Annual car ownership cost explained
Separate running costs, depreciation and finance without double-counting loan principal.
Running cost is not ownership cost
Running costs include fuel or electricity, insurance, maintenance, parking and applicable taxes. Ownership also includes depreciation: purchase price less resale proceeds.
A consistent ownership model
Total cost = purchase price − expected resale value + total running costs + financing interest and fees. Do not add loan principal repayments to this model: the purchase price already includes that cost.
Example
Buy for 30,000, sell for 15,000 after five years, spend 4,000 per year on running costs and pay 2,000 in finance interest and fees. Total cost is 37,000 currency units, or 7,400 per year. At 15,000 km annually that is about 0.4933 per km.
Resale is an assumption
Constant percentage depreciation is a scenario, not a used-car valuation. Mileage, condition and demand matter. Compare several plausible resale values using vehicle depreciation and total ownership cost.
Loan payments
A fixed-rate amortizing loan payment uses principal × monthly rate ÷ [1 − (1 + monthly rate)<sup>−months</sup>]. At zero interest, divide principal by months. Use car loan payments for that schedule. Fees, balloon payments and contract terms can change actual amounts.
This budgeting model excludes investment opportunity cost and inflation. Enter one currency consistently; it is not a recommendation to buy, lease or borrow.