Our Thoughts

True Cost Series: Owning A Car

You’re behind the wheel of your smooth ride on a sunny day, breathing in that new-car smell and feeling fine. Is this scenario in your plans for the near future? If so, the key to lasting happiness with your purchase is to make sure you can carry the true costs of owning your car. 


Unless you’re buying your car outright, the purchase costs will become part of your ongoing budget. The average monthly car payment was $530 for new and $381 for used in the third quarter of 2018, Experian reports. Don’t rely on averages, though, to guide your individual situation. Take the time to crunch the numbers and you’ll find ways to tweak a car purchase in your financial favor: 

Down payment – The more you put down on a car, the less you have to finance. The traditional rule of thumb is to make a down payment that equals at least 20% of the purchase price. 

Loan interest rate – If your credit isn’t solid, boost your score as high as possible before you buy a car. A credit score that falls into a low category can mean your interest rate will be twice as high (or even higher!) than people with a prime or superprime score. Shop around for the best rate at banks and credit unions as well as car dealerships. 

Loan length – You can stretch out the length of your loan to bring your monthly car payment into your budget range. The down side is that longer loans have higher interest rates. Edmunds runs the numbers for a $31,070 loan—the average amount financed for a new car in 2018. A 60-month loan at 3.2% accrues finance charges of $2,593 over the life of the loan. Finance charges on a 72-month loan at 6.9% interest total $6,962.  


Your car payment may be the biggest monthly cost of owning a car, but it’s far from your only expense. Most operating costs vary greatly depending on where you live, how much you drive, the age of your car, and the time you’re willing to invest in shopping for the best deal. 

AAA’s annual driving costs report can give you a ballpark idea of how much you need to budget beyond your car payment. For vehicles driven 15,000 miles annually, average operating costs total $8,848.50 per year, according to AAA calculations, This figure includes depreciation of the car’s value over time; finance charges on the car loan; insurance; gas; maintenance, repairs, and tires; and registration, fees, and taxes. Annual operating costs range from $4,488 for a small sedan to $11,930 for a pickup truck and vary according to mileage. 

So, what’s the bottom line for your budget? Many experts recommend that you keep total car costs below 15% to 20% of your take-home pay. If you’re an automotive aficionado and you crave a more expensive car, you can move part of your discretionary spending into the transportation column of your budget. 

Need some help navigating the ins and outs of a car purchase that suits your needs and your means? Contact FJY to plan a purchase that complements your other financial goals.