The True Cost of Owning a Car in Australia: What Most People Underestimate (2026)

The true cost of car ownership includes fixed costs (paid regardless of how much you drive) and variable costs (based on usage):

• Depreciation: The single largest cost for most car owners, and the most frequently ignored. New cars typically lose 15 to 25% of their value in the first year and 10 to 15% per year thereafter. A $35,000 new car depreciates by approximately $7,000 to $8,750 in year one alone. Over five years, the average car loses 50 to 65% of its purchase price. This is a real economic cost even if you never sell - it represents the consumption of the asset.
• Registration: Varies by state and vehicle type. In NSW, annual registration for a standard passenger vehicle is approximately $400 to $500 for the registration fee plus CTP (Compulsory Third Party) insurance of approximately $500 to $700 depending on driver profile and insurer - total approximately $900 to $1,200 per year. Other states vary.
• Comprehensive insurance: Typically $1,000 to $2,000 per year for a standard vehicle, varying significantly by driver age, location, claims history, and vehicle type. Young drivers under 25 pay substantially higher premiums. Shopping and switching annually is the most reliable way to avoid loyalty premiums.
• Fuel: At $1.80 to $2.00 per litre (average unleaded 91 in 2026) and 15,000 km of annual driving, a car averaging 10L per 100km costs approximately $2,700 to $3,000 per year in fuel. A more efficient vehicle at 7L per 100km costs $1,890 to $2,100 - a saving of approximately $900 per year.
• Servicing and maintenance: A basic service for a modern car costs $200 to $500 every 10,000 to 15,000 km. Tyres ($600 to $1,200 for a set of four, every 40,000 to 60,000 km), brakes, filters, and unexpected repairs. Budget $1,000 to $2,000 per year for an average car in good condition; older or higher-mileage vehicles often cost more.
• Financing: If you borrowed to buy the car, interest is a direct ongoing cost. A $25,000 car loan at 8% over 5 years costs approximately $5,500 in total interest. Car loans are often the most expensive consumer debt after credit cards - buying a car you can afford outright, or borrowing less, significantly reduces the total cost.
• Parking and tolls: Highly location-dependent. Sydney and Melbourne commuters can spend $2,000 to $5,000 or more per year on parking and tolls. Inner-city residents with off-street parking needs face additional costs.

Adding up depreciation, registration, insurance, fuel, servicing, and financing for a typical Australian car owner yields a total annual cost of $8,000 to $15,000 or more depending on the vehicle, location, and financing. For a $35,000 new car financed over 5 years, the true annual cost in the first year can exceed $14,000. Even for a modest $15,000 used car bought outright, the total annual cost including all running expenses typically exceeds $6,000.

This makes the car the second largest household expense for most Australian families after housing - and unlike housing, cars do not appreciate. Understanding this cost is the starting point for making better decisions about what car to buy, whether to buy new or used, and how to reduce the annual burden.

The most impactful ways to reduce total cost of ownership:

• Buy used, not new: Letting someone else absorb the first-year depreciation cliff is the single most impactful financial decision in car buying. A 2 to 3 year old vehicle has typically depreciated 25 to 40% from its new price but retains most of its mechanical reliability. The sweet spot for value is often 3 to 5 year old vehicles from reliable manufacturers.
• Choose a lower-depreciation model: Some vehicles hold their value significantly better than others - Toyota, Mazda, and Subaru consistently outperform European brands on resale value in Australia. Research residual value projections before buying.
• Reduce insurance costs: Compare comprehensively each year using comparison sites (Compare the Market, iSelect, Budget Direct direct). Increase your excess to reduce premiums if you have savings to cover an excess. Named-driver policies and restricted-use policies cost less than open policies. Avoid multi-policy bundling without checking - it is often not the cheapest option.
• Pay cash or borrow less: Car loan interest adds thousands to the total cost. If you cannot afford a car outright, buy a cheaper car you can afford with minimal borrowing - or with a shorter loan term.
• Electric vehicles (EVs): For high-annual-mileage drivers, EVs now offer meaningful running cost savings. Electricity costs approximately 2 to 4 cents per km compared to 13 to 18 cents per km for petrol. Servicing costs are lower (no oil changes, fewer moving parts). The FBT exemption for eligible novated leases on EVs (no FBT on the base value) also makes EVs financially attractive for employees with novated lease access.
• Novated leasing: Pre-tax financing of a car through an employer salary sacrifice arrangement reduces the effective cost by saving income tax and GST on the vehicle and running costs. Available to employees whose employers offer it. The FBT treatment on EVs makes novated leasing particularly attractive for electric vehicles.

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