How to Budget for a Car: Total Cost of Ownership Explained

Why Budgeting for a Car Goes Beyond the Sticker Price

Total Cost of Ownership (TCO) defines the real financial footprint of a car, going far beyond the price you see on the windshield. While the car’s sticker price is your starting point, the long-term expenses—like insurance, depreciation, and fuel—can outweigh that initial number.

In 2026, car affordability is shifting. Inflation has driven up vehicle prices, while EVs (electric vehicles) are changing how we think about maintenance and energy use. Whether you’re planning your first car purchase or upgrading, understanding how to budget for a car means preparing for every cost category—not just the upfront one.

Next, we break down all the hidden and ongoing costs that impact your total ownership cost.

What Are the Upfront Costs When Buying a Car?

Upfront costs represent the first hurdle for any buyer. These go beyond the car's base price and often surprise those unfamiliar with car budget planning.

Key Initial Costs:

For example, a $35,000 car may include another $4,000–$6,000 in car tax fees and extras. Always ask for an "out-the-door price" to get a full picture.

Next, we’ll calculate how monthly ownership costs affect your long-term car budget.

What Are the Monthly Ownership Costs of a Car?

Monthly expenses are the most visible and recurring costs in car ownership. Understanding them is essential for consistent car budget management.

Core Monthly Expenses:

• Car Loan or Lease Payments
  Your principal cost per month, impacted by credit score, term length, and down payment.
  Average monthly car payment in 2026:
  
  

• New car: $739

• Used car: $533
  (Source: Experian Q1 2026 Auto Finance Report)
  
  

• Auto Insurance Premium
  Varies by driver profile, vehicle type, and location.
  Average: $120–$220/month for full coverage
  
  

• Lease Fees (if applicable)
  Includes lease acquisition and disposition fees, typically $300–$700 per fee.
  
  

• Loan APR Impact
  A higher APR increases your monthly costs. For instance, a 7.5% APR over 72 months adds thousands in interest.
  
  

Using a car budget calculator or payment schedule tool can help you forecast these costs more accurately.

In the next section, we’ll explore what it takes to keep your vehicle running over time: maintenance and repairs.

What Ongoing Expenses Should You Expect?

Routine maintenance is an unavoidable part of owning any car, whether gas-powered or electric. Planning for these costs reduces surprises and protects your car's value.

Maintenance Costs for Gas vs. Electric Vehicles

Common Ongoing Expenses:

• Wear and Tear Repairs: Items like belts, lights, sensors, and air filters often wear out after 50,000+ miles.

• Extended Warranty: Optional but popular for covering major repairs post-manufacturer warranty.
  Average cost: $1,500–$3,000 over term
  
  

Regular service intervals and mechanic labor costs should be factored into your car upkeep cost.

Next, we’ll look at a major ongoing variable: how much it costs to power your vehicle.

Fuel or Charging Costs: What’s Cheaper in 2026?

Your monthly fuel or charging costs depend heavily on your vehicle type, location, and driving habits. With energy prices in flux, comparing gas and electric cars is key to understanding real affordability.

Gasoline Costs in 2026:

• National average gas price (Q1 2026): $3.86/gallon

• For a car averaging 30 MPG:

• 1,000 miles/month = ~$129/month
  
  

EV Charging Costs:

MPGe (Miles Per Gallon Equivalent) for most EVs in 2026 ranges between 90–130 MPGe, offering better energy efficiency than gas cars.

To estimate your costs accurately, track kilowatt usage, energy plan rates, and the range per charge of your EV.

Now that you’ve powered your car, it’s time to understand how its value changes over time—next is depreciation.

How Does Depreciation Affect the Total Cost of Ownership?

Depreciation is the largest hidden cost in car ownership. It refers to the vehicle's loss of value over time.

Average Depreciation Rates:

• New Cars lose 20–30% in the first year.

• After 5 years, most lose 60% of original value.

• EVs depreciate faster unless they are Tesla, Rivian, or Lucid models (source: Kelley Blue Book, 2026).
  
  

Top Depreciating Models (2026):

Tools for Tracking Resale Value:

• Kelley Blue Book

• Edmunds True Cost to Own

• CarGurus Resale Value Tool
  
  

Using these tools can help estimate retained value, and plan the optimal resale timing to minimize lost value over time.

In the final section, we answer common questions about car budgeting and TCO in 2026.

FAQs: Total Cost of Ownership and Budgeting for a Car in 2026

How do I calculate the total cost of owning a car?

Use a car cost calculator that includes loan terms, insurance, fuel/charging, maintenance, depreciation, and taxes. Many financial planning apps now include car budget tools.

What’s the best way to budget for my first car?

Start with your monthly income and subtract recurring obligations. Then allocate no more than 15%–20% of take-home pay to total monthly car costs (loan + insurance + fuel + maintenance).

Are EVs cheaper to own in the long run?

In general, EVs have lower maintenance and charging costs, but higher upfront prices and sometimes faster depreciation. TCO varies by model and location.

How does owning an SUV compare to a sedan in TCO?

SUVs often cost more in fuel, insurance, and maintenance, but may retain value better. Sedans typically offer lower TCO due to fuel economy and fewer moving parts.

What are the top tools for budgeting a car in 2026?

• Edmunds True Cost to Own

• Kelley Blue Book Cost Guide

• NerdWallet Car Budget Calculator

• Autotrader TCO Analyzer

• Mint or YNAB for ongoing tracking
  
  

These tools provide cost projections and help pick the best budget car for your income range.