What is the Car Ownership Cost? Know the Best Ways To Save Money

What is the Cost of Owning a Car? Know the Best Ways to Save Money For Ownership of a Car

Car Ownership Costs

Owning a car provides convenience and mobility, but it also comes with various expenses. To make an informed decision and manage your finances effectively, it’s crucial to understand the costs associated with car ownership. This comprehensive guide will help you calculate the total cost of owning a car, budget wisely to cover all expenses, and provide practical tips to save money on car-related expenditures. 

Whether you’re considering buying a new car, have recently purchased one, or are already a car owner, this guide is tailored to provide valuable insights and money-saving advice specifically for car owners in India.

How to Calculate Car Ownership Cost?

Calculating car ownership costs involves considering initial expenses and ongoing costs. Here are the two methods you can use:

1. Car Ownership Costs Calculator

Use an online car ownership cost calculator that consider factors like purchase price, financing options, fuel consumption, insurance premiums, maintenance, and depreciation to estimate total cost.

2. Manual Breakdown

Consider initial costs (car price, financing, down payment, taxes, fees) and ongoing expenses (fuel, insurance, tolls, parking, maintenance, licensing). Add average expenses for each category and multiply by ownership years. Here is a breakdown of the costs: 

Initial Costs
Car Price₹5 lakhAverage price of a new car in India
Down Payment20%20% down payment
Financing₹4 lakhLoan amount of ₹4 lakh at 10% interest for 5 years
Taxes and Fees₹20,000Registration, road tax, etc.
Total Initial Costs₹5.4 lakh
Ongoing Expenses
Fuel₹10,000/yearAverage annual fuel cost
Insurance₹12,000/yearComprehensive insurance
Tolls₹2,000/yearAverage annual toll cost
Parking₹5,000/yearAverage annual parking cost
Maintenance₹10,000/yearAverage annual maintenance cost
Licensing₹1,000/yearAnnual vehicle registration fee
Total Ongoing Expenses₹38,000/year
Ownership Years5
Total Cost of Ownership₹7.4 lakh

Also Read: Process Of Transfer Of Vehicle Ownership

Initial Costs Of Buying A Car

When purchasing a car, it’s important to understand the various factors that contribute to the initial costs. Here are the key points to consider:

1. New vs Used

Decide whether a new or used car suits your needs and budget. Keep in mind that new cars generally come with a higher upfront cost, while used cars offer a more affordable option.

2. Financing Options

If you choose to finance your car purchase, take into account the interest payments and loan duration. Shop around for the best financing options available to minimise interest charges.

Here are some of India’s leading bank’s interest rates on cars: 

BankInterest Rate (Starting)Loan TenureProcessing Fee
HDFC Bank7.95%Up to 7 years0.5% of the loan amount
ICICI Bank8.82%Up to 7 years1% of the loan amount
State Bank of India (SBI)8.90%Up to 7 years0.5% of the loan amount
Axis Bank9.20%Up to 7 years1% of the loan amount
Kotak Mahindra Bank9.30%Up to 7 years1% of the loan amount

3. Down Payment

Making a larger down payment can have long-term benefits. It reduces your monthly loan payments and can save you money on interest throughout the loan.

4. Taxes and Fees

Account for the applicable taxes, registration fees, and any additional charges imposed by local authorities. These costs can vary based on the region and the specifics of the vehicle. Here is a basic breakdown of some of these charges: 

CityRegistration ChargesRoad TaxAdditional Charges
Delhi₹6004% – 12.5% (individual)MCD Parking Fees
₹2000 (cars under ₹4 lakh)₹4000 (other vehicles)
Bangalore₹6008% – 18%None
Chennai₹6008% – 17%None
Mumbai₹6008% – 12.5%None

Also Read: Car Valuation Calculator Online

Ongoing Expenses

Owning a car entails ongoing expenses that include fuel costs, insurance premiums, highway tolls, parking expenses, maintenance and repairs, as well as licensing and registration fees. Here’s a closer look at these expenses: 

1. Fuel

Fuel expenses can significantly impact your budget. Opt for fuel-efficient cars and adopt eco-friendly driving habits, such as avoiding rapid acceleration and maintaining a steady speed. Here’s a table with the current fuel costs in some of the major cities as of July 30:

DelhiRs ₹96.72Rs ₹93.41Rs ₹89.62Rs ₹73.59
BangaloreRs ₹101.94Rs ₹98.63Rs ₹87.89Rs ₹82.50
ChennaiRs ₹102.63Rs ₹99.32Rs ₹94.24Rs ₹80.06
MumbaiRs ₹106.31Rs ₹103.00Rs ₹94.27Rs ₹79.00

2. Insurance

Car insurance is mandatory in India, and the premium depends on factors like the car’s value, age, driving history, and the chosen coverage. You should always compare different insurance providers before you choose the right car insurance policy to get the best rates. Here are some of the leading car insurance providers in India and what makes them special: 

