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Set Your Budget — Know the Real Cost

It's not just the car's price you'll be paying. Use this guide to understand your full cost of ownership so you don't get caught out.

Pink piggy bank with coins representing saving for a car purchase
💡 Quick Guide: A good rule of thumb is that the total cost of car ownership over 5 years is roughly double the purchase price when you factor in all expenses.

Upfront Costs

  • Deposit/down payment: Typically 10–20% of total cost
  • Admin fees & road tax: Budget £200–£500
  • Extras: Extended warranty, service packages

Monthly Costs

  • Finance repayments: HP/PCP or bank loan (learn more about car finance options here)
  • Insurance: Varies based on age, car type, location (see our insurance guide)
  • Fuel or EV charging: Check MPG or kWh/mile
  • Servicing and MOTs: ~£200–£400 per year
⚠️ Watch Out: Many buyers focus only on the monthly payment, but this can hide the true cost. Always calculate the total amount you'll pay over the entire finance term.

Emergency Fund

Recommended: keep £500–£1,000 aside for unexpected repairs

Budget Tip

Use the 20/4/10 rule:

  • 20% deposit
  • 4-year maximum loan
  • Total cost ≤10% of your take-home pay per month

Hidden Costs to Consider

  • Depreciation: How much value your car will lose over time
  • Insurance excess: What you'll pay in the event of a claim
  • Breakdown cover: £40-£150 per year for peace of mind
  • Parking permits/fees: Especially important in urban areas
  • Consumables: Tires, wiper blades, bulbs, fluids

Saving Money on Running Costs

  • Compare insurance annually: Loyalty rarely pays
  • Consider fuel efficiency: A more efficient car can save thousands over its lifetime
  • Maintain regularly: Preventative maintenance is cheaper than repairs
  • Check tax bands: Older, less efficient cars can cost £300+ more per year in road tax
  • Shop around for servicing: Independent garages often charge less than main dealers
💡 Tip: When comparing cars, look at the total cost of ownership, not just the purchase price. A slightly more expensive car with better fuel economy and lower tax might save you money in the long run.

Real-World Example

For a £10,000 car over 4 years, your total costs might include:

  • £2,000 deposit
  • £200 per month finance (£9,600 total)
  • £600 per year insurance (£2,400 total)
  • £1,200 per year fuel (£4,800 total)
  • £300 per year maintenance (£1,200 total)
  • Total 4-year cost: £20,000 (double the purchase price!)

What Next?

Now that you understand the true cost of car ownership, learn about financing options:

👉 Understanding Car Finance