What Does a Car Actually Cost to Own?

Total cost of ownership (TCO) is the complete cost of owning a vehicle over a defined period, typically 5 years. It includes depreciation, financing (interest), insurance, fuel, maintenance, and government fees and taxes. Your monthly payment is not your cost of ownership. Depreciation alone typically exceeds your total interest paid. A $40,000 sedan depreciates by approximately $22,800 over 5 years, that cost is invisible until you sell or trade in.

Yes. Depreciation typically accounts for 35-45% of the total 5-year cost of ownership. A $40,000 sedan loses approximately $22,800 over 5 years. Trucks hold their value best (about 45% loss), while luxury vehicles lose the most (about 64% loss). This cost happens whether you pay cash or finance. Most buyers focus on the monthly payment, but depreciation is the line item that actually determines how expensive a vehicle is to own.

EVs have significantly lower fuel and maintenance costs. Electricity costs roughly one-third what gasoline does per kilometre, and EVs require no oil changes, fewer brake replacements, and have fewer moving parts. That said, EVs currently depreciate faster than most gas vehicles (approximately 61% over 5 years), and insurance premiums can be higher. Whether an EV is cheaper overall depends on your driving distance, electricity rates, and the specific vehicles being compared. This calculator lets you see the exact numbers side by side.

The most effective strategies: (1) Buy a 2-3 year old vehicle to skip the steepest depreciation years. (2) Choose a category that holds value well, trucks and SUVs retain more than sedans and luxury vehicles. (3) Keep the vehicle as long as possible, since depreciation per year decreases over time. (4) Secure competitive financing to reduce interest. (5) Shop insurance annually instead of auto-renewing. (6) Follow the manufacturer maintenance schedule to avoid expensive repairs.

In most cases, yes. A used vehicle has already absorbed the steepest depreciation (years 1-3 lose the most value). While used vehicles may have higher maintenance costs, the depreciation savings almost always outweigh those increases. A 3-year-old vehicle typically costs 30-40% less to purchase but still has years of reliable service remaining. The TCO advantage of buying used is one of the most reliable principles in personal finance.

Your monthly payment only covers the principal and interest on your loan. It does not include depreciation (the value your vehicle loses every year), insurance, fuel, maintenance, or government fees. A vehicle with a $500/month payment actually costs $900-$1,200/month when all ownership costs are included. Dealers focus on payments because a low payment on an 84-month term hides the true cost. The total cost of ownership is the number that actually matters.