3. Bajaj Allianz

Bajaj Allianz has a good reputation for its customer service, and is often ranked as one of the best in India

4. ICICI Lombard

ICICI Lombard offers a wide range of add-on covers, including those for medical expenses, personal accident, and theft

5. Tata AIG

Tata AIG offers an NCB of up to 50%, which is one of the highest in the industry

6. Max Bupa

Max Bupa’s premiums are generally considered to be on the higher side but they offer a number of discounts, including those for online purchase and for policyholders with a good driving record

7. HDFC Ergo

HDFC Ergo has a wide network of garages across India, but it is not as extensive as some of the other providers listed

8. Highway Tolls and Parking Expenses

Frequent highway travel or parking in busy areas can accumulate costs. Plan your routes to avoid tolls whenever possible and explore affordable parking options.

9. Maintenance and Repairs

Regular maintenance, such as oil changes, tire rotations, and servicing, helps prevent costly repairs in the future. Budget for routine maintenance and consider purchasing parts in bulk to save money.

10. Licensing and Registration

Factor in the costs associated with renewing your driver’s licence and annual vehicle registration.

Also Read: How do I transfer ownership of a car after death in India?

Insurance Premiums

Car insurance premiums are influenced by several factors. Here’s what you need to know:

1. Car Make, Model, and Age

The type of car you drive and its age can impact the insurance premium. Generally, expensive or high-performance cars have higher premiums, while older cars may have lower premiums.

2. Driving History

Your driving record plays a key role in determining the premium. Drivers with a history of accidents or traffic violations may face higher premiums.

3. Coverage Type and Amount

The level of coverage you choose and the amount of coverage you need can affect the premium. Comprehensive coverage with higher limits typically results in a higher premium.

4. Insurance Provider

Different insurance companies may have varying premium rates. It’s advisable to shop around, get multiple quotes, and compare policies to find the best coverage at an affordable premium.

Also Read: How To Estimate The Right Car Resale Value

Dealer and Registration Fees

Being informed about insurance premiums and additional fees associated with car ownership will help you plan your budget effectively and avoid any unexpected financial burdens. When purchasing a car, be aware of the following additional expenses:

1. Dealer Fees

Dealerships may charge fees such as documentation charges, handling fees, or administrative costs. These fees are added to the vehicle’s price and should be considered during budgeting.

2. Registration Fees

To obtain the necessary permits and documents for your vehicle, you’ll need to pay registration fees to the local transport authorities. Research these fees in advance to include them in your budgeting process.

Car Depreciation and its Impact on Cost of Ownership

Car depreciation refers to the decline in value that occurs over time for a vehicle. It impacts the overall cost of car ownership, especially when it comes to selling or trading in your car. New cars typically experience higher depreciation in the first few years, losing a significant portion of their value. 

To minimise the impact, consider buying a car with a good resale value, maintaining it well, and driving it responsibly. Taking these measures can help slow down depreciation and potentially save you money in the long run.

Budgeting Tips to Save Money on Car Expenses

To save money on car expenses, consider the following tips:

1. Fuel-efficient Driving Habits

Avoid rapid acceleration, excessive idling, and unnecessary weight in your car. Plan your trips efficiently to reduce mileage and save fuel.

2. Regular Maintenance

Stick to the manufacturer’s recommended maintenance schedule. Regular servicing and replacing worn-out parts can prevent major breakdowns and costly repairs.

3. Buying Parts in Bulk

If you prefer DIY maintenance or have a trusted mechanic, consider buying car parts in bulk. Purchasing oil filters, air filters, and other consumables in larger quantities often comes at a discounted price.

Also Read: Car Registration Charges in India

Cost Comparison of Owning Vs Leasing a Car

When considering whether to own or lease a car, it’s important to evaluate the cost implications. Here’s what you need to consider:

1. Ownership Pros and Cons

  • Ownership allows you to build equity and have full control over the vehicle
  • You are responsible for maintenance and repairs, and the car’s value may depreciate over time

2. Leasing Pros and Cons

  • Leasing often has lower monthly payments compared to car loans for ownership
  • You won’t own the vehicle at the end of the lease, and there may be mileage restrictions and penalties for excessive wear and tear

3. Assessing Your Needs

  • Consider how long you plan to keep the car and your budget for monthly payments
  • If you prefer driving a new vehicle every few years and lower monthly expenses, leasing may be suitable

4. Determining Cost-Effectiveness

  • Compare the total costs of ownership, including maintenance, repairs, and depreciation, against the lease payments and potential excess mileage or damage charges

Car Expenses Tax Deductions

Car expenses can offer potential tax deductions for car owners in India. Here are the key points to consider:

1.  Interest Payments on Car Loans

The interest paid on car loans can be eligible for tax deductions. Keep track of the interest payments made throughout the year to claim this deduction.

