Transportation is the second-largest household expenditure in the U.S. behind only housing, healthcare and food. In fact, the average household spent about $11,000 on transportation in 2021, according to the U.S. Department of Transportation.
The good news is there are ways to keep car costs down from the moment you walk into the dealership to well after you pay off your loan. If you make the right moves, you’ll be able to save a lot on this monthly expense.
Prioritize Fuel Economy
Few ongoing expenses will add up more consistently and more significantly than the cost of gas. According to the U.S. Department of Energy (DOE), a car that gets 20 mpg gobbles up $835 more in fuel every year than one that gets 30 mpg. Presuming fuel costs $3.34 per gallon and you drive 15,000 miles a year, that’s a difference of $4,175 over five years.
Sites like RepairPal crunch data to come up with reliability ratings that measure factors such as the probability of unforeseen repairs, the likelihood of those repairs being severe and the average annual cost of servicing and maintaining a specific model. Organizations like J.D. Power issue data-based awards for dependability to individual models and even entire brands. The difference between a car you can count on and one that can’t seem to find its way out of the repair shop can easily add up to hundreds of dollars a year and thousands over time.
Get Preapproved Before You Shop
When you begin your car financing search at the dealership, you’re negotiating from a position of weakness, limiting your options and playing into the dealer’s hands. Most dealers make the bulk of their money from financing through in-house loan departments or by arranging loans through banks.
Consider Refinancing Through a Credit Union
When it comes to car loans, there’s no harm in shopping around at banks both big and small, but you should also check with your local credit union. More than 136 million Americans belong to credit unions.
If you already have a car loan with a higher annual percentage rate, consider refinancing through a credit union. That could help you easily save money while you pay off your car.
Know Your Warranty
Your car’s warranty isn’t an insurance policy but a contract between you and your car’s manufacturer. Get to know your warranty and learn about the many things you can do that might void some or all of it, from using the wrong oil to making aftermarket modifications. Learn about the things the warranty doesn’t cover, like damage from natural disasters or off-roading in cars that weren’t built for it. Always save your service and maintenance records in case you need to put your warranty to work for you in the future.
Get a Vehicle History Report
If you buy a used car, a vehicle history report is an absolute must. Services like Carfax provide detailed breakdowns of things you really need to know about your car’s background, including major accidents, open recalls, service history, airbag deployment and the number of owners.
Buy a Hybrid
Hybrids have at least one electric motor that augments and complements a gas engine. According to Forbes, that electric motor adds an average of $3,000 to the sticker price of a hybrid compared to its traditional internal combustion engine counterpart. Even so, hybrids cost less to own over a five-year period when you factor in how much money you’ll save on gas.
The Department of Energy’s Office of Energy Efficiency and Renewable Energy (OEERE) has an easy tool that instantly compares popular hybrids with their all-gas counterparts. Just choose the hybrid you like and the tool will give you its comparison car along with the difference in MSRP, combined mpg and weekly, monthly and yearly fuel cost savings. You’ll also get an estimate of the hybrid’s “payback period,” which is the amount of time it takes to make the hybrid a better value than its comparison car.
Consider Going Full Electric
Like hybrids, plug-in electric vehicles (EVs) cost more upfront than gas-powered cars but they’re even cheaper to own over the long term. You spend about half as much for electricity than gas to go the same distance, but fuel costs aren’t the only savings. EVs also have far fewer moving parts, are more efficient and generate less heat, which means their parts don’t wear out and need replacing at anywhere near the rate of those found in combustion vehicles. The parts that are most likely to go bad — fan belts, air filters, spark plugs, cylinder heads, head gaskets and timing belts — don’t exist in EVs. Oh, and EVs don’t need oil changes.
Factor In Tax Credits
Another reason to consider either weaning yourself off gasoline cars or abandoning them all together is that you can take advantage of tax incentives. EVs and plug-in hybrids purchased brand new in or after 2010 are eligible for federal tax credits up to $7,500. Pre-owned electric vehicles are eligible for federal tax credits up to $4,000. The OEERE maintains a page that lists every qualifying model of EV and plug-in hybrid and the full tax credit associated with each vehicle.
Learn Basic Car Maintenance
Take some time to study your owner’s manual and learn the basic functionality of your car. You don’t have to rebuild your transmission or even change your own oil — but you should know how to check your oil. You can save money by learning how to conduct periodic inspections and perform basic maintenance. This means checking and adjusting your air pressure, checking and filling fluids, checking your battery and cleaning its contact points and inspecting and replacing air filters and spark plugs. Not only will you lower your car maintenance costs by not paying a mechanic to handle these tasks, but your car will run better and be less likely to experience premature mechanical failure.
Save Longer for a Bigger Down Payment
The traditional down payment on a new car is 20% of the purchase price, according to Edmunds. But the average owner walks into the dealership with less than 12%. When you put more money down, you borrow less, pay less in interest over the term of your loan and are likely to get a better rate since you’re asking your lender to risk less. There are other benefits as well — not the least of which is that big down payments lessen the impact of car depreciation. The average car loses nearly one-third of its value in the first year, so a small down payment could mean you’ll soon owe more than the car is worth and need to purchase gap insurance to cover the difference.
Don’t Fixate On Monthly Payments
When you’re shopping around for a car, you might notice that you have to struggle to find the actual price of the vehicle. That’s because car commercials, automaker websites and dealerships tend to put the monthly payments at the forefront. Obviously, your journey starts by determining your budget, but don’t think of it as shopping for the lowest monthly payment — think of it as shopping for the best loan. A terrible loan stretched out long enough can deliver low monthly payments but it will always cost you more in the long run.
