The true cost of driving
Most people think of a car’s cost as fuel plus the monthly payment. The real cost also includes the value the car loses each year, insurance, maintenance, tires, registration, parking and financing. Adding them up gives the cost per mile, the best figure for comparing cars or deciding whether a trip is worth driving.
The formulas
- Depreciation per year = (purchase price − resale value) ÷ years of ownership
- Fuel per year = miles per year ÷ mpg × price per gallon
- Total per year = depreciation + fuel + insurance + maintenance + fees + loan interest
- Cost per mile = total per year ÷ miles per year
Worked example
A $35,000 car kept 5 years and sold for $18,000, driven 12,000 miles a year at 30 mpg with gas at $3.20:
| Cost | Per year |
|---|---|
| Depreciation (17,000 ÷ 5) | $3,400 |
| Fuel (12,000 ÷ 30 × 3.20) | $1,280 |
| Insurance | $1,800 |
| Maintenance and tires | $1,000 |
| Registration, parking, tolls | $600 |
| Loan interest | $800 |
| Total | $8,880 |
That is $740 a month and $0.74 per mile. About 74% of the cost is fixed: it does not depend on how far you drive.
Fixed versus variable costs
Because most costs are fixed, the cost per mile falls as mileage rises. The same car driven 6,000 miles costs about $1.37 per mile; at 18,000 miles, about $0.53. For deciding whether to make one extra trip, only the variable costs, fuel and wear, about 15 to 20 cents per mile here, really matter.
Ways to lower the cost
- Buy lightly used. A 2- or 3-year-old car has already lost much of its depreciation.
- Keep the car longer. Depreciation slows after the first years.
- Shop insurance every year and consider higher deductibles.
- Pay cash or shop the loan rate. Interest is a pure cost.
- Follow the maintenance schedule. Cheap preventive work avoids expensive repairs.
Comparing with reimbursement rates
The IRS standard mileage rate for business use is designed to cover the full cost of a typical car. If your cost per mile is below it, reimbursement at that rate covers your expenses. Our mileage reimbursement calculator applies it to your trips.
Electric cars
For an EV, enter the electricity price per kWh in place of the fuel price and the efficiency in miles per kWh (often 3 to 4) in place of mpg. Insurance and depreciation can be higher, while maintenance is usually lower.