New Car Budget: What the Car Actually Costs

The day the car becomes yours, the purchase price turns into history. What matters from then on is the difference between what you paid and what you can sell it for, and that gap is called depreciation.

AAA is blunt about where it ranks. Depreciation, its 2025 study says, “is the most significant cost of vehicle ownership.” At $4,334 a year it was 37 percent of the total, ahead of insurance at $1,694, ahead of finance at $1,131, ahead of fuel and maintenance. It is the biggest line and it is the only one that never sends you a bill.

The scale of it varies more than people expect. iSeeCars, which tracks resale prices across millions of listings, found in its March 2026 depreciation study that the average car lost 41.8 percent of its value over five years. Hybrids lost 35.4 percent. Electric cars lost 57.2 percent. Two buyers spending the same money on the same day can be nearly ten thousand apart in real cost five years later, and neither of them will ever see an invoice explaining why.

In the AAA study, depreciation is the largest line and fuel is a middling one. In the Lagos example, fuel is 54 percent of the entire cost of ownership, more than twice depreciation and close to the whole purchase price of the car. The ordering is not a universal fact about cars. It is a fact about where the car is parked.

This is why converting a British or American running-cost estimate into local money produces a number that is wrong in a way that is hard to see. Petrol quintupled in Nigeria in three years while depreciation on an old imported saloon stayed relatively mild. A UK owner facing road tax and MOT has a different mix again. Anyone budgeting for a car needs their own country’s arithmetic, not a translated one.

There is a second trap specific to naira budgeting. A car bought for ₦6,000,000 in 2021 might list for ₦9,000,000 today, and the owner concludes it went up in value. It did not. The currency moved underneath it. Depreciation measured in a unit that is itself falling will always flatter the car, which is why real cost has to be thought about in what the money buys, not what the figure reads. The inflation calculator is a quick way to see the difference on your own numbers.

Insurance is priced on the model, not on the price. In Nigeria the regulator’s 5 percent floor ties comprehensive cover to value, so cheaper car, cheaper premium. In the UK it works differently: every model is assigned to one of 50 insurance groups based on repair costs, parts prices, performance, and security rather than list price. Two cars costing the same can sit fifteen groups apart because one has expensive body panels and the other does not. Get the quote on the exact model and trim before you commit, not on the category.

The maintenance cliff is the second one, and it lands later than most buyers plan for. Consumer Reports asks its members what they spend on maintenance across the first five years and the second five years separately, and the gap between the two halves is the whole story. Land Rover owners in that US survey reported about $3,700 across years one to five, then $13,750 across years six to ten. Brand changes the picture as much as age does: the same survey’s ten-year totals ran from around $5,950 for Toyota to $19,460 for Land Rover. A car bought at seven years old is bought on the wrong side of that line.

Then there is financing, which is sold as a monthly payment because the total is unflattering. Experian’s figures for the fourth quarter of 2025 put the average new car loan at 68.94 months, with 69 percent of new loans running 61 months or longer. Their own worked example shows why: a $57,000 vehicle with $11,500 down at 6.37 percent costs $1,088 a month over 48 months and $6,230 in total interest, or $680 a month over 84 months and $11,135 in interest. The payment drops 40 percent while the interest nearly doubles. Whenever a seller answers a price question with a monthly figure, the total is the question they did not answer. And if there are balances already running, the car payment is not being added to an empty month, it is competing with them for the same money, which is the arithmetic a debt payoff plan sets out before you add anything to it.

The fourth is timing, and it can move the price more than any amount of haggling. Nigeria is a live example. In August 2025 a new 4 percent levy on freight value plus reintroduced VIN valuation pushed clearing costs sharply upward, with one 2016 SUV clearing at ₦10m against a typical ₦4m to ₦5m. Then from 1 July 2026 the government cut duty on used vehicles from 15 to 5 percent and on new ones from 20 to 10 percent, while adding a surcharge of 2 percent on engines between 2,000cc and 3,999cc and 4 percent above that. Engine size now carries a tax that did not exist last year. Buying three months either side of a policy change is worth more than any negotiation at the counter.

Nigeria has already answered this one at national scale. Roughly 500,000 used vehicles change hands each year against 12,000 to 13,000 new ones, which puts used cars at something like 97 percent of the market.

The logic behind that is the depreciation curve. A new buyer pays for the steepest part of it; a used buyer lets someone else absorb that and inherits a car with lower running costs on the insurance line, because the sum insured is smaller. What the used buyer takes on instead is the maintenance cliff, arriving sooner and less predictably.

There is a sweet spot in there, and it is narrower than most buyers assume: old enough that the first heavy value loss has already happened, young enough that the second five years of repair bills are still ahead. Where exactly that lands depends on the model’s reliability record, which is the one piece of homework worth doing properly before the test drive.

The first year of car ownership feels affordable to almost everyone, because the car is new to you and nothing has broken yet. The second year is when the picture arrives.

In the version where nobody tracked anything, the second year is a series of separate shocks. The insurance renewal is a bad week. The service comes back with a suspension component nobody mentioned. Fuel does not feel like an event at all, because it leaves in small amounts every few days, which is exactly why it ends up being the largest line and the least noticed one.

In the version where the spending was tracked, the second year is a number you already knew. You know the car costs roughly a quarter of a million naira a month, because that is what it cost last year and the categories are sitting there in a breakdown you did not have to build. When the mechanic quotes for the suspension you can tell whether it is inside a normal year or the start of the cliff, because you have twelve months of the same car to compare it against. And when you eventually decide the running cost is no longer worth it, that is a decision made on evidence rather than on the month the bills happened to cluster.

The difference between those two years is not discipline. It is whether the fuel purchases got recorded, and that is a job worth handing to software.