The Hidden Costs of Car Ownership - What You Need to Know

Valerie Raskovic

Created Date: Jan 06, 2026 | Modified Date: Jan 06, 2026

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When most people shop for a car, they usually just focus on the monthly payment or the asking price. However, the true cost of car ownership extends far beyond the negotiated price or the loan payment, with hidden expenses that can add thousands of dollars annually to your budget. From state-specific excise taxes to unexpected repair costs, understanding these hidden expenses is crucial for making informed financial decisions about vehicle ownership. To help familiarize young car buyers, we have compiled a list of the most common hidden or unaccounted car costs that are rarely disclosed prior to purchase.

Sales Tax

While most car buyers that reside in states that collect sales tax realize they will have to pay some amount towards sales tax as they do on everything they purchase, they often underestimate this cost. Unlike other purchases, car sales tax can add thousands to your total cost; as far as how many thousands, that will all depend on the state where you plan to register the vehicle and the vehicle’s purchase price. For example, in California, you'll pay 7.25% state sales tax plus local taxes that can push the total to 11%. So, for example, if you intend to purchase a vehicle priced at $30,000, you will be responsible for around $3,300 in sales tax alone. While the sales tax remains the highest registration-related cost, it is surely not the only fee required to register the car.

Registration Fees

Registration fees vary dramatically by state and vehicle type. Some states use a flat fee system, while others base fees on vehicle value, weight or age. For instance, Colorado charges based on vehicle weight and age, potentially costing hundreds annually for newer vehicles. Arizona charges a vehicle license tax calculated at 60% of the manufacturer's base retail price, reduced by 16.25% for each year since the vehicle was first registered. Additionally, fees will fluctuate based on the type of vehicle you are registering. Several states even impose additional fees on luxury vehicles. Washington state charges an additional 0.3% tax on vehicles with selling prices above a certain threshold, while other states have similar luxury vehicle taxes.

Needless to say, vehicle registration fees will vary widely, anywhere from $8 to thousands of dollars annually. To calculate these fees within your budget, it is advisable to contact your local DMV/RMV, providing them with all of the required information in order to get a quote of all registration and purchase-related fees.

Excise Taxes

Several states impose annual excise taxes on vehicles as a separate fee. For instance, Massachusetts charges $25 per 1,000 of vehicle value, while Maine's excise tax starts at $24 per every 1,000 for new vehicles, decreasing as the vehicle ages. Connecticut's vehicle property tax rates vary by municipality but can easily add hundreds to your annual ownership costs. There are also some states like CA that do not collect a separate excise tax but add additional road taxes to registration fees.

In some states the sales tax will be paid as a one-time fee during purchase and registration; however, there are some states that treat vehicles as personal property subject to annual taxes. Virginia's personal property tax can add hundreds annually, while South Carolina's property tax on vehicles is calculated based on assessed value and local mileage rates.

Dealer Fees

If you are buying a vehicle from a dealership, it is important to keep in mind that they can add a whole bunch of fees to the purchase price even after you have negotiated the car’s price. Dealerships will commonly charge documentation fees; they may even charge for processing paperwork, fuel, cleaning, unwanted dealer-installed accessories, undercoating, paint protection, glass protection, wheel locks, tire protection, extended warranties, and more…  This practice is largely unregulated, allowing dealers to run amok. Taking into account that dealers will often try to squeeze in junk fees even after you have agreed to the vehicle price, it is important to always negotiate the “out the door price”, as this represents the true price of the vehicle minus the legal registration costs and local taxes.

As a rule of thumb in most cases, it is best to decline all the additional services like undercoating, paint protection, gap insurance, extended warranties… It is unlikely you will benefit from these additional add-ons.

Additionally, if you are planning to finance the vehicle, keep in mind that dealerships usually mark up interest rates by 1-2% above what banks offer, potentially adding thousands to your total cost over the loan term. This is why it is best to have your pre-approval in hand before coming to the dealership, effectively cutting the dealer out of the financing process.

Fuel Expenses

Beyond the obvious cost of gas, consider fuel taxes that vary by state. According to recent data, fuel costs have increased significantly, with the average household spending over $2,000 annually on gasoline. The federal fuel tax is 18.4 cents per gallon for gasoline, while state taxes range from 8.95 cents in Alaska to 65.1 cents in California. In order to prevent potential purchase regrets, it is helpful to calculate how much you can allocate for fuel and how much driving you will be doing annually prior to purchase. If you have a long daily commute to work and back and your budget is tight, it may be wise to opt for a more fuel-efficient vehicle or a hybrid. Also, note the type of fuel your vehicle requires prior to purchase, as a lot of modern turbocharged and direct fuel-injected vehicle engines require higher octane fuel, which can add to the annual fuel costs significantly.

