Buying a car can be one of the most significant money choices you’ll make. As well as the price of buying or leasing a car, there are a lot of everyday costs you’ll need to think about when working out your budget.

Check you can afford a car

There’s no cheap way to buy a car, and any deal is going to have a big impact on your money situation. So it’s important to make sure a car is going to fit into your budget. 

For any car you buy, you’ll need to pay: 

• insurance 
• car tax (officially known as VED but sometimes referred to as road tax) 
• repair and maintenance costs 
• fuel. 

If you’re buying a car on finance, you’ll usually need to: 

• make a large payment up front 
• make monthly payments.

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Take steps to choose the right car

There are a lot of factors to consider when choosing the right car for you, all of which affect how much you’re likely to pay: 

• Used or new? New cars are expensive and lose value (depreciate) quickly, but are a bit less likely to have issues or breakdowns. 
• Petrol or electric? Petrol cars can cost less upfront, but refuelling is more expensive than recharging a car. 
• Dealer or private seller? You might get a better deal with a private seller, but you’re less protected if something goes wrong. 
• Make and model? Every make and model is different. You’ll need to do a lot of research to find out which one suits your lifestyle and circumstances. 

Consider the best way to pay for a car

As well as the variety of cars available, there are a lot of different options for how to pay for a car. 

The most common options are: 

• Buy with cash – if you have savings ready you can simply pay for a new car outright, but remember to keep enough savings for unexpected costs. 
• Get a personal loan – you can get a loan from a bank and use this to buy a car. Learn more about personal loans. 
• Get a Personal Contract Payment (PCP) – this is where you put down a deposit, make monthly payments, and pay a final payment (commonly called a ‘balloon’ payment) if you want to own the car. Learn more about Personal Contract Payment (PCP). 
• Get a Hire Purchase (HP) – this is where you hire the car, make monthly payments, and own the car at the end of the contract. Learn more about Hire Purchase (HP). 
• Lease with Personal Contract Hire (PCH) – this is where you rent the car with monthly payments and hand it back at the end of the contract. Learn more about leasing with PCH. 

Buying the right car

New vs used

It’s often tempting to buy a new car, and dealers will be keen to push you towards the newest model you can afford. 

A new car won’t need an MOT until the third year after it was registered (or fourth year if you’re in Northern Ireland). You can ask your dealer when this was, and when the first MOT will be due.  A newer car will probably have fewer maintenance problems (or at least be covered by a warranty). 

Depreciation

However, you’ll want to think about ‘depreciation’ – this is the term used for how a car’s value gets lower as it gets older and travels more miles. 

New cars depreciate very quickly. Its value will be lower the moment you drive off the forecourt, and after the first three years it could be worth half its original value. This means that if you buy a new car for £20,000, and three years later it’s worth £10,000, you’ve effectively lost £10,000. Used cars depreciate more slowly. So it's usually a better money decision to get a used car, as it won't lose as much value over time. 

You can get an idea of how much your car's make and model will depreciate on The Money Calculator website.

Different types of fuelling

The kind of fuel your car uses makes a big difference on costs.

Petrol

The most common type of car is petrol fuelled. Buying a petrol car tends to be a bit cheaper than other options. 

Petrol itself is cheaper than diesel, but you’ll usually get less distance out of a full tank. So in terms of fuel costs, petrol tends to be a bit more expensive overall.  There are a few places in the UK where you’ll pay a Clean Air charge if you have an older petrol vehicle.

DieselNew petrol and diesel car sales could be banned from 2030

The government is considering a plan to ban the sale of new petrol or diesel vehicles from 2030. This could affect the re-sale value of these cars, so think carefully before buying.

Diesel cars cost more than petrol cars, so your upfront cost will usually be a bit higher. Diesel fuel costs more than petrol, but a tank of diesel will usually travel further than a tank of petrol. So in terms of fuel costs, diesel is a bit cheaper overall. 

Running a diesel car means you’re more likely to have to pay Clean Air charges across the country, as diesel is considered more harmful to air quality. Diesel cars can also be a little bit more expensive to insure, and some newer diesel cars may have to pay higher car tax. 

Electric

Buying an electric car is usually more expensive than cars using traditional fuel. 

Recharging an electric car costs a lot less than petrol or diesel, but they do take a lot longer to recharge. They often won’t travel as many miles as a full tank of petrol does. Electric cars are more environmentally friendly than cars that run on petrol or diesel. They’re exempt from Clean Air charges, which can make a big difference if you regularly drive into a clean air zone. 

They also need less maintenance than a car using traditional fuel, as there are fewer moving parts - so this can save you on repairs and servicing costs. However, insurance costs are usually a bit higher because repairs are more complex. 

Hybrid

There are also hybrid cars, which combine fuel and electricity. They use less fuel than traditional cars, which can help keep running costs down. You’ll usually pay a bit less in car tax for a hybrid (alternative fuel) car. 

Costs of running a car

Buying a car can be expensive, but it’s important to remember the running costs as well. It’s best to have some emergency savings for unexpected costs. 

Here’s a breakdown of these everyday costs that you’ll need to factor into your budget. 

Insurance

Insurance can sometimes end up being one of your most significant costs when running a car. This is particularly true if you: 

• are a younger or newer driver 
• drive a lot of miles 
• are driving an expensive or powerful car 
• have recently had an accident.  

There are a few ways you can reduce your insurance costs. Our guide Car insurance – what you need to know explains how you can get cheaper insurance. 

Warranties

Warranties cover you if something is wrong with the car. They’re usually optional, although new cars should come with a warranty from the manufacturer. 

Getting a warranty can help you avoid some of the unexpected costs that come with owning a car. Your warranty will usually cover any problems with your car’s: 

• engine or fuel system 
• clutch or gearbox 
• suspension 
• brakes 
• steering.

Some warranties come with conditions, such as needing to service the car regularly or a mileage limit. 

Is a warranty worth it?

It depends on the deal and how long the car will be covered for. Most warranties only last a few years, which will cover the time your car is likely to work just fine. 

If your car ends up having issues, it could save you a lot of money. But look at the figures and anything you’d have to do to keep the warranty valid, and work out whether it’d be better to just save up in case of any problems.  

Car tax

You’re required to pay car tax on most cars. The amount of tax you’ll pay depends on: 

• the year the car was registered 
• what type of fuel the car uses 
• the amount of CO2 the car emits. 

GOV.UK has an overview of the tax rates. You can choose to pay your car tax monthly or yearly.

Is anyone exempt from car tax? You might not have to pay car tax if you have a qualifying disability.  Electric cars are no longer exempt, so you’ll have to pay car tax on these. Get more information about vehicles exempt from vehicle tax on GOV.UK. 

MOT

You’ll need to get an MOT:

• in the third year after your car was first registered, or
• if you’re in Northern Ireland, in the fourth year after your car was registered.

You’ll then need to get an MOT test every year after.

Check with your dealer if you’re not sure when you’ll need to book your first MOT test. Tests can be booked at MOT test centres in your local area. The MOT itself is usually fairly cheap (the most they can charge is £54.85). However, if the car fails any faults will need to be fixed before it can be driven again. This can be expensive, so you should budget for any unexpected costs.

Preparing for your MOT

It can be a good idea to carry out some checks yourself before your car’s MOT, so that you don’t have to pay for these fixes on the day. MoneySavingExpert has guidance on MOTs including quick checks you can do to help your car pass. 

For further information, please visit - Cost of running a car | MoneyHelper