Transportation is Americans’ second-largest expense behind only housing. It’s something pretty much everyone deals with, whether you live in a city and take public transportation or you live somewhere suburban or rural and own a vehicle.
There are several expenses everyone must plan for under this category, but the one that’s the hardest on your bank account is likely the monthly car payment. Here’s how yours compares to the national average and what you can do to bring your costs down.
The average American spends 6% of their annual income on their car payment
Car payments vary significantly depending on the make and model of the vehicle and how large of a down payment you can make when you buy the car. The average American spends about $462 per month on vehicle purchases, according to U.S. Bureau of Labor Statistics data. This amounts to an annual expenditure of $5,539.
It accounts for 7% of the average American’s overall spending and 6% of their annual income. That’s up nearly a quarter from last year. And it’s just one of the many expenses vehicle owners face.
Car insurance is the second-largest transportation expense, costing the average American around $1,775 per year. Premium costs depend on the make and model of your vehicle, as well as your location and driving record. The company you work with matters too, which is why shopping around is so critical. Comparing rates from several of the best auto insurers is the easiest way to figure out which company offers you the greatest value.
There are also a host of other, smaller costs associated with owning a car, including:
| Expense | Average Annual Cost |
|---|---|
| Gasoline and oil | $2,694 |
| Maintenance and repairs | $975 |
| Rentals, leases, other fees | $734 |
| Public transportation | $1,096 |
| Vehicle finance charges | $361 |
Source: U.S. Bureau of Labor Statistics.
In addition to being costly, these expenses can also be unpredictable. That makes them difficult to plan for, but there are a few strategies that can help.
How to reduce your transportation expenses
There are several steps that can help you reduce your transportation costs, including:
- Weigh the pros and cons of owning a vehicle: Owning a vehicle may be more expensive than it’s worth if you live in a city that has a well-established public transportation system.
- Limit how often you drive: Combining errands to a single trip and carpooling with others can reduce how much you spend on gas as well as your likelihood of getting into an accident.
- Don’t ignore routine maintenance: Perform routine maintenance as scheduled to avoid bigger mechanical issues down the road.
- Raise your auto insurance deductible: Raising the deductible increases out-of-pocket costs in the event of an accident, but it lowers monthly premiums significantly.
Those in the market for a new vehicle may want to take some additional steps, including:
- Choose your vehicle carefully: Do some digging into the cost of insuring the car, common mechanical issues it has, and how many miles it gets to the gallon to decide if it’s right for you.
- Consider buying used: Used vehicles are significantly cheaper than new cars. They’re also more affordable to insure.
- Make a larger down payment if you can afford it: The more you’re able to pay for your vehicle upfront, the less you’ll have to borrow.
- Shop around for an auto loan: Check out some of the best auto loan providers and see if you can get pre-approved so you know how much you can spend and what kind of interest rate you might pay.
Those hoping to take out an auto loan soon could also benefit by waiting until 2025. The Federal Reserve is just beginning to lower its benchmark interest rate, and loans will likely be much more affordable next year than they are now.