How to Calculate the True Cost of Car Ownership Beyond the Purchase Price

Key Components of Car Ownership Cost

Let’s explore the key expenses that shape your actual cost of owning a vehicle in India:

 

1. Depreciation

The resale value of your car is greatly impacted by depreciation. According to the IRDAI's usual insurance rates, a vehicle depreciates by:

• 5% within 6 months

• 15% after 6 months to 1 year

• 20% after 1–2 years

• 30% after 2–3 years

• 40% after 3–4 years

• 50% after 4–5 years
   

After five years, the depreciation cost is determined in cooperation between the policyholder and the insurer. 

2. Fuel costs

Fuel is a continual expenditure that fluctuates depending on:

• Your driving habits and the daily distance

• The mileage of the car

• Fuel type (electric, CNG, diesel, or petroleum)

A petrol car with a fuel efficiency of 15 km/l and a monthly mileage of 1,000 km at ₹100/litre costs ₹6,666 in fuel.

 

3. Car Insurance

The Motor Vehicles Act in India mandates that every vehicle owner possess Motor Insurance. Third-Party Liability Coverage is a minimum requirement. Although more expensive, Comprehensive Car Insurance provides more protection against theft, accidents, and natural disasters.

 

According to the IRDAI's most recent official circular on March 2022 

• Cars under 1000cc: ₹2,094 (third-party premium)

• 1000cc–1500cc cars: ₹3,416

• Cars larger than 1500cc: ₹7,897

Note: The official announcement of updated rates for FY 2024–2025 is still awaited. Industry estimates, however, suggest a 15–20% hike from April 2025.

 

4. Maintenance and repairs

Unexpected repairs, routine maintenance, and part replacements account for a large amount of car maintenance expenses. Prices vary depending on: 

• Car brand and model

• Age of the vehicle

• Usage frequency

 

Typical yearly maintenance:

• Hatchback: ₹5,000–₹8,000

• Sedan/SUV: ₹10,000–₹15,000
  
  Due to the use of imported parts and specialised maintenance needs, premium cars have higher maintenance costs.

5. Taxes and registration

At the time of registration, state-specific RTO and road tax fees are applicable:

• Maharashtra: 11%-20% of the cost of the vehicle for motor cars.

• Karnataka: 10%-18% of the cost of the vehicle for new cars.

• Tamil Nadu: 12%-20% of the cost of the vehicle for new cars.
   

Other charges may include green tax, pollution under control (PUC), and fitness tests after 15 years (for older vehicles).

 

6. Financing costs

If you're buying with a car loan, figure out:

• EMI (monthly repayment)

• Interest paid over the loan term

For instance, the interest outgo for a ₹10 lakh car loan at 9% over 5 years would be approximately ₹2.4 lakh. 

How to Calculate the Total Cost of Ownership (TCO)

Car ownership is a bit costlier than the purchase price at the dealership. A methodical approach aids in making a more informed decision in the long run.

TCO formula:

TCO = Purchase Price + Taxes & Fees + Fuel + Insurance + Maintenance + Repairs + Loan Interest + Depreciation + Disposal Costs
 

Cost Category	Hatchback	Mid-size SUV
Purchase Price	₹6 lakh	₹15 lakh
RTO & Taxes	₹60,000	₹2 lakh
Fuel (5 yrs @ ₹6,000/mo)	₹3.6 lakh	₹5 lakh
Insurance (5 yrs)	₹30,000	₹75,000
Maintenance (5 yrs)	₹25,000	₹80,000
Depreciation (50%)	₹3 lakh	₹7.5 lakh
Loan Interest (5 yrs)	₹70,000	₹2.5 lakh
Estimated TCO	₹13.45 lakh	₹33.05 lakh

 

Even a budget car worth ₹6 lakh can cost more than ₹13 lakh to own over 5 years.

 

Summing Up

Your car’s purchase price is just the beginning. To understand the full financial impact, a proper car ownership cost calculation must include running, repair, insurance, and depreciation costs. This helps you choose a car that matches not just your desire but also your financial reality.

 

At Shriram Car Insurance, we provide coverage that matches your long-term cost-conscious goals. From basic third-party plans to Comprehensive Car Insurance with add-ons like Zero Depreciation and Roadside Assistance, our solutions help mitigate the hidden costs associated with owning a car. Explore our budget-friendly plans today.

Your journey is valuable—protect it wisely with Shriram.

FAQs

1. How is car depreciation calculated in India?

It has a percentage-based timetable, starting at 15% in the first year and increasing beyond then. This is used by insurers to determine IDV.

 

2. What is the best way to lower my total cost of ownership?

Avoid long-term loans, opt for fuel-efficient cars, schedule regular vehicle maintenance, and select appropriate Car Insurance Policies.

 

3. Is electric car ownership cheaper in India?

Yes. Although the initial cost is higher, you save on fuel and maintenance. In certain states, EVs are also eligible for lower road taxes.

 

4. Can I reduce Car Insurance costs without losing coverage?

Yes. Install ARAI-approved safety devices, steer clear of minor claims, compare insurers annually, and make prudent use of add-ons.

 

5. Do all these costs apply to used cars as well?

Yes, albeit the purchase and insurance costs may be lower. Older cars may require more maintenance and repairs.