Overt Costs of a Car

By Patrick

In two of our prior posts, Eric and I explored the different situations where it makes sense to purchase either a New or Used car. While this is certainly a major decision, it’s only the beginning of the journey when it comes to the costs of owning a vehicle. Not only do these assets depreciate, but they spend a lot of time moving around (that’s the point) and require a significant amount of maintenance and upkeep to ensure you keep you and your family safe.

The average monthly car loan payment in the U.S. was $530 for new vehicles and $381 for used cars in the third quarter of 2018. When most people think about owning a car, the monthly payment or purchase price of the vehicle are the primary costs that come to mind. While these will be the largest costs in terms of owning a car, there are many other overt costs of a car that people don’t always think about.

Taking that one layer deeper, there are also a series of hidden costs associated with owning a car. Eric will discuss these in more detail on our next post, but I wanted to touch on them briefly. For example, a hidden cost of owning a car is the per-mile wear and tear cost of your vehicle. The IRS allows people to deduct this expense at 58 cents per mile for business use. Think about that for a second. On average, every mile you drive costs you 58 cents. Taking a quick 20 mile drive to your favorite restaurant has, on average, an associated cost of $11.60. Sure, it doesn’t seem like a lot, but the miles add up.

Today, I want to explore some of the more visible costs of owning a car. I’ve broken them down in to three categories:

Monthly Payments and Interest

This is by far the most visible cost of owning a car. If you take a loan or lease on your vehicle, you see this chunk of money come out on a monthly basis. Even if you buy the car outright, you’re going to see a significant chunk of cash disappear up front. Either way, a lot of people make the mistake of thinking this is the only cost of owning a car.

Let’s use a new car loan as an example. If you take out a $35,000, 72-month loan at 3.99% interest, you will end up paying a total of $39,414 over the course of the loan. That’s almost $4,500 in interest. That’s an average of $735 a year, with the bulk of the interest expense being paid in the first few years. I challenge you to think about your monthly payments in this way. Sure, the interest doesn’t seem like a whole lot, but taken over the life of the car loan, it’s an expense that you must make.

Now I’m not trying to turn you away from financing a vehicle. My wife and I did just that. We researched different interest rates and loan terms, and felt we were in a better position to make a greater return on our investments than to liquidate them and pay for the car up front. We only were able to make this decision because we knew what our interest expense on our car would be and what we could earn applying our on-hand cash to other investments.


While I covered this briefly when discussing the “wear and tear” hidden cost of a vehicle, there are general maintenance expenses that you should plan for. The average driver in the U.S. puts approximately 12-15 thousand miles on their car a year. At this rate, you’ll probably need to get new tires every few years or so. That means, every three or four years, you’ll be spending an average of $637 to replace the tires on your car. Taking our car loan example above, every third year, you will spend as much on tires as you will on your interest expense. The cost of your car just got more expensive!

A downside of owning a newer car these days is all the technology that is put into vehicles. With many people opting in for long-term financing options, that means you’re at risk of having a significant repair to replace a defunct piece of technology during the life of your loan. According to AAA, rear camera sensors can add a total of $2,050 for repair costs over the life of a car. Front sensors add $1,900. Side mirror sensors add $1,100. These are not small sums of money.

I personally always look to have my car under warranty during the life of the loan period. While many car dealerships will offer extended warranties when you purchase a vehicle, always negotiate this amount. When your car reaches the end of the manufacturer warranty, you’ll find that many people will reach out offering to extend that. Make sure to shop the market and find the best deal that you can.


While this one seems obvious, it’s one of the most important ones to consider. In recent years, as gas prices have dropped from their peak in 2012, Americans have been flocking back to dealership lots in search of bigger and better SUVs. While many of these cars have become more efficient, they still come with a much higher gas bill over the life of the car. For example, on the three-row SUV my wife and I just bought, we should expect to pay an average of $2,100 more on gas than the average car over five years. That’s approximately $400 more a year!

What my analysis above doesn’t consider is changing gas prices. It wasn’t that long ago that the average price per gallon was closer to four dollars. By owning a car that gets worse MPG, you put yourself at greater risk of being impacted by increased gas prices. We recently had a friend over talking about owning a Tesla, and he said one of the greatest changes was not having to spend $200 a month on gas. While he certainly has increased energy usage at home, he’s able to charge his car most days at work. These are savings that last as long as you own the car.

Cars are often the second largest investment an American family makes. They are tricky financial assets as they depreciate and require constant investment to remain functional. Many of us couldn’t live our lives without them, but that’s no reason not to understand the different overt costs of owning a car and planning around them.

Eric’s Thoughts

Car ownership is like home ownership in that the old adage applies: “It’s always something”. But knowing that there always be something allows you to prepare for the inevitable expenses.

Oil changes can hit your expense ledge like clockwork if your driving patterns are regular. Driving 10,000-12,000 miles per year means that your car will be due for an oil change every six months. That means that every six months, you will incur a $50-$100 oil change – you can set your watch to it.

Likewise with tire replacement: if you drive a consistent amount of miles each year, after a certain period of time, it will be time for tires.

Or, regardless of how much or consistently you drive, you’ll be writing checks or wiring money to your insurance company to keep yourself covered. Some policies are due once per year, others every six months, and for some monthly.

And of course the state will get their portion. Vehicle property tax.



The list goes on.

But the beauty to incurring some regular expenses is that you can (and should!) budget for them.

Knowing that you’ll spend $100 every January and June for oil changes allows you to build that into your plan and ensure you’re prepared for that charge. Knowing that you’ll need new tires every 3 years allows you to save the hundreds of dollars you’ll spend replacing them. Knowing your insurance bill comes due in August, your property tax is due in February, and you’ll need to renew your registration in December are all positives.

The reality of owning a car is that you’ll end up incurring these costs either way – but thinking ahead and planning for the overt costs allows you to be smart about your money and your budget.

If you haven’t done so recently, sit down and review all the money you’ve spent on your car in the last 12-24 months. I find it’s easiest to log into a service like Mint by Intuit and search for the vendors you typically use or for the category you assign vehicle expenses to if you are diligent enough to have that already set up.

Pay attention to the amounts that you spend, yes, but also take note of when you incurred these expenses. Knowing when these bills are coming will help you plan your cash flow and begin saving appropriately.

If you recall that last time your insurance bill came due you struggled to pay the $1,100, make a note that you can expect that bill again in September of this year, count the months until the due date, and begin saving a certain amount each month until you can cover the bill when it arrives.

It is simple things like noting the cadence and patterns in your expenditures that can make vehicle ownership a smoother ride. Car ownership can be expensive – this isn’t about reducing that expense to zero – but it’s about going in with eyes wide open to the overt expenses associated with a vehicle, knowing how to plan for them, and then ensuring you’re in a position to pay for the expenses when they arise. That applies whether it’s the weekly fill up at the gas station or the annual insurance bill – the process is the same.


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