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· 4 min read
How to Compare Cars on Total Cost
Heshan Fernando
Co-founder & COO
People compare cars on purchase price and fuel economy. Both are visible, both feel like the cost, and together they routinely miss the largest expense of owning the vehicle.
Depreciation is usually the biggest single cost, and it’s invisible until the day you sell.
The components, roughly in order of size
Depreciation. The difference between what you paid and what you get back. On a new car over five years this frequently exceeds every other cost combined, and it’s entirely determined by which car you chose rather than how you drive it.
Fuel or energy. Visible, paid weekly, and psychologically dominant because of that. Often second, sometimes third.
Insurance. Varies enormously by model, driver and location, and by considerably more between models than people expect.
Servicing and repairs. Predictable early, less so later. Some models have a well-documented expensive component; researching that before buying is worth an hour.
Tax and fees. Varies by jurisdiction and often by emissions or engine size.
Finance costs, if borrowing. Interest on the amount financed, which is a real cost that a monthly payment figure conceals.
Why depreciation dominates
Take a 4.2 million car held five years and sold for 2.3 million. That’s 1.89 million of depreciation — 378,000 a year, or over 31,000 a month, before you’ve bought a litre of fuel.
At 14,000 km a year and typical fuel costs, fuel might run 224,000 a year. Depreciation is running at nearly twice that, and nobody feels it because it doesn’t arrive as a bill.
The curve is steepest early. A car loses a substantial share of its value in the first year and progressively less thereafter, which is the entire financial argument for buying a two or three year old car — you let someone else absorb the steepest part.
| Cost | Visible? | Typical rank |
|---|---|---|
| Depreciation | Only at sale | Usually largest |
| Fuel or energy | Weekly | Second |
| Insurance | Annually | Third |
| Servicing | Periodically | Fourth |
| Tax | Annually | Small |
Cost per kilometre normalises everything
Different holding periods and different annual distances make totals hard to compare. Dividing by total kilometres gives one figure that accounts for both.
It also reframes the decision usefully. A car costing 57 per kilometre against one costing 43 is a 33% difference, which is far more legible than comparing a five-year total against a three-year one.
Electric versus combustion
Genuinely depends on the specific vehicles and your annual distance, which is what a TCO comparison is for.
Electric vehicles typically have lower energy and servicing costs and higher purchase prices, with depreciation varying widely by model — some hold value well, others have depreciated sharply as newer models arrived. Insurance is sometimes higher.
High annual distance favours the lower running costs; low annual distance means the purchase premium is spread over fewer kilometres and matters more. There isn’t a general answer, which is precisely why the comparison is worth doing with your own numbers.
Common mistakes to avoid
- Comparing purchase prices without depreciation.
- Assuming better fuel economy compensates for a higher purchase price without checking the arithmetic.
- Using a three-year holding period in the comparison and keeping the car for eight.
- Ignoring insurance quotes until after choosing, when they differ substantially between models.
- Comparing a monthly finance payment against another car’s purchase price, which compares two different things.
How to do it with Total Cost of Ownership Calculator
The Total Cost of Ownership Calculator includes depreciation and reports cost per kilometre.
- Enter the purchase price and how long you’ll actually keep it.
- Estimate resale value honestly — used listings for the same model at that age are the best guide.
- Add energy, insurance, servicing and tax.
- Compare on cost per kilometre, which normalises different holding periods.
Other vehicle calculators are in the tools directory.
Frequently asked questions
Why does depreciation matter so much?
Because it’s usually the largest cost and it’s invisible until you sell. Two cars with identical running costs can differ by a million over five years purely in what they’re worth at the end.
Is an EV cheaper to own?
Often lower on energy and servicing, often higher on purchase price and sometimes insurance, with depreciation varying widely by model. It depends on the specific vehicles and your annual distance.
What holding period should I use?
However long you actually keep cars. Depreciation is steepest in the early years, so a three-year and an eight-year comparison can favour different vehicles.
Final thought
Look up what your shortlist sold for three years ago and what those cars fetch now. That single check tells you more about the real cost than any specification comparison.