Insurance Premiums

Auto insurance represents a significant ongoing expense, with the average annual premium around 1,500 nationally. However, rates vary dramatically based on vehicle registered location, driving record, and vehicle type. For instance, Michigan historically had the highest average premiums at over 2,600 annually, while Maine averages under 1,000. Luxury vehicles and sports cars usually command higher premiums, as they carry a higher potential risk of loss and higher replacement costs and part costs. While you may not be able to change the location where the vehicle is registered, taking this information into account during the vehicle purchase can help you make a more responsible car-buying decision.

Some car buyers can benefit through additional vehicle Gap insurance, as it will cover the difference between your loan balance and vehicle value if your car is totaled. In cases where after a total loss event the amount owed on the vehicle is calculated to be greater than the vehicle value, gap insurance can help save the day. However, it is best to avoid this scenario entirely by not financing the vehicle for over 80% of its value and choosing a vehicle with a low to average depreciation rate.

Maintenance and Repairs

Routine maintenance costs average $1,500 annually, but this varies by vehicle type and age. European luxury vehicles often have higher maintenance costs due to specialized parts and service requirements. Unexpected repairs can be devastating - transmission replacements can cost up to $7,000, while engine repairs might exceed $5,000.

To help reduce the risk of unexpected future repairs, it is vital to research the vehicle you intend to purchase prior to pulling the trigger. This is especially important when buying a preowned vehicle. Older luxury cars or cars with high mileage tend to have more reliability issues, resulting in higher-than-average yearly maintenance and repair costs. Vehicle brand also has a significant impact on these costs. According to consumer reports, Japanese brands like Toyota, Honda, Lexus, Acura and Subaru tend to have a lower yearly maintenance cost than that of offerings from competitive brands.

While regular wear and tear is to be expected with use and age, some preowned vehicles may carry some hidden issues from past collision damage, floods, and total loss events. To help steer clear of cars that carry an elevated risk of catastrophic failures and expensive future repairs, it is vital to research a preowned vehicle’s history by employing the use of a vehicle history report service. A vehicle history report can help you identify potential issues that can compromise the vehicle’s reliability, safety and value and it is an invaluable tool when shopping for a pre-owned vehicle.

Depreciation

The largest hidden cost for new cars is depreciation; on average a new vehicle will lose 20-30% of its value in the first year and 72% or more over five years. This means that on a $30,000 car you can lose as much as $18,000 in depreciation over five years. This is more than most people spend on fuel, insurance, and maintenance combined during this same period. The thing to remember is not all vehicles are created equal and while some cars, like the Jaguar I-Pace, can lose as much as 72% within the first 5 years of ownership, there are also cars like the Toyota Tacoma that will only lose around 27% of their value for the same time period.

Environmental & Safety Fees

California and other states impose various environmental fees, including smog abatement fees and clean air fees, adding to ownership costs. States like Massachusetts add an additional safety inspection mandating that the vehicle meet stringent safety guidelines to be allowed to drive on public roadways. While these fees cannot be avoided, it may help avoid any additional headaches and unexpected repair costs by keeping the car well maintained. Performing the manufacturer-suggested services at regular manufacturer designated intervals can save you from dealing with state smog or safety compliance issues, violations and fines.

Road Usage and Storage Costs

Road usage and storage costs consist of all the fees associated with storing and driving your vehicle. It is vital to calculate parking fees, especially for those living in densely populated urban neighborhoods where parking can be exorbitant, with monthly garage spaces in major cities costing $200−800. Even suburban areas often have parking restrictions requiring paid permits or meter payments.

While none of us are thrilled to get a parking violation or a speeding ticket, they must be accounted for in our car budget. These violations can add hundreds annually to ownership costs. Some cities have aggressive enforcement policies generating substantial revenue from violations.

Many areas have extensive toll road systems. For example, drivers in the Northeast corridor might spend $50-100 monthly on tolls, while Texas has some of the most expensive toll roads in the nation.

The Takeaway

The key takeaway from this article is to research before your big car purchase. Research the car as well as where you intend to register it, store it and drive it.

• Investigate total cost of ownership for specific models, including insurance rates, maintenance costs, and depreciation rates. Some vehicles have surprisingly high hidden costs despite low purchase prices.
• Consider buying used, as used vehicles often provide better value, having already experienced significant depreciation.
• Negotiate dealer fees. Keep in mind most of the dealer-added fees and options are negotiable.
• Shop around for financing and insurance before visiting dealerships.
• Do regular maintenance. Following manufacturer maintenance schedules can prevent costly repairs and maintain vehicle value. Keep detailed records to support resale value.
• Consider local costs. State and local taxes, insurance rates, and parking costs vary dramatically. Research these factors before moving or purchasing a vehicle in a new area.

Keep in mind the hidden costs of car ownership can easily add up to thousands of dollars annually to your budget beyond the purchase price and the monthly payment. Understanding these costs is essential for making informed decisions about vehicle ownership. While cars provide convenience and freedom, they represent one of the largest expenses in most household budgets. By researching all associated costs and considering alternatives, you can make choices that better align with your financial goals and lifestyle needs.