Cheapest Car Ownership Strategy

We have a love/hate relationship with our cars.  They can mean freedom, opportunity, adventure, and even self-expression.  On the other hand, cars also mean debt, frustration, and anxiety.

I have pretty much always needed car for my occupations and lifestyle.  I appreciate the practical, comfortable service of a well-engineered machine, but my affection for cars goes no further.  I have put a great deal of thought into my cheapest car ownership strategy, and I hope you can benefit as well.

Note: The examples shown are based on generalities.  I did my best to pick average costs for all of the different factors involved.

What not to do: example X

cheapest car ownership strategy example
“Why do I feel like I have lost 9 grand in the last ten minutes?”

The worst approach to car ownership is buying a nice, new car on borrowed money every five or so years.  Nevertheless, millions of people follow this approach.  You will be paying the most to sales tax, depreciation, loan interest, and insurance.  The amount you will save on repairs and maintenance is negligible. As example X shows, you will be spending thousands more every year than is necessary to get from point A to point B.

This example is based on buying a $25,000 car with $1000 down.  It assumes that you pay the average interest rate for a five-year term.

total new car cost

Estimated car value after five years: $10,049

This estimate is based on Money-zine car depreciation calculator. Depreciation will vary based on model, mileage, condition, and even color.

Annual cost to ensure: $1,800

Take this figure with a grain of salt, as there are so many factors in car insurance rates that it is almost impossible to generalize.  When financing a car, you are required to carry certain types and levels of insurance, so you have less wiggle-room to customize your policy.  Generally speaking, the higher the value of the the car the greater the insurance premium.

Annual maintenance and repair costs estimate: $180

Based on Consumer Reports (see the graph below), the maintenance and repair costs on a new vehicle are incredibly low.  This estimate assumes some services are provided as part of a purchase agreement and warranty.

Annual ownership cost: $5758.676

(Does not include down payment or recurring registration, inspection, and fuel costs.)

  • Purchasing costs: $1,959 (sales tax and fees)
  • Financing costs: $2,883.38
  • Depreciation: $14,951
  • insurance: $9,000
  • maintenance and repairs: $900 

Cheapest car ownership strategy: example Y

The cheapest car ownership strategy is to buy an economical, reliable used car in cash, but let’s start by assuming that you must finance a vehicle.  For example Y you will be buying the same car as in example X but as the second owner.

Example Y is based on financing a used car with a value of $10,049.

used car costs
Note: The interest rate on the loan is higher, which is typical for a used car loan.

Estimated car value after five years: $4,459

This estimate is based on Money-zine car depreciation calculator. Depreciation will vary based on model, mileage, condition, and even color.

Annual cost to ensure: $1,100

Take this figure with a grain of salt, as there are so many factors in car insurance rates that it almost impossible to generalize.  When financing a used car, you are still required to carry certain types and levels of insurance.  We can assume for this example that the lower value of the car means a lower insurance premium and obviates the need for gap insurance.

Annual maintenance and repair costs estimate: $545

Based on the Consumer Reports graph shown below, you can expect to spend four to five hundred dollars more annually for your used car over this five year period.

Annual ownership cost: $2,966.76

(Does not include down payment or recurring registration, inspection, and fuel costs.)

  • Purchasing costs: $1,003.43 (sales tax and fees)
  • Financing costs: $1,167.36
  • Depreciation: $4,438
  • insurance: $5,500
  • maintenance and repairs: $2,725

In sum, even when including the additional repair and maintenance costs, you are nearly cutting your car ownership costs in half.  You are saving almost two thousand dollars a year by driving a used vehicle.  At the end of the five years, you can use your car’s remaining value (about $4,500) and the ten thousand dollars that you saved to buy your next car in cash.

False arguments that “they” want you to believe.

car dealer
Photo by Brian Teutsch

As example X and Y show, there is no economical advantage to buying new.  The people perpetuating these false arguments are either trying to sell cars or trying to justify why they should have a new car.  If having a new car is important to you, go ahead, but do not argue that is financially sound.

“Trade in your vehicle while it still has a decent value.”

