The true cost of a car

What a car actually costs you.

Most calculators compare monthly payments, and I think that's the wrong number. Much of a payment is principal: money moving into an asset you own. This one shows three numbers: the payment, what actually leaves your account, and what's gone for good.

The reasoning

Three numbers, and only one of them is the cost

The payment is what a dealer quotes and what most people compare, and I'd argue it's the least informative number on the page. Most of it is principal, which is you buying equity in an asset you own, and it says nothing about insurance, fuel, or the value the car is losing. Pay cash and it's zero, which tells you how little it actually measures.

Out of pocket is what you actually budget for: the payment plus insurance, fuel, upkeep, and registration. It drops the moment your loan is paid off, which a single averaged figure would hide, so the card shows both phases.

Money gone throws out principal and counts what's actually consumed: depreciation, interest, and running costs, net of the car you still own and any cash you kept invested instead of sinking it into the purchase. This is where the biggest cost of owning a car finally shows up: the value it quietly loses while it sits in your driveway. It's also the fairest way to compare a lease (you own nothing, with little cash down) against a purchase (you own something, with more cash tied up), and it's the reason a car you already own usually wins.

One thing worth internalizing: resale value is set by the market, not by you. A five-year-old car is worth what five-year-old cars sell for, no matter what you paid. So every dollar you negotiate off the price drops straight to the bottom line. Knock $2,000 off the purchase price and watch the whole $2,000 leave the total.

And then the part the numbers can't answer

Run a full comparison and you'll usually find that keeping the car you already own is cheapest. That's the normal result, not a special case. A car you own has finished its steepest depreciation; anything you replace it with hasn't.

Which means the real question was never whether the numbers work. They usually don't. The question is:

Is this much per month worth it to me, to drive that instead of what I have?

That's a real question with no wrong answer. A car is something you use every day for years, and paying a premium for one you actually want is a legitimate use of money. Putting off every pleasure until some perfectly optimized future is its own kind of mistake.

Just price it honestly first, and know that it's a real number, not a free one.

I'm not trying to talk you out of the car. I just want to make sure a low APR, a rebate, or a comfortable monthly payment never convinces you that a discretionary purchase was a savvy financial move.

About this model

The true cost of a car: the short answer

Say you buy a $34,000 used car with $6,000 down, financed at 5.19% for 60 months. Over five years of ownership it costs you $55,627: $20,815 in depreciation, sales tax, and fees, $4,512 in interest, and $30,300 in running costs. The $622 monthly payment reflects almost none of that. In the same comparison, keeping a paid-down car worth $18,500 costs $675 a month, against $927 a month for the used car and $1,115 a month for a 36-month lease on a new car.

Figures use the model's default inputs, stated in the text. Estimates only, not financial advice.

How the model works

The Outflow car cost model gives you three numbers for each option. The payment is what a lender or dealer quotes. Out of pocket adds insurance, fuel or charging, maintenance, and registration. Money gone is the actual cost: everything you pay, minus the value of the car you still own at the end, minus whatever the cash you didn't spend earned while it stayed invested.

Money gone is split into capital (depreciation plus sales tax and one-time fees, none of which you get back at resale), financing (interest only, never principal), and operating costs. Every option is ranked by money gone per month over the same holding period, so keeping your current car, paying cash, financing, and leasing are compared on equal terms.

Resale value is set by the market, not by what you paid, so every dollar you negotiate off the purchase price comes straight off the cost. It's also why keeping a car you already own usually wins: that car has already taken its steepest depreciation.

Questions

Frequently asked questions

What does a car actually cost per month?

More than the payment. In the default comparison, a $34,000 used car financed over 60 months has a $622 payment but costs $927 a month once depreciation, sales tax, fees, interest, insurance, fuel, maintenance, and registration are counted, net of what the car is still worth after five years.

Is it cheaper to keep my current car?

Usually, yes. A car you already own has finished its steepest depreciation. In the default comparison, keeping a car worth $18,500 costs $675 a month over five years, compared with $927 a month for buying a $34,000 used car and $1,115 a month for leasing new.

Is leasing or buying cheaper?

It depends on the numbers, which is why the model compares options by money gone instead of by payment. A lease has a low payment and little cash down, but you own nothing at the end. A purchase ties up more cash, but you're left with a car to sell. Money gone per month puts both on the same footing.

Why isn't the monthly payment the cost of a car?

Most of a loan payment is principal, which buys you equity in the car. The payment also leaves out insurance, fuel, maintenance, and the value the car loses while you own it. Pay cash and the payment is zero, which shows how little it measures.

How should I estimate resale value?

Don't rely on one source. Check a depreciation forecast, pull real listings at your target age and mileage, and use private-party value if you'll sell the car yourself. A lease residual, if you can find one, is the only figure with a lender's money behind it.