Shop Insurance First
When shopping for a car, shop for insurance premiums right along with it. Different makes, models, trim packages and even colors can result in radically different insurance costs. You’ll pay insurance for as long as you plan to drive, so you should narrow your selection to cars that are known for cheap premiums. Insure.com has a tool that shows average premiums for all major makes, models, types and styles.
Shop Insurance Regularly
Once you buy a car, don’t just set and forget your insurance policy. Shop around every few months — or at least every time your policy expires — to see if you can do better elsewhere. New companies emerge, existing companies reshuffle and pricing structures change over time.
Bundle When You Can
If you own a home, boat or anything else that needs to be insured, check with your insurance provider to see if it offers discounts for adding your car to your insurance bundle. If not, or if the savings aren’t impressive, take a few hours to see what your insurer’s competitors will offer you to move the entire package over to them. The addition of a car might result in savings that weren’t there when you originally shopped around for your existing policies.
Understand Leasing vs. Buying
A small chunk of time spent researching the difference between your two main financing options — leasing and buying — could save you a big chunk of change. Leasing typically offers lower monthly payments than buying because you’re only paying off the vehicle’s depreciation plus interest, taxes and fees. The trade-off is that you never own the car and you lock yourself into a cycle of never-ending payments. When you turn over one lease for another, you’re essentially renting cars forever. You’re also locked into mileage limits and strict rules on wear and tear. Buying a car usually means paying more upfront and each month, but at some point, you’ll feel the euphoria of making your final payment and having extra cash that can be used on other things. The downside is that you’ll eventually outlast your warranty, which isn’t a risk when you lease.
If You Lease, Put Down as Little as Possible
When you lease a car, you don’t get the advantage of a big down payment lowering the overall cost as it does with an auto loan. With a lease, all the interest, taxes and fees are built into the price and you pay the same no matter what you put down. Ideally, with a lease, you would put nothing down and pay only fees.
You should get your car washed frequently because squeaky clean cars look better than their dirty counterparts, but clean cars are also cheaper in the long run. On the exterior, dirt and grit builds up and grinds against your car’s clear coating and exposes the vulnerable paint underneath. That leads to rust, which is especially damaging to the undercarriage. Inside the car, ground-in grime and gunk lower your resale value.
Get Your Oil Changed Regularly
Your owner’s manual will recommend how many miles you should drive between oil changes, and you should heed your automaker’s advice. Regular oil changes are probably the single best way to keep your car on the road instead of in the shop. When your oil breaks down, it loses viscosity and turns into a sticky black goop. That leads to metal-on-metal contact throughout the engine, which generates heat and wear. This, in turn, leads to poor performance, which inevitably means big, expensive repairs and lower resale value.
Follow a Planned Maintenance Schedule
Most manufacturers recommend a 30-60-90 maintenance schedule. It’s based on the pattern of certain parts and systems needing inspection and repair at fairly predictable 30,000-, 60,000- and 90,000-mile intervals. So-called “consumables” — parts that will wear out at irregular intervals — include tires, rubber gaskets, windshield wipers and hoses. You’ll also eventually need to replace other parts such as batteries, brake pads and spark plugs. With a strict maintenance schedule, you will pay a little upfront for tuneups, inspections and replacement of consumables to avoid paying a lot more later, which you inevitably will when unseen problems fester.
Read the Small Print at the Bottom of TV Ads
Most TV ads show vehicles — usually big ones like SUVs and trucks — rumbling up and down mountains, through rivers and across terrain that appears unpassable. On the bottom, written in tiny font, are phrases like “professional driver on a closed course” and “do not attempt.” You should pay attention to these. Some all-purpose vehicles, like Land Cruisers and Jeeps, are bona fide off-road warriors. However, most SUVs and trucks are actually dressed-up highway vehicles that have good towing capacity and can handle rough roads but have surprisingly low clearance and wading depths. If you put a vehicle to the off-road test when it was never designed for that purpose, you’ll likely damage your car and probably void your warranty.
Never Ignore Strange Sounds
It’s never a good sign when your car starts making unfamiliar sounds. Strange noises indicate mechanical problems, and those sounds never go away on their own. The longer you drive with an engine knock, a rattle or a squeal, the higher the probability that something bad will turn into something really bad — and expensive.
Get Gas Before You Absolutely Have To
Your fuel pump delivers gas from your fuel tank to your engine, and the gas in that fuel tank pulls double duty by lubricating and cooling the pump. When you drive your tank down to near-empty — which can happen even before the fuel warning light comes on — you deprive your pump of its necessary fluid, which can lead to overheating and failure. An empty tank promotes premature wear and breakdowns, so get in the habit of filling up when you hit a quarter tank.
When You Pay Off Your Loan, Drive Your Car Until You Can’t
At some point, it no longer makes sense to keep putting money into an old car that keeps breaking down. That point varies depending on the driver, car and budget. The period between your glorious final car payment and the point when your car is no longer worth repairing, however, should be a time you savor — even if you’ve fallen out of love with your ride. Until it’s absolutely no longer worth it to sink more money into your car, stick with it as long as you can to stretch the most value out of it. From a money standpoint, the very best car in the world is one that’s both operating properly and fully paid off.
When You Pay Off Your Loan, Start Saving For a New Car
As mentioned earlier, you should savor that time between your final payment and your car’s inevitable demise — but you shouldn’t hope it lasts forever, because it never does. The moment you escape the shackles of your auto loan, begin saving for a new down payment. Put at least some of your former payment aside every month for the new car you’ll eventually need, and put a little toward repairs, as well. If you’ve outlasted your payment, chances are you’ve also outlasted your warranty.
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