They best time to sell or trade in your vehicle is never.  There is no magic year when selling is best.  Mailers from a car dealership explaining why your make and model is suddenly and magically more valuable have an obvious ulterior motive.

The most dangerous time for depreciation is when your car is young.  The longer you run your car, the lower the rate of depreciation (e.g. A twelve-year-old car is not worth much less than an eleven-year-old car.)  Instead of trying to cash in on the remaining value, it is better to sock away the money you are saving by delaying.  The money saved and its interest will be greater than the depreciation.

“The interest rate on a used car loan is too high.”

used car loan rates graph

It is true that used car loans have higher interest (as this chart shows), but the difference can be in the hundredths of one percent.  Example Y above includes an increase of .2 percent (greater than the typical difference in a five-year loan).  The difference in your loan would have to be incredible to consume the money that you are saving buy buying used.

“Your older car will cost you so much in repairs that you are better off with a newer vehicle.”

cheapest car ownership strategy repairs graph

People who point to maintenance and repair costs as a reason to re-buy are ignoring the cost savings of owning an older vehicle.

This argument does make sense to a point. It is easy to imagine that a very old and unreliable car would spend so much time in the shop that it no longer serves its purpose in you life. On the other hand, as the graph shows, the costs of maintaining older vehicles starts to level off over time.  Even if your car is averaging $1000 in repairs every year and you are spending $500 in car rentals, it is unlikely that the costs will counteract your savings.

According to Consumer Reports, the most expensive 10-year-old cars are made by BMW and have an annual repair cost of $1,125.

Big Ways to Save on Car Ownership

1) Lose less to depreciation.

Depreciation is the biggest problem with buying a new vehicle. Robert Sinclair of AAA explains, “Depreciation accounts for almost 40 percent of the cost of owning a new vehicle, more than $3,000 per year.”

cheapest car ownership strategy depreciation
Car value lost from year to year.

Everyone is a victim of car depreciation.  Cars are almost always a liability rather than an investment.  The key is to minimize your liability buy buying a vehicle that has already passed through the steepest decline in value.

According to, the sweet spot of used car ownership is found by buying a car that is 2-3 years old and driving it for 2-4 years.  This allows you to dodge the massive, initial depreciation drop and still get some value when you sell or trade the car later.  This makes sense for people who want to drive new-ish car most of the time, but it is not the cheapest car ownership strategy.

I would argue that the “sweet spot” is found buy purchasing around the five-year mark. A five-year-old car can easily provide you with another five years of reliable service.  The longer you can keep it, the less drastic the depreciation will be every year.

2) Pay less interest on your car loan.

cheapest car ownership strategy interest rates

Interest rates are still low compared to historical averages, but that does not mean that you should be excited about paying interest.  Even if you have excellent credit, carrying a car loan adds thousands of dollars to the cost of the car. In example X we added almost $3,000 to the cost of the car with only a modest 4.21% interest rate.

The less money you have to borrow, the less you will be paying in interest.  Paying a hefty down payment might not be in your plans, so you should buy the cheapest car that will serve your needs and borrow less money.  They buyer in example Y pays less than half the interest paid by the buyer in example X (even though the interest rate is slightly higher).

3) Find a way to exit the car lending cycle and start earning interest instead of paying it.

car loan cycle
Photo by Jack Rice

If you purchase a used vehicle as shown in example Y, you can put the money saved into an interest bearing account.  In this case, almost $300 a month.  This money should go to an automatic savings account labeled “CAR FUND.”  If you cannot put aside the entire amount, make sure that you are putting aside some of the savings every month.  Even fifty dollars a month will add up over five years.

Your “CAR FUND” will diminish or even eliminate your next car loan.  If you cannot buy you next car in cash, you will at least be able produce a larger down-payment and borrow less.  If we think about this process in five year cycles, you have to borrow less each cycle until you are paying cash.

When you buy your next vehicle in cash, you have broken the car debt cycle.  You are saving even more than in example Y, because you have eliminated loan interest from the equation.

