Not only are new vehicle prices near record highs, but the cost to own a new car over time has hit a new record, according to AAA.
While most costs to own a vehicle have increased, financing costs in particular have spiked, causing the annual cost to own a vehicle in 2019 to $9,282, which is the highest on record since AAA began tracking ownership costs in 1950.
“Finance costs accounted for more than 40 percent of the total increase in average vehicle ownership costs,” John Nielsen, AAA’s managing director for Automotive Engineering and Repair, said in a statement. “AAA found finance charges rose more sharply in the last 12 months than any major expense associated with owning a vehicle.”
The most significant ownership cost is still depreciation. Other costs include fuel, service, insurance, license and registration fees, and taxes.
Second to depreciation costs are finance costs, which have increased 24 percent in 2019 as longer-term car loans are being stretched out over 72 months or more instead of the more traditional 36-month range. The monthly payment may be cheaper with a longer-term loan, but over time borrowers pay more in interest.
Every additional year on a loan adds nearly $1,000 in total finance charges, which include one-time fees and monthly interest payments. Taking out a 72-month loan will cost approximately $3,000 more in finance charges alone than taking out a 36-month loan. “Smaller monthly payments may be tempting to potential buyers, but they can add big costs in the long run,” Nielsen said.
Compounding the problem were higher federal interest rates in the first half of the year. At the end of July, the Federal Reserve made a quarter-point interest rate cut for the first time in a decade. That might trickle down to a marginal break in auto loan financing costs, but it likely won’t staunch American’s appetite for larger, pricier vehicles loaded with optional equipment.
The average new car transaction price in August was $37,401, which represents a 2 percent increase from August 2018, according to Kelley Blue Book.
Ownership costs in addition to financing are also increasing. The average gas cost is up 15.6 cents from last year, while maintenance and repair costs, as well as license and registration fees, saw marginal increases.
The highest ownership cost across vehicle segments comes with the largest vehicles. The annual cost to own a pickup truck in 2019 is $10,839; the small sedan segment has the lowest annual cost of ownership at $7,114.
Electric vehicles had the lowest “fuel” and service costs, while medium-sized SUVs—the largest segment in America—had the highest maintenance and repair costs.
One alternative to the high sticker price and ownership cost of new vehicles are gently used cars, which are up to three years old. Newer used cars could represent significant savings of about $14,000 for similarly optioned new vehicles.