The cost of owning a car

After your rent or mortgage, buying and owning your first car is likely to be your next biggest expense. 

If you’re looking for a cost breakdown, here are some of the biggest expense items associated with buying a car, from the most expensive down to the least. Many of these extra costs are not obvious to the first time buyer, but can stack up over a year or two so it’s always worth thinking and budgeting well beyond the cost of the car itself. 

1. The car itself

The biggest impact on cost is whether you buy new or used. Many first-time buyers don’t have the budget for a new car. You can pay a lot less for a used car because cars depreciate in value over time. So, if your budget is tight, you will be pleased to know that you can get a fantastic used car for a fraction of the price of a new car. 

In fact, many cars cost almost half their original value after only three years of use. But a three-year-old car that has been looked after can feel almost new, and can give you many more trouble-free years of driving. 

However, used cars tend to be out of warranty after 3-5 years, depending on the manufacturer. That means that if it develops mechanical problems, you will be liable for repairs, and they can be expensive. 

Financing the car

Next up, how you finance a new car can also save or cost you money. If you are saving for a new car, and are going to pay for your car with cash – top marks! You have already saved hundreds on loan interest payments. 

But, many of us need a loan. When you are looking for a car loan, always use a reputable comparison website. And don’t forget that the monthly cost of your car loan is only part of what your shiny new motor is going to cost you. Your monthly budget needs to cover the other cost of owning a car too.

Finding the right car at the right price

Once you have your finance in place, now you can begin searching for your first car. Websites like Autotrader are a good start as most dealers and private sellers advertise through sites like Autotrader. For lower value cars —generally lower than £5,000— go to Gumtree, that is going to be your most common option. 

A car’s make and model also have a major impact on all costs. If you will settle for nothing less than leather seats, good looks and prestigious brands, you are clearly going to pay much more. 

Hot tip: search for lower mileage used cars with a good service history, and always check whether the car is about to hit any expensive maintenance milestone such as a timing belt replacement before signing anything. 

If you have a bit more money, you may want to seek the reassurance that you get from buying from a dealer. A second-hand car dealer can provide you with a free short term warranty – usually 3 months, which allows you to take the car back if you spot any problems. Don’t forget that many dealerships expect to negotiate on price, and many will give you a ‘no part exchange’ discount for not having to take in your old rust bucket for resale – a clear advantage for first time buyers. Ask for £500 ‘no part ex’ discount off the final price, and be prepared to walk away (leaving your phone number – many will call you back and agree!). 

You can even buy a car online from companies like Cazoo and have it delivered to your door with a short-term warranty for reassurance. 

2. Insurance

As this is your first car, your next biggest expense is going to be insurance. Do check insurance costs before you buy your dream car to avoid any nasty surprises.

Even if you are a super careful driver, first time car owners tend to be treated as high risk by insurers, and that will be reflected in the cost of your insurance - ‘the premium’. You will want to keep insurance costs as low as possible so perhaps avoid racy models in your car choice. Instead, choose an unmodified car with a lower power engine. 

Hot tip: google ‘cheapest cars to insure’ and you’ll find plenty of suggestions. Then, before you buy the car, test insurance costs on a comparison website, for the different car options that you are considering. 

Over time, around a year or two after your first car, and assuming you have not claimed on your insurance, you may find your insurance premium drops rapidly. The longer you don’t need to claim, and do not receive penalty points on your license (e.g. for speeding violations), the cheaper your insurance will get. 

3. Fuel

Your next biggest cost is usually fuel, which is closely related to how much you use the car. For example, if most of your driving is short trips about town, you will use more fuel than if your miles are mainly on the motorway. 

Think about how much you are comfortable spending on fuel regularly – that should help you focus on how efficient you need your car to be. Efficiency is linked to age, engine size, make and model. If you pick a 3 litre, 10 year old truck, prepare to spend most of your time and wallet at the filling station. Happily, if you have chosen a low insurance car, that often comes with smaller engine sizes and very sensible fuel efficiencies. 

Hot tip: in recent years cars can deliver well over 40 miles per gallon. If you are fuel or environmentally conscious – aim for that as a minimum. 

If you have slightly deeper pockets to spend on the car itself, an electric or hybrid vehicle, could save you a small fortune in fuel costs. In fact, if you are on the market for a new car, then look at what government grants and special loan deals are available for electric vehicles. 

Some electric models are approaching parity of cost with new petrol or diesel cars, and you may find that when you factor in lower fuel and tax costs, you could break even or even save money. 

4. Annual MOT and servicing

New cars don’t require an annual mechanical check (MOT), but any car over 3 years old will. MOT’s normally cost around £50, but if your car fails, you will need to pay for any repairs to make it roadworthy. 

On top of your annual mechanical check, regular servicing is a must and can avoid costly problems from developing in future. It should normally be done at least once a year or after a certain number of miles (typically every 12,000 miles) whichever comes first. Check your car’s service schedule for guidance on what level of service is due. 

It is a good idea to check before buying a car that it has been recently serviced, especially if you buy from a dealer. If you are buying privately, then ask to see the service history and check whether a service is due. If not, you might want to negotiate that out of the price you pay. A full service often costs around £150, but you will need to pay extra for any new parts or repairs. That is where costs can ramp up quickly. 

5. Tax

Tax is now linked to carbon emissions. If you are looking to keep this cost down too, then pick an efficient small car. Ultra low emission cars, like electric vehicles, are tax free. 

6. Parking

Parking costs are not always at the front of your mind when buying a car, but if you live in a city or want to drive into town a lot, parking fees can really stack up. In many cities you now need to purchase an annual ‘resident parking permit’, just to park outside your home. 

Find your budget

Still trying to determine how much you can spend on a new car? You can use a free app like Money Dashboard to help you find your maximum budget. You can also play around with figures like insurance costs and fuel costs to see how slight changes in car choice and usage can affect your budget.

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