4) How you can stop worrying about the cost of repairs.

cheapest car ownership strategy repairs graph

A key element of the cheapest car ownership strategy is your “CAR FUND.”  One of the functions of the car fund is to help you stop worrying about repair costs.  If you are setting aside hundreds of dollars every month, a $500 dollar repair or even a $2,000 repair becomes a lot less scary.  Take the money for the repair from you car fund, and remember that you are still beating the system in the long run.

In addition to paying for you next vehicle in advance, you are obviating the need for car repair insurance.  Car repair insurance companies are simply preying upon people who are not so well prepared.

5) Buy a cheaper car to pay less sales tax.

If you live in a state with no sales tax, kiss my bippy.  For the rest of us, the easiest way to minimize sales tax is to spend less money.  The buyer in example Y is saving a thousand dollars in sales tax right off the bat.

Sales tax is a regressive tax.  It impacts the poor more than the rich.  If you want to combat the regressive nature of sales tax, be smarter and spend less.  I would not mind being in a position where paying 7% more for a Lamborghini meant nothing to me, but that is not my current position.

6) How much you will save on insuring a lower-value car?

It is impossible to generalize about how much can be saved on insurance by buying a lower value car.  There are more factors to calculating your premium than in launching a space shuttle.

Your age, gender, the type of car, how much you drive, where you live, your parking conditions, and even the color of your car makes a difference.  Suffice it to say that you should buy a practical, safe vehicle with a lower value.

The estimates in examples X and Y were quite conservative.  The annual saving for my example Y was only $700, and it is likely that the savings would be more.

7) Buy a car with proven reliability.

car mechanic

Whether you are buying new or used, you can reduce car ownership costs buy buying a well-engineered vehicle, but how do you know if a car will be reliable?

In this regard, the used car buyer has a distinct advantage.  The data for the model and year in question has already been compiled by Consumer Reports, AAA, Edmunds, and others.  Conversely, when it comes to a brand new car, the jury is out on how reliable it will prove to be.

When preparing to buy a used car, I recommend purchasing a one month membership to Consumer Reports. (You can easily cancel once you have made your purchase.)  They will give you the data and rating for the exact model and year you are considering.  The $7.95 that you spend will give you peace of mind and might save you thousands.

8) Buy vehicle with a low overall cost of ownership.

Again, Consumer Reports can help.  In addition to helping you calculate what you can expect in repairs, Consumer Reports can give you a complete cost-of-ownership picture regarding fuel economy, depreciation, and more.  SPOILER ALERT! Pick-up trucks are the segment with the highest cost of ownership.

9) Follow the maintenance schedule.

cheapest car ownership strategy reliability

Preventative maintenance will save you money in the long run. A forty-dollar oil change can save you a $4,000 engine rebuild.

Preventative maintenance is not mysterious.  The owner’s manual will tell you exactly what to do and when.  I would suggest that after the oil change increments, the most important mileage number to remember is 30,000.  If you buy a used car, go ahead and get the 30,000-mile service regardless of mileage shown. (You do not know how faithful the previous owners were.)  Now you can rest easy and return to your previously scheduled program.

10) Own fewer cars.

This is obvious, but many households never take the time to consider whether or not they could get buy with one less car.  Think about it, four grand a year buys a lot of Uber rides.  Furthermore, being a one-car household means less paperwork, less maintenance, less environmental impact, and less headaches generally.

11) Keep your car as long as you can.

Imagine that you are the buyer in example Y.  You have completed the five year cycle.  Your car is worth a few thousand dollars and you have a few thousand saved up in your car fund. Time to go buy a car, right?

Whoa there, Spendy McSpenderson! I congratulate you on your accomplishment, but let’s not be hasty.  Cars are lasting longer than ever and modern safety requirements were in place ten years ago.  If your ten-year-old car is still safe, comfortable, and serving your needs, why not keep it around a while longer and allow that car fund to balloon?

Every year extra that you can keep your paid-off car is pure gravy.  You have plenty of money saved (in case the car gives up the ghost) and your savings are earning interest. Furthermore your insurance costs (liability only) are minimal.

Small ways to save on car costs

12) Join a rewards program or use coupons for oil changes and regular maintenance.

