How To Budget For A Car And Running Costs

MoneyHelper

Buying a car is one of the biggest purchases you’ll make. But the costs don’t stop with the car itself, you also have to budget for running costs and any unexpected bills.

Work out your budget for buying a car

Your budget will determine whether you can buy new or used, and how much you can afford in running costs. It’s crucial that you’re realistic about your budget. Over-extending yourself can lead to problems later on – particularly if you have little or no savings and your income drops unexpectedly.

Buying a car

There are a number of different ways you can buy a car, from cash to finance agreements. The best option for you will depend on:

  • your personal circumstances
  • how much you want to spend on the car
  • if you’re buying new or second-hand.

Work out the running costs

When you’ve worked out how much you can afford to spend on buying your car, make sure you can also afford to run it. UK motorists spend, on average, more than £2,500 a year on running costs. This includes fuel, insurance, servicing and tax.

Getting the best deal on car insurance

Insurance is a legal requirement and is likely to be the biggest running expense. The cost of insurance depends on a wide range of factors, including your driving history and the kind of car you’re insuring.

Plan for the unexpected

It’s important to have a financial back-up plan for if something goes wrong. Even so, most people don’t actually have one. If you buy your car through a loan or car finance plan, there are many ‘what if?’ situations which could make it difficult for you to keep up the payments.

This can be anything from a major event such as job loss, divorce, accident and illness, through to repairs to your home and household equipment breaking down.

Help shield yourself against their financial impact by making sure you:

  • have Insurance policies covering your health, your house and contents, accidents and unemployment
  • develop an emergency fund – savings to cover at least three months of expenses
  • know if you need GAP insurance.

If you pay for your car in cash, you won’t have the worry of meeting monthly car payments. But you if this little or no savings as a result it would make it difficult if you have an unexpected bill. However, you own your car so you’re free to sell it to raise money if necessary.

Further MoneyHelper Articles

Useful resources

We are the leading provider of nationally accredited Advice and Guidance, Legal Advice...
It can be difficult to manage all the different bills and payments in our lives. The...
Mental Health & Money Advice is the first UK-wide online advice service designed to...
Would you like to feel more in control of your finances? Then let us help you cut through...
If you're struggling with debt or other money problems and need to get through a period...
Advice NI can offer in-house training and/or workshops at a time, date or location...
We have offered accredited and non-accredited training in age issues since 2008 including...
No time for a phone call? You can now get in touch with MoneyHelper using Whatsapp. The...
Our Workplace Gambling Workshops are facilitated by Tony O'Reilly, addiction counsellor...
The Consumer Council would welcome the opportunity to engage with your employees by...
Advice NI, a registered charity founded in 1995, exists to provide leadership and...
Advice NI is the leading provider of Debt and Money Advice training in Northern Ireland...
Social Security benefits and welfare reform is a core area of training at Advice NI. We...
Use this calculator to see how much a loan will cost you or how quickly you can pay off...
Our Money Navigator tool gives you action plans based on your own situation. Know in 30...
If you’re struggling with debt, it can be hard to know where to turn. But with lots of free advice services available across the UK, you can find help in a way that’s best for you.
Learn how to get your debts under control. Take our test to work out and determine your...
Use this calculator to see how much a credit card will cost you or how quickly you can...
Are you saving for a future bill? A new TV or car? Or just to have a bit in the bank?
Our free Budget Planner puts you in control of your household spending and analyses your results to help you take control of your money.