It’s going to cost more for those looking to buy a new car this year. Finance costs on new car purchases have jumped 24% in 2019, according to new AAA research, pushing the average annual cost of vehicle ownership to $9,282, or $773.50 a month. That’s the highest cost associated with new vehicle ownership since AAA began tracking expenses in 1950 and a reminder that the true costs of owning a vehicle extend far beyond maintenance and fuel.
“Finance costs accounted for more than 40% of the total increase in average vehicle ownership costs,” said John Nielsen, AAA’s managing director for Automotive Engineering & Repair. “AAA found finance charges rose more sharply in the last 12 months than any major expense associated with owning a vehicle.”
The spike in finance charges – which rose from $744 to $920, a nearly $200 increase — was fueled by rising federal interest rates and higher vehicle prices. It comes as 72-month car loans have become increasingly common – meaning car buyers are paying more, and longer, for vehicles that lose value the moment they’re sold. Long-term loans offer lower monthly car payments, but they ultimately cost the consumer more. AAA found that, on average, every 12 months added to the life of a loan adds nearly $1,000 in total finance charges.
“Smaller monthly payments may be tempting to potential buyers, but they can add big costs in the long run,” Nielsen said.
The new figures come from Your Driving Costs, which reviews nine categories of vehicles – consisting of 45 models – to determine the average annual operating and ownership costs of each. AAA focuses on top-selling, mid-priced models and compares them across six expense categories: fuel prices; maintenance/repair/tire costs; insurance rates; license/registration/taxes; depreciation; and finance charges. Annual average costs increased in each category.
Of all costs, depreciation, a measure of how quickly a car loses value, remains the single biggest cost of ownership, accounting for more than a third (36%) of the average annual cost. It slowed a bit this year, with vehicles included in the study losing an average of $3,334 a year, up $45 – or 1.4% – from last year. In 2018, depreciation rose by $117, or 3.7%. In two vehicle classes this year – small and medium sedans – depreciation costs actually declined.
Other key findings of this year’s Your Driving Costs include:
- Average fuel cost rose to 11.6 cents per mile, 5% higher than last year. The per-mile increase was driven by gasoline prices, which are up 15.6 cents per gallon over the timeframe covered by the study. Electricity prices for EV charging also rose 0.1 cent per kilowatt-hour (0.08%), but the market share of the electric vehicles in the study (0.48%) makes the effect of this increase on the overall average fuel cost negligible. Fuel costs vary widely by vehicle type, ranging from a low of 3.65 cents per mile for electric vehicles, to 15.67 cents per mile for pickup trucks.
- Average maintenance and repair costs climbed marginally to 8.94 cents per mile, up 8.9% over last year. The increase was fueled by the growing complexity of vehicle systems and an updated methodology for calculating repair costs.
- Electric vehicles had the lowest maintenance and repair costs – 6.6 cents per mile – while medium-sized SUVs had the highest at 9.6 cents per mile.
- The cost of licenses, registration fees and taxes rose $14 to $753 per year, an increase of 1.9%
- Average annual costs by new vehicle category (based on 15,000 miles driven annually):
|New Vehicle Category||Annual Cost|
The AAA study gives the public a window into the true costs of owning and operating a vehicle by quantifying expenses that owners may overlook.
After purchasing a home, buying a vehicle is probably a consumer’s second biggest expense. Research is key, as is acting carefully and methodically. :
- Know what you can afford to spend before going to the dealership. Determine your budget and stick to it.
- Minimize total finance costs by getting the shortest loan term you can afford.
- Seasonally, the best times to buy tend to be the last two weeks of December – when dealers are trying to hit year-end goals – and, to a lesser extent, between July and October. That’s when dealers are trying to clear lots to make way for the next year’s models.
- The best time to buy is the end of the month because sales managers like to build campaigns around monthly quotas. Shop toward the end of the month and you’ll find a dealer may offer additional price concessions.
- Consider a late-model, gently used vehicle. New cars lose around 20% of their value the moment they leave the lot, so you can save big if you look for a car that’s a year or two old. Your insurance costs could be less, too.