Is it time to upgrade your car? Or are you a first-time buyer?
Buying a car isn’t as straightforward as simply saving up the purchase price. There are multiple factors to consider, from insurance and fuel to maintenance costs and new tax regulations.
The last thing you want is to have your shiny new motor on the road and realise you’re struggling to keep up with your financial commitments. Budgeting in advance will give you peace of mind and help you avoid unpleasant surprises down the line.
Up-front cost: Purchase Price and Financing Options
The price of the car itself is the most obvious cost, but it’s crucial to understand that the sticker price is rarely the final price you pay. Always factor in any additional fees that might arise during the purchase, like taxes or registration, regardless of whether you’re purchasing a new or used car.
If you’re on a tighter budget or have a patchy credit history, bad credit car finance could be a good option to spread the payments. It’s essential to understand the terms before committing. Making sure to factor in interest rates, alongside monthly payments, helps to ensure you only commit to what you can realistically afford.
Ongoing Running Costs
Once you’ve made the purchase, the running costs can catch you off guard if you haven’t planned for them. Fuel consumption is an obvious expense. However, larger vehicles and those with higher emissions generally consume more fuel, while smaller, more efficient cars will cost less to run. If you’re unsure, research the car’s fuel economy before buying.
Other costs that add up include maintenance. For example, essential repairs, like brake pads or battery replacements, can be costly. Budgeting £200–£300 per year for a mid-range car for general upkeep is a reasonable starting point.
Insurance is another recurring cost. Younger drivers and those with less experience can expect higher premiums, and certain models may also attract higher insurance costs, so shop around for the best deals before committing to a purchase.
Financing Options
There are two main options:
- A car loan: This will have fixed monthly payments and will leave you with full ownership once the term is complete.
- PCP: Often offers lower monthly payments, but you may need to make a large lump sum at the end of the agreement if you want to keep the car.
Don’t forget to compare the interest rates and terms for each option. Always factor in the total cost of the financing, so you don’t end up paying more than you initially planned.
Tax/Legislation Considerations
The UK government has introduced stricter rules around emissions, leading to changes in road tax. Cars that emit higher levels of CO2 are taxed more heavily, which can significantly increase your running costs. Electric vehicles (EVs) and hybrid cars, on the other hand, might offer tax breaks or exemptions, making them an attractive option if you’re looking to future-proof your budget. Also, some areas in the UK are introducing low-emission zones (LEZ) or congestion charges, which could increase the cost of driving in certain areas.
While financing can make owning a car more accessible, it’s important to approach it with a clear understanding of the total cost. The goal is to find a balance between an affordable monthly payment and a total cost that doesn’t leave you financially strained.