How Much Are Cars and Car Loans Costing You?

Luxury cars like a new Mercedes are pricey

Americans spend an insane amount of money on cars. Americans currently have over a trillion dollars of outstanding car loans. It’s a little nuts to think about what the American obsession with shiny new cars is costing a typical household. Over the course of a lifetime, Americans will – on average – buy about 9 cars. Buying a used car and driving it for a long time is one of the best ways to curb your transportation spending. Public transportation or other options may be better, but driving an old car helps keep your lifetime costs down.

There’s nothing sexy about driving an old car. It’s much “cooler” according to pop culture to drive a brand new BMW or Mercedes. But if you’re reading this blog, chances are you don’t care about looking sexy to others based on what you own. Chances are pretty good you care about getting your finances in shape. You want to live a fulfilling life within your means. If you are like me, you want to become financially independent and retire early.

So, how exactly do these nine cars add up over the course of a lifetime? Let’s dissect the costs.


Over the past several years, car loans have gone through a transformation. Car loans used to be pretty standard in length, typically offering 3- and 5-year terms. It is now common to have car loan options of up to 8 years. This can look attractive on the surface – it lowers your monthly payment – but it comes at a cost.

Homes went through a similar transformation with the introduction of the 30-year mortgage. Back when mortgages became popular, they had very short terms. Most mortgages were 5-7 year terms, and required a heft down payment. In the mid 30’s, all of that changed. The FHA was formed in 1934 and moved to decrease the down payment required, and subsequently increased the mortgage term. The 15- and 30-year mortgages that we know today were formed around this time. It’s easy – and common – to compare 15 and 30 year mortgages today.

Term Length vs Rate

The general rule is the shorter the loan, the smaller the interest rate. Today you can get a 15-year fixed-rate mortgage for about 3.25%, or a 30-year for around 4%, with good credit (we got 3.875% on our home). Assuming those numbers and a $200,000 mortgage, your monthly payments would be around $955 for a 30-year mortgage or $1405 for a 15-year. On the surface the 15-year appears to be more expensive. The 30 year loan, though, will actually cost you over $90k over the course of the loan.

Similarly, stretching a car payment will increase the amount of money you spend on that car. A 5-year car loan at 3% for a $20k loan will run you about $380 a month. Stretch that out to 6 years and your interest rate likely will jump – Edmunds estimates to 6% – and your payment decreases negligibly. Your new payment? Around $352. Total cost of the 6-year loan will be over $25k vs just under $23k for a 5-year loan.

If you assume 9 cars over the course of a lifetime (16-76) that’s just over 6.5 years per car. Many people will have a perpetual car payment. Yuck.

I had an old friend who financed her car. She had horrible credit due to some personal circumstances, and insisted on a luxury vehicle with all the bells and whistles. I rode in it several times, and it was definitely a nice ride, but when I heard how much it cost it nearly gave me a heart-attack. Her car payment? Over $800. Every. Single. Month. Avoiding luxury vehicles and making sure your credit is in good shape before getting a loan are crucial to keep a car loan payment low, should you need to go that route. Paying cash is even better.

Annual Cost of Average Car Loan: $4500+


AAA says that annual maintenance is going to run about $900/year, on average. The older the car, the more likely you are to spend more than this. Some things will hit you big all at once – new tires or a new transmission. You could be unlucky like me and have a defective gasket like I had on my old car. This caused my coolant and oil to mix into a frothy death mix that threatened to seize up the engine. Twice.

You can cut down some of these costs by performing some of the work yourself. Or, if you’re me, you could have a good friend who can help you. Not having to pay for oil changes and other basic fixes can add up significantly. If you’ve got a friend who is a mechanic or just likes to tinker with cars, call them up. Don’t be afraid to ask them to teach you how to do some basic car maintenance yourself.

Annual Cost of Maintenance: $900


If you drive your car to and from work, you’ll likely be putting on a few miles – even if you live close by. If you take road trips, this amount could potentially skyrocket. On average, Americans live around 15 miles away from their places of employment. If you have a vehicle that gtes roughly 30 miles per gallon, that’s about 1 gallon per day. Gas prices obviously vary pretty significantly across the US, but currently as a nation average around $2.32 per gallon. That adds up to about $11.60 a week, or $50/month.

Annual Cost of Fuel: $600+

Insurance and Registration

The annual average cost of car insurance was just over $900 back in 2014. Your costs will vary (mine are significantly less) based on a ton of different variables. One of the easiest things you can do to help with insurance costs is to shop around for insurance every time yours is about to expire. I haven’t changed my insurance in 10 years; I’ve got great coverage and excellent rates through Progressive, and have yet to find anybody less expensive.

However, if you haven’t taken a look at other insurance options lately, it may be a good time to check.

Registration costs also vary quite a bit. My vehicle was about $200 last time I had it registered, shortly after we moved. I’ll flex down a bit on overall costs here versus average, just to make numbers easier.

Annual Cost of Insurance and Registration: $1000

Overall Cost

Overall cost over your life? Too damn much to calculate, and with too many variables to paint a picture that would apply to everybody. Using super-generic averages and assumptions, our $20k purchase, repeated every 5ish years, adds up to around $7k each year. Of course, this neglects resale value – so the actual amount would be lower. Also, the longer you own your car, the less this number is likely to be, since a car payment is a huge portion of it. Even with a more conservative estimate, the amount of money spent on cars over a lifetime could easily rival that of a house.

Some tips to reduce that?

  • Figure out how to do some of the basic maintenance yourself.
  • Never buy brand new. A well-maintained used vehicle will cost you significantly less.
  • Shop around for good insurance that meets your needs and is cost-effective.
  • Carpool or cut down to a single vehicle if possible. Look into public transportation options as well. It may not work for everybody, but it’s a good way to curb spending if you can swing it.
  • If you absolutely must finance a car, pay off your loan quickly to avoid spending more in interest.
  • Keep your car for a long time. The longer you keep your car (and keep it in good condition, of course) the less expensive it tends to be, averaged out.

I had a car loan once. It was the worst. Rip my math apart if you want, but it’s clear that the average American spends waaaay too much money on cars. I hate the idea of financing another car, so we’re going to save money in a separate named account specifically for our next vehicle. When it comes time to replace the car we have, we will avoid having to pay interest on a car loan. And not having a car payment is a great feeling.


How many cars have you owned so far in your life?

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  1. Agreed. Especially around here. I know a TON of people who barely make over minimum wage, SOMEHOW afford luxury vehicles (i.e. BMW, Audi, Mercedes). Most likely leased, with a big down-payment. Which is just horrible all around. I own a Honda Accord at 0.9% financing. I have more than enough cash on-hand to pay it off in full. Before that I had a used Elantra and before that an old used Ford Escort that I paid $1500 cash for.

    1. With a rate that low you could argue that it’s a bad move to pay it off. My car loan I had when I bought my first car was pretty bad because my credit sucked, which is why I paid it off so quickly!

      It’s crazy to me how much money is spent on cars by people who think they are a status symbol.

  2. 15 cars to date, some new and some used. However the main thing we did was to not buy cars on payments, just buy them with cash. My parents taught me that and it was a great life lesson. I think it is a big part of why I became financially independent and work became optional. If you can’t pay cash for it I’d argue you can’t afford that car. Start out in a rolling wreck and work your way up.

    1. That’s good! I hate having car payments so much! I’d much rather have fake ones and save the money in a separate account in advance.

      Thanks for reading and commenting!

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