Americans are paying a bundle for owning a vehicle these days, with a combined $717 billion in annual auto loans and insurance payments for their household cars, trucks, and SUVs, according to Doxo Insights.
Individually, that amounts to about $575 each month and $6,900 annually for households paying both vehicle loans and auto insurance costs. Doxo pegs the average U.S. household's monthly auto loan at $470 per month, along with a $105 average monthly insurance payment. The report cites that elevated interest rates, persistent inflation, and higher vehicle prices are driving expenses higher, while full-coverage auto insurance has risen 12 percent over the last year.
Nevada, Maryland, Massachusetts, and New Jersey are among the most expensive states to own a vehicle, with combined auto loan and insurance payments ranging from $640 to $682 per month. New York City is far and away the most expensive city to own a vehicle, with a combined monthly loan and insurance cost of $789.
“When you look at the big picture, the $7,000 per year per vehicle number isn't shocking,” Patrick Peterson, an auto expert and team lead at Goodcar.com, told NTD.
Peterson said a separate COIR survey found that households across the nation spend an average of $25,866 a year on car ownership. “This is more than 32 percent of their take-home pay, which is much higher than the suggested range of 15-20 percent,” he noted. “In other words, a lot of Americans are 'car poor,' which means that more than a quarter of their wage go to transportation. The $7,000 figure is only the per-vehicle representation of that fact.”
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With auto consumers stuck between the need for a reliable vehicle and the high cost of buying and maintaining right now, curbing those costs is a priority. Here’s how to get that dollar-saving strategy into higher gear.
Build a budget and stick to it
Choosing a vehicle that fits comfortably within your budget is the most critical part of a vehicle cash-strategy campaign.
“Ideally, your total car costs should stay under 20 percent of your take-home pay,” Peterson said. “That means you should also consider fuel efficiency, insurance rates, and reliability. Buying used or certified pre-owned helps avoid the early depreciation, and putting more money down up front reduces both monthly payments and total interest.”
Invest in an EV
Another effective way to reduce ownership costs is to buy a used electric vehicle (EV).
“EVs have far simpler drivetrains compared to internal combustion vehicles, which translates into fewer moving parts, lower maintenance, and reduced operating costs overall,” Christopher Adam, marketing director at Woodside Credit, a collector car financing company, told NTD.
There is one EV caveat. Buyers should be cautious when purchasing new EVs, as they tend to depreciate more rapidly.
“Leasing can be a smart option if you want the latest technology without taking the full depreciation hit,” Adam noted. “Otherwise, buying used is the sweet spot, thanks to heavy depreciation. Shoppers can often find low-mileage, late-model EVs at attractive prices, sometimes even better deals than comparable gasoline vehicles.”
Build a vehicle ownership savings plan
Once you own the car, there are three big levers to pull.
“Manage insurance by shopping around every year, raising deductibles, and taking advantage of safe-driver or bundling discounts,” Peterson advised. “Then control fuel costs by driving more efficiently, via faster acceleration, proper tire pressure, and combining trips all add up.”
Spending cash on regular oil changes and tire rotations saves thousands in avoided breakdowns and helps maintain resale value. “For households stretched thin, it may also be worth reassessing whether every family member needs their own vehicle,” Peterson added. “Sometimes consolidating to one car can bring the ownership costs into a healthier range.”
The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.