average, the true cost of new vehicle ownership is more than $9,200 per year, according to AAA’s latest Your Driving Costs study. That’s the highest cost since AAA began tracking vehicle expenses in 1950.
“As vehicle technology becomes more sophisticated, it comes with a higher price tag. It simply costs more to own, maintain, and replace,” says AAA Idaho spokesman Matthew Conde. “It’s important to understand all of the financial implications of owning a particular vehicle, including expenses that sometimes go unnoticed.”
Based on AAA’s latest report, depreciation, a measure of how quickly a car loses value, is the single biggest cost of ownership, accounting for more than a third of the average annual cost. But depreciation affects more than just resale value.
“The moment a new vehicle leaves the lot, it loses about 20 percent of its value. If it ends up being a total loss in the first few years, the actual cash value could be considerably less than what’s owed to a creditor,” Conde explained. “New car owners should ask their insurance agent for a policy review to see how much it would cost to cover full replacement. Some loan institutions also offer the ability to finance a potential coverage gap.”
In addition to depreciation, common expenses include finance charges, insurance payments, maintenance and repairs, fuel prices, and registration fees. This year, annual average costs increased in each category.
The most affordable vehicle type is the Small Sedan at an average cost of $7,114 per year. A Medium SUV costs over $10,000, and a Pickup costs the most at nearly $11,000 a year. As of September 2018, there were more than 1.5 million vehicles registered in Idaho. About 33 percent of them were vans and SUVs, and 27 percent were pickup trucks.
According to AAA’s research, the average fuel cost rose to 11.6 cents per mile during the study period, while maintenance and repair costs climbed to nearly 9 cents per mile. Electric vehicles have some of the highest up-front costs, but also the lowest maintenance costs at just 6.6 cents per mile. The average cost of licenses, registrations and taxes increased by just under two percent.
“So many factors go into vehicle ownership,” Conde said. “It’s best to do your homework before making a purchase decision.”
Before you buy
AAA offers the following tips to help new vehicle owners through the process:
- Know what you can afford to spend and stick with it. Spending more can lead to more debt with a longer payback period, and more depreciation to boot. An upgraded vehicle may also require a higher, more expensive grade of fuel and will likely cost more to insure.
“It can be so tempting to let your budget creep out of a comfortable range, especially when you’re comparing vehicle features side by side,” Conde said. “Focus on the features that you really need, and try to cut out any frills.”
- Minimize finance costs by getting the shortest loan term you can afford.
- Take advantage of month-end and year-end sales quotas. If you shop at the end of the month or during the last few weeks of December, you may be able to negotiate better savings. Another good time to buy is between July and October, when dealers are trying to make room for next year’s models.
- Consider a late-model, gently used vehicle. A lot of the depreciation will already be out of the equation, so you could save big. It could also be cheaper to insure.
AAA’s Your Driving Costs study is completed each year, and the information is shared free of charge with the motoring public. Proprietary methodology is used to estimate the cost of using a new vehicle for personal transportation over five years and 75,000 miles of ownership. For more information, visit AAA.com/YourDrivingCosts.