The average yearly cost of owning a vehicle is creeping closer to $10,000 — and it's mainly driven by shifting finance conditions.
Among the findings in a new study, conducted June 1, 2018, through May 31, 2019, AAA determined that longer loan terms are ultimately to blame and that customers opting for lower monthly payments ultimately pay more in the long run. AAA, in particular, noted the recent increase in 72-month loans for new vehicles.
Lenders and dealers, take note: Stretching out vehicle loans is a lever that will only work for so long. As the total cost of vehicle ownership ticks up, to $9,282, dealers should keep an eye on the role financing plays.
AAA's research indicates that, on average, every year added to the life of a loan tacks on an extra $1,000 in total finance charges.
Overall finance costs on a new-vehicle purchase jumped 24 percent in the 12-month period covered by the study compared with the same period a year earlier, raising the average monthly cost of vehicle ownership to $773.50. That's an all-time high since AAA began tracking expenses in 1950.
In its estimate, AAA includes factors such as vehicle transaction prices, interest rates on loans, and fuel and maintenance costs.
The study also found that depreciation, or the rate at which a vehicle loses value, remains the single biggest cost of ownership. Depreciation represents more than a third of the average annual cost of owning a vehicle. A new-vehicle today loses, on average, $3,334 per year in value. That's 1.4 percent, or $45, more than in the year-earlier period. Small and medium sedans saw depreciation costs actually decline, AAA said.
Affordability and other factors are squeezing new-vehicle shoppers more and more, and obtaining a good financing deal is key to staying behind the wheel. Dealers should work hard to ensure customers can afford a new crossover or coupe in the long run, and consider if stretching loan terms is the right thing to do.