2. Depreciation

Car owners may be able to claim depreciation as a tax deduction. Depreciation refers to the decrease in the value of the car over time, and it can be considered an expense for tax purposes.

3. Consult a Tax Professional

To fully understand and take advantage of the tax benefits and deductions available for car owners, it is advisable to consult with a tax professional or accountant who can guide you through the specific requirements and rules.

Best Ways in Which Car Owners Can Save Money

1. Carpooling

Sharing rides with colleagues or friends can significantly reduce fuel expenses and parking costs. Coordinate with your co-workers or join carpooling platforms for cost-effective commuting.

2. Car Maintenance Workshops

Attend free or low-cost car maintenance workshops organised by manufacturers or local mechanic shops. These workshops teach basic maintenance tasks that can help you save money in the long run.

3. Proper Tyre Care

Regularly check your tyre pressure, align your wheels, and rotate your tyres as recommended. Well-maintained tyres last longer, improve fuel efficiency and reduce the risk of accidents.

How to Choose the Right Car Based on Cost of Ownership

When choosing a car based on the cost of ownership, there are key factors that can help you make a more informed decision based on the long-term financial implications. Here’s what you should keep in mind:

1. Fuel Efficiency

Look for cars that have higher fuel efficiency ratings. These vehicles consume less fuel, which can significantly reduce your long-term fuel expenses and save you money.

2. Resale Value

Research and compare the resale value of different car models and brands. Cars with higher resale value tend to retain their worth better over time. This means that when you eventually sell or trade in the car, you are likely to recoup more of your initial investment, reducing the overall cost of ownership.

Alternative Modes of Transportation and Cost Comparison

Consider these points when evaluating alternative transportation options:

1. Public Transportation

Public transportation, such as buses, trains, or metros, can be a cost-effective option. Evaluate the fares and monthly passes available, considering the frequency and distance of your commute.

2. Cycling

Cycling is a low-cost and environmentally friendly mode of transportation. Assess the feasibility of cycling routes, safety measures, and the cost of a bicycle, helmet, and necessary accessories.

3. Walking

Walking is the most economical option and suitable for shorter distances. Calculate the time and convenience factors based on your specific location and needs.

Car Sharing and Rental Programs

In recent years, car-sharing and rental programs have gained popularity. These services allow you to access a car without the long-term commitment of ownership. Evaluate the costs, convenience, and availability of these programs in your area to see if they align with your budget and lifestyle.

You can explore the following options to access cars without long-term ownership commitments:

1. Car Sharing

Car-sharing services allow you to rent a car for short periods, paying only for the time you use. Compare membership fees, hourly rates, and additional charges like fuel and insurance.

2. Car Rental

Traditional car rental companies offer daily or weekly rentals. Consider the rental rates, insurance coverage, mileage limitations, and any additional fees associated with the rental.

Also Read: Used Car vs New Car: Pros & Cons

The Future of Car Ownership and Its Cost Implications

As technology evolves and transportation trends change, the future of car ownership may be influenced by factors such as electric and autonomous vehicles, and car subscription programs.

Consider these points regarding the future of car ownership and the potential cost implications:

1. Electric Vehicles (EVs)

The shift towards electric vehicles can impact car ownership costs. EVs offer potential savings on fuel expenses, reduced maintenance needs, and potential government incentives. However, the upfront cost of EVs and the availability of charging infrastructure should be considered.

2. Autonomous Vehicles (AVs)

The emergence of autonomous vehicles may introduce new ownership models, such as shared autonomous fleets. This could potentially reduce individual ownership costs, as shared services may offer cost-efficient transportation options.

3. Subscription Services

Car subscription programs offer flexibility, allowing users to access different vehicles based on their needs. Consider subscription fees, included services, and any additional costs to determine their long-term cost implications.

The Bottom Line

Owning a car comes with various costs, but with careful budgeting and cost-saving strategies, you can manage these expenses effectively. Consider the initial costs, ongoing expenses, and alternative transportation options to make an informed decision. 

Regular maintenance, fuel-efficient driving habits, and exploring cost-saving opportunities can significantly reduce your car ownership costs over time. By understanding the intricacies of car ownership expenses and implementing practical tips, you can enjoy the benefits of owning a car while keeping your budget intact.


Q. What is the 50-30-20 rule?

The 50-30-20 rule is a budgeting guideline that suggests allocating 50% of your income to needs, 30% to wants, and 20% to savings or debt repayment.

Q. What is usually the greatest expense in owning a vehicle?

The greatest expense in owning a vehicle is typically fuel costs, especially if the vehicle is not fuel-efficient or if you frequently drive long distances.

Q. How to decide the budget for a car in India?

To decide the budget for a car in India, consider your financial situation, including your income, expenses, and savings goals. Evaluate your transportation needs, research car prices, and determine what you can comfortably afford while factoring in ongoing expenses like insurance, maintenance, and fuel costs.