Don’t just pull in to the first lube place you see when the odometer rolls over.  Take a minute to print out a coupon.  Hey, ten bucks is ten bucks.

13) Do not pay for repair insurance.

Insurance in all forms is a societal rip-off. Think about it.  If we all put our premium payments back in our pockets, the collective amount saved would be greater than the collective pay-outs.  After all, the insurance companies have to get theirs.

While we may not be able to escape the necessities of car insurance or health insurance, we do not need to add travel insurance, water heater insurance, milk spoilage insurance, or car repair insurance.  By creating your “CAR FUND,” you are creating your own car repair insurance underwriting.  When a repair comes up, take the money from your car fund, and I will be very surprised if you deny your own claim.

14) Give your car spa treatments.

Spend some quality time with your used car.  Vacuum the mats, polish the headlight lenses, spray some fa-breeze, and armor-all the console.  Not only will you make your driving more pleasant, you will also reduce depreciation.

15) Spring for neat accessories.

Use accessories to make your used feel special.  When I bought my used Subaru Forester (even though I really wanted another truck), I bought a roof rack, some cargo mats, a dog gate, and some fun odds and ends.  This made me feel as though nothing I could buy would suit my needs as well as what I had configured.

16) Drive less.

Make your car last longer and spend less on maintenance and repairs by driving less.  This can be as simple as planning your errands thoughtfully or taking the train on an upcoming trip.

17) Say goodbye to trucks.

For me, this was a tough pill to swallow.  Trucks are more expensive to register, less economical to fuel, and depreciate quickly.

18) Some maintenance you can do yourself.

When you go to Jiffy Lube et. al., they will tell you that you need a new bulb, air filter, wiper blade, etc.  Make a note of their suggestions, but do not buy the replacements there.  Instead, go to the auto parts place and buy what you need.  Anyone can change and air filter or a wiper blade.

  • Easy: wiper blades, headlight bulbs, air filter
  • Medium easy: oil change, new brake pads, new battery, tire rotation, new fuel filter
  • Not very easy: transmission rebuild, adding hydraulic lifts, installing supercharger, inventing the flux capacitor.

19) Argue with insurance companies.

Every year I drop in to my State Farm agent for a visit.  It is pleasant for no one.

I beg. I rage. I plead. I weep. I argue. I delay. I pontificate.  In the end, the agent gives me a better deal just to get me out of his sight.  Is my dignity worth two hundred dollars? The jokes on them, my dignity is worth much less.

20) Buy tires at Costco.

You can save a lot by buying your tires at Costco.  They include a road hazard warranty, free balancing, free rotating, and nitrogen filling as a benefit to buyers who retain their membership.

21) Don’t smoke.

We have already established that depreciation can be the greatest cost in car ownership.  One of the worst ways to accelerate depreciation is by smoking in your car.  One National Institute of Health study found that smoked-in cars sold for thousands less than there smoke-free comparables.

Conclusions on the cheapest car ownership strategy

You do not need to be a math genius to figure out that a brand-new car is a poor investment.  Do not allow scare tactics, erroneous claims, or fatuous vanity to sway you.  Be intelligent and independent in making the car ownership decision that makes the most sense for you.

If you need more reasons to resist putting your money into an insidious industry, check out season 1, episode three of of Adam Ruins Everything. (The full episode is available on Netflix.)  Do not fund this despicable industry more than you must.

Do you have an addition for the cheapest car ownership strategy? Are any of my calculations or estimates off-base? Did I miss something important? Please, leave a comment.

5 thoughts on “Cheapest Car Ownership Strategy

  1. That makes sense that smoking in the car is a good way to decrease the value of your car quickly. I don’t really smoke, but I should make sure that none of my friends do inside the car if I want to keep it valuable. I’ll have to make sure that they don’t; do that if I decide to buy a new car so I can keep it nice.

  2. Probably the cheapest way to buy a car is always to pay cash. When you pay interest on an item that actively depreciates, you’re not just losing money once, but twice… Thank you very much for sharing this strategy here!! When you look for same type of great content, like here then check out this also.

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