Research · 4 of 6

What ownership actually costs

The purchase price is the deposit. The cost is everything after it.

8 min read · figures recomputed on every build · last revised 2026-08-04

A car is not a purchase. It is a subscription with a large joining fee, and the fee is the part everyone negotiates while the subscription runs unexamined in the background for years.

Take the default car on this site: $40,000 on the windscreen. By the time you have owned it for 5 years, it has cost $153,607 of gross income — and only 26% of that was the price.

Where the rest goes

The five costs that arrive after the purchase

Ownership is not one cost. It is five, and they behave differently enough that lumping them together hides most of what is interesting.

Insurance is the most predictable and the most variable between people. It is a pure recurring cost with no asset at the end, it is legally required to drive in almost every state, and it is priced on factors — age, ZIP code, credit, claims history — that have little to do with the car itself. Two people in identical vehicles can pay double one another.

Fuel tracks how you drive rather than what you paid. This is the cost most responsive to behaviour and least responsive to purchase price, which is why efficiency differences compound into large numbers over a holding period while barely registering at the point of sale.

Maintenance is the one people systematically underestimate, because it is lumpy. Nothing happens for two years, then a timing belt. Averaged over a holding period it is substantial and fairly predictable; experienced month to month it feels like bad luck.

Financing interest is a cost of the money, not of the car — which is why the same vehicle costs different amounts depending on how you paid for it, and why "the price" is genuinely ambiguous for anything bought on credit.

Depreciation is the largest of the five for most new cars, and the only one that never appears on a statement.

Financing: the front-loaded part

Borrow $32,000 at 6.39% over 60 months and the payment is $624 a month, with $5,468 of interest across the full term.

Amortisation is not linear, and this is where most people's mental model breaks. A mortgage makes it obvious: borrow $352,480 at 6.66% over 30 years, and after 11 years you will have paid $239,101 in interest while still owing $292,583 of the original $352,480.

That is 52% of the loan's lifetime interest paid, in exchange for retiring 17% of the principal. Early payments are almost entirely rent on the money.

Why amortisation feels dishonest even though it isn't

A fixed-rate loan has a fixed payment, which creates a strong intuition that you are paying the debt down evenly. You are not. Interest is charged on the outstanding balance, and at the start the balance is at its largest — so the earliest payments are almost entirely interest, and the principal only starts falling meaningfully once the balance has come down enough for the interest portion to shrink.

The effect is severe on long loans and mild on short ones, which is why a five-year car loan feels roughly linear and a thirty-year mortgage does not. It is also why paying a little extra early is worth so much more than paying the same amount later: every dollar of principal retired in year one removes thirty years of interest on that dollar.

None of this is a trick. It is the only arithmetic that works if interest accrues on a balance. But it is genuinely counter-intuitive, and the intuition it violates — that half the payments means half the loan — is one almost everybody holds.

Depreciation is a real cost that never appears on a statement

No money leaves your account when a car depreciates, which is precisely why it goes unnoticed. But the difference between what you paid and what you can sell it for is as real as any bill — it is simply settled once, at the end, in the form of a smaller cheque than you expected.

The holding period is the variable that matters most

Almost every conclusion about ownership cost is really a conclusion about how long you keep the thing, and it is the input people are least deliberate about.

Depreciation is steepest at the start — a new car loses a large fraction of its value in the first two or three years, and comparatively little thereafter. Fixed costs of acquisition (sales tax, registration, documentation fees) are paid once and amortise across however long you own it. So the cost per year of use falls, sometimes sharply, the longer you keep something.

Which means the same purchase can be excellent or terrible value depending on a decision made years later. Buying new and selling at three years concentrates the worst of the depreciation into your ownership window and spreads the acquisition costs across the fewest years. Buying the same car and keeping it twelve years does the opposite. Nothing about the transaction changed; the cost per year differs by a large multiple.

This is also the mechanism behind the conventional advice to buy used. It is not that used cars are cheaper — it is that someone else has already absorbed the steepest part of the depreciation curve, and you are entering the ownership period where the cost per year is lowest.

The costs that scale with the price, and the ones that don't

Not every ownership cost moves with what you paid, and confusing the two is where most "expensive car versus cheap car" arguments go wrong.

Scales with price: sales tax, most registration fees, insurance (roughly), and depreciation in absolute terms. Buy twice the car and these approximately double.

Doesn't scale with price: fuel, which tracks efficiency and mileage rather than purchase price. Routine maintenance, which tracks age, complexity and brand rather than cost. Tyres, which track size. Parking, which tracks geography.

This is why a cheap car with poor fuel economy, high insurance and expensive parts can cost more per year than a more expensive one — and why the purchase price, the number everyone negotiates hardest over, is a weak predictor of what the thing will actually cost to own.

Leasing does not remove the cost, it renames it

A lease looks like it sidesteps depreciation, since you never own the asset and never take the loss on resale. It does not. A lease payment is, structurally, the expected depreciation over the term plus a finance charge plus the lessor's margin — you are paying the depreciation directly rather than absorbing it at sale.

That has a real advantage: predictability. You know the number, it does not depend on a used market three years from now, and maintenance risk is largely someone else's. What it does not do is make the cost disappear, and comparing a lease payment to a loan payment as though they were the same kind of number is how people conclude that leasing is cheaper.

The like-for-like comparison is total cost across the same period, including what you own at the end. On that basis the two are usually closer than either camp claims, and which wins depends almost entirely on how long you would otherwise have kept the car.

Housing is the same shape, one order of magnitude up

Everything above applies to a home, with two differences that pull in opposite directions.

The first is that homes generally appreciate rather than depreciate, which removes the single largest ownership cost a car carries and replaces it with a potential gain. That is a genuine and substantial difference, and it is why the two are not comparable purchases despite having the same cost structure.

The second is that the recurring costs are larger and more numerous than most first-time buyers model: property tax, insurance, maintenance at roughly one to two percent of value annually, and — on a thirty-year term — an interest profile so front-loaded that the first decade barely touches the principal. The mortgage payment is the visible cost. It is rarely the majority of the true one.

The useful reframe

Ask what the thing costs per year of use, in gross income, rather than what it costs to acquire. That single change reorders most purchasing decisions: the cheap car with expensive insurance and poor fuel economy stops looking cheap, and the expensive one you keep for twelve years often stops looking expensive.

There is a second reframe worth adopting alongside it: separate the decision from thetransaction. The transaction is buying a car. The decision is committing to several years of insurance, fuel, maintenance and depreciation at a level set by which car you chose. The transaction takes an afternoon and gets all the attention; the decision runs for years and gets almost none.

That is not an argument for buying cheaply. Cheap cars have their own costs, and a vehicle you keep for twelve years can be excellent value at a high purchase price. It is an argument for knowing which number you are actually choosing when you sign — because it is not the one on the windscreen.

Run it with your own car →