Costs of owning a car

Owning a car can be an expensive proposition, and it's not just the initial purchase price that can drain your wallet. There are many ongoing costs associated with car ownership that can add up quickly and significantly impact your budget.

In this article, we'll explore some of the upfront costs of owning a car along with the significant ongoing costs you’ll need to take into account.

Upfront costs of owning a car

1. The purchase price

The most obvious upfront cost of owning a car is the purchase price. The cost of a car can vary greatly depending on the make, model, and year. New cars tend to be more expensive than used cars, but they may come with added benefits such as a warranty and the latest safety features.

To reduce the purchase price of a car, consider buying a used car instead of a new one. Used cars may have some wear and tear, but they can provide significant savings compared to a new car. It's important to research the history and condition of a used car before making a purchase to avoid unexpected maintenance costs down the road.

2. Stamp duty

Stamp duty is the percentage of the purchase price of any new or used car that must be paid to the relevant state or territory government. The amount owed depends on the price and type of car. Every state and territory has a different stamp duty cost for used cars, hybrids, electric cars, utes etc. If you're buying a brand-new car, some dealers may include stamp duty costs in the final price, but it's best to double-check.

3. Registration and compulsory third party insurance

All cars driven on public roads in Australia must be registered, which comes with an upfront fee and an ongoing annual or semi-annual fee. The cost of registration typically includes the compulsory third party (CTP) car insurance premium, which covers injuries caused by your car's driver. Whereas the registration you pay helps to fund the roads and road related infrastructure e.g. new bridges, redo line work, etc.

Car registration and CTP fees are usually more expensive in capital cities than in regional areas. According to the Australian Automobile Association (AAA), the average annual cost of registration, CTP, and licensing for a two-car Australian family is around $1,588 in capital cities and $1,472 in regional areas.

Paying your registration annually instead of semi-annually or quarterly can save you money in the long run.

Keep in mind you'll also need to renew your driver's license every few years.

4. Vehicle inspection

If you’re planning on buying a used car, it can be beneficial to have it inspected by a professional.

A vehicle inspection can be conducted by a local mechanic or through your state or territory's motoring club such as the RACV or the RACQ. In Queensland, a vehicle inspection can cost anywhere between $280 to $400 if you go through RACQ.

While this may seem like a large upfront cost, it will give you the information you need to buy a vehicle with confidence.

5. Dealer delivery

If you're buying a brand-new car, you'll have to pay for dealer delivery. It's a fee that covers the costs of taking a car from the assembly line to the dealership, cleaning it up, and preparing it to be delivered to you, the customer.

The dealer delivery fee typically averages $1,500 to $2,000, depending on the dealer and manufacturer.

6. Car history report

If you’re planning on buying a used car, there is one step you don’t want to forget - doing a Personal Property Securities Register (PPSR) search which essentially reviews the car’s history and financial report.

To do a PPSR search on a used vehicle, you need the Vehicle Identification Number (VIN) or chassis number of the car you are searching.

A PPSR search tells you if the car:

• Is stolen
• Has been written off
• Has been used to secure a loan or debt
• Has not been paid off
• Is part of the faulty Takata airbag recall and has not been repaired

Ongoing costs of owning a car

1. Car loan payments

If you’ve taken out a car loan, you’ll obviously need to pay week/fortnightly/monthly instalments.

Getting a low-interest car loan on a 36-month or 48-month term can be ideal if you want to save on interest and own your car faster. However, most car owners typically take out a five-year loan term.

Car loan interest rates tend to be influenced by:

• The age, make, model of the car: typically the older the car, the higher the interest rate since they’re considered a greater risk to the lender.
• Your credit history: lenders can have different interest rates for people with different credit scores e.g. the lower the score the higher the interest rate.
• Your financial situation: factors such as your income, other loans you may be paying off, and your spending habits can potentially influence your interest rate.
• The lender itself: different lenders offer different interest rates so be sure to do your research to find the best deal.

2. Fuel costs

The cost of fuel is one of the most significant ongoing expenses of car ownership. However, it can be hard to predict just how much it’ll cost because the prices always change.

How much you spend on fuel will depend on a variety of factors, including the size and type of your car, your driving habits, and the price of gas in your area. If you have a large SUV or truck, expect to spend more on fuel than if you drive a small fuel-efficient car.

The Australian Automobile Association’s (AAA) December 2022 Transport Affordability Index reported the average two-car Australian household (two adults, two children) pays $98.31 for fuel every week. That amounts to over $5,100 per year.

3. Insurance

When you purchase your car, make sure you've got appropriate insurance as finding yourself without it can be costly.   

Car insurance is a necessity in Australia, and in the case of CTP car insurance, it’s actually compulsory. As CTP car insurance only covers you for the liability costs of causing injury or death to other people, a higher level of insurance coverage is usually recommended. These higher levels include:

• Third-party car insurance (cover for damage to other people’s property)
• Third-party fire and theft car insurance (same as above plus fire and theft protection for your car) 
• Comprehensive car insurance (highest level of cover – all of the above plus coverage for damage you’re on the receiving end of)   

The cost of insurance will depend on a variety of factors, including your driving history, your age, your gender, your suburb, and the type of car you drive. Generally, more expensive and powerful cars will cost more to insure than smaller, less powerful cars.

According to the AAA, the national average weekly cost of comprehensive car insurance is $31.67.

To mitigate the cost of insurance, it can be a good idea to shop around for the best deal as prices can vary amongst providers.

4. Registration

To drive a car on a public road, it is necessary to register the vehicle with the relevant Department of Transport in your state or territory, and ensure that it is driven by a licensed driver. The registration process involves an upfront fee and ongoing annual or semi-annual fees.Typically, the cost of registration includes the premium for compulsory third party (CTP) car insurance.

According to the AAA, the average annual cost of registration, CTP, and licensing for a two-car Australian family is $1,606 in capital cities and $1,527 in regional areas. However, these costs can vary significantly from city to city. For instance, The average household in Canberra paid $2,118 while those in Sydney pay $1,257.

5. Maintenance and repairs

If you want your car to last and remain roadworthy, it’s essential to service it every 12 months or 15,000km, whichever comes first.

Servicing your car can be expensive, but most new cars come with ‘capped price servicing’ which means new car owners will know ahead of time how much they’ll be charged.

Given many things can go wrong with cars, it’s important to save enough money in case the unexpected happens. According to the AAA, the average household paid $31.48 each week, or $1,637 each year for maintenance and servicing.

6. Depreciation

While this isn’t an ongoing cost, it’s something you should think about especially if you’re planning on selling your car in the near future.

Cars depreciate in value over time, losing you thousands in value through the years. The rate of depreciation will depend on a variety of factors, including the age, make, and model of your car, as well as the overall condition of the vehicle.

What are the total costs for owning a car?

All of the costs above can seriously add up, and unfortunately, there’s no real way to avoid them. By owning and driving a car you have to commit to paying for fuel, registration and servicing, and most likely car loan repayments.

RACQ’s 2022 Running Costs Report revealed the average running costs for each type of vehicle in Queensland.

If you’re thinking of financing your new car, check out some of carloans.com.au’s loan options.

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