As house prices continue to climb, vehicles are simultaneously getting more expensive in terms of purchase prices, maintenance and parts costs, and auto insurance.
The high price of home ownership has increased the number of Americans who no longer qualify for mortgages, but the high cost of vehicle ownership is also beginning to financially challenge—and even shut out—more and more Americans.
Pandemic-Related Surge
Almost three out of four new-vehicle loans featured 60-month terms in Q3 2024, Edmunds reported. The percentage of 84-month (seven year) terms rose to 18 percent in the same quarter.Meanwhile, the percentage of cars traded in with negative equity was almost 25 percent in 2024. About 25 percent of those cars were underwater by more than $10,000.
That negative equity creates a debt cycle, part of America’s growing credit problem, consumer experts say. The sudden jump in car prices that began with the pandemic is having its effect, as payments on overpriced cars aren’t sufficient to keep up with what the vehicles are worth. That imbalance, when added to credit card debt, is compounding the growing debt problem Americans face.
Rising Auto Insurance
Auto insurance was a significant factor in the recent inflation report. According to consumer price index (CPI) data, auto insurance costs rose by 2 percent month over month in January 2025. This follows smaller increases in December and November. On a year-over-year basis, the cost of auto insurance has increased by 11.8 percent.
The rising costs of auto insurance, along with other factors such as used vehicle prices, have contributed to the overall inflation rate, which hit 3 percent in January, the highest rate in seven months.
Rising Maintenance Costs
Vehicle maintenance and parts costs have been rising as well. It’s a challenging situation for car owners.- Advanced technology: Modern cars are equipped with more advanced technology, such as driver-assistance systems and electronic sensors, which are more expensive to repair.
- Supply chain issues: The global chip shortage and ongoing supply chain disruptions have made it harder and pricier to obtain certain parts.
- Labor costs: The cost of labor has increased, partly due to a shortage of skilled technicians.
- Heavier vehicles: Modern cars are heavier and more complex, leading to higher repair costs in the event of a crash.
- New materials: The use of lightweight materials like aluminum, which can be more expensive to replace, has also contributed to rising costs.
Cutting Costs
The cost of vehicle ownership can be quite high, but there are several strategies that can help you manage and reduce those expenses.Consider purchasing a certified pre-owned vehicle. Among other reasons is the fact that depreciation is a lot less with a vehicle that is at least three years old. Once you drive your brand-new car off the lot, it loses up to 15 percent of its value. You will also pay less in both sales tax and vehicle insurance.
Regular maintenance can prevent costly repairs down the line. Keep up with oil changes, tire rotations, and other routine checks. It helps to identify potential problems early on. It ensures your car is running at its best, helps maintain the value of your car, helps keep both you and your passengers safe, and helps to extend the life of your car.
Insurance premiums can vary widely, so it’s worth comparing quotes from different providers to find the best deal. Shopping around for car insurance might seem like a chore, but with a few strategic steps, you can easily get the best deals. Here are some tips to help you out:
Use websites like NerdWallet, Insure.com, or The Zebra to compare multiple insurers. These platforms give you quotes from various companies based on your profile. Look at customer reviews and ratings on sites like J.D. Power and Consumer Reports to gauge the quality of customer service and claims handling.
If you already have homeowners, renters, or other types of insurance, see if your current insurer offers discounts for bundling multiple policies. Inquire about any available discounts for things like safe driving, multiple vehicles, or being a good student.
Make sure the policies you’re comparing offer the same types and levels of coverage. It’s not just about finding the cheapest option but about getting the best value for what you need. Higher deductibles typically mean lower premiums, but make sure you can afford the out-of-pocket cost in case of a claim.
Choose a car with good fuel efficiency or consider a hybrid or electric vehicle.
Additionally, driving habits can impact fuel consumption—smooth acceleration and braking can improve mileage, and avoiding traffic tickets and auto accidents will keep your insurance premiums to a minimum.
Finally, if interest rates have dropped since you took out your car loan, consider refinancing to lower your monthly payments.
Remaining Cost Diligent
For many, the dream of home ownership remains just that—a dream too expensive to make a reality. Now, more and more people are also struggling to hold onto their vehicles or to buy one.If you have exhausted all the tips above and still cannot make the vehicle ownership costs pencil out for your budget, consider carpooling or using public transportation.
If your career is flexible and your work remote, you may not need transportation on a regular basis. You may be able to get by with using Uber, public transportation, or relying on friends or relatives.
Hopefully, this post-pandemic, expensive part of our lives will pass soon. But until it’s in the rearview mirror, be cost diligent!
