How much should I spend on a car? A guide to car budgeting

How much should I spend on a car?

It’s one of those questions that’s a bit ‘how long is a piece of string’, but ‘how much should I spend on a car?’ is one many people understandably get stuck on. We recommend addressing it from a number of different angles. How much do you care about a car? What do you need from it? What buying option would work best for you – outright, PCP, subscription? And, crucially, what’s affordable for you, not just as an upfront payment but in terms of monthly running costs?

Of course, the basic rules on budgeting apply here, so jotting down your monthly income and outgoings is a good starting point in working out how much you have to play with. In this guide, we’ll show you what to think about when taking that figure and comparing it with how much a car could realistically cost.

Factors to consider when deciding how much to spend on a car

When you begin drawing up your car budget, start by thinking about what you’ll use it for, and what it means to you. Are you looking for a cheap run-around for taking the kids to school, or is your car something you want to get a lot of enjoyment from driving and owning? Do you need something comfortable and economical for commuting to work up and down the motorway everyday, or will you just be using it occasionally for days out in the countryside?

Your planned use of the car will have a bearing on how much it’s worth spending on it, as well as on the type of car you end up going for. Your own financial goals come into it, too. For example, if you’re looking to save a certain percentage of your salary each month, this will have an impact on what’s left for spending on the monthly running costs of your car.

Calculating the total cost of car ownership

Affordability isn’t just about the upfront costs. It’s about the on-going expenses of owning a car – the maintenance and running costs. You’ll need to budget for fuel (or charging, if you’re thinking about the cost of running an electric car), insurance, repairs and servicing outside of warranty, MOT, road tax, parking and tolls, breakdown cover, consumables (such as antifreeze and engine oil), regular tyre changes and even lessons if you’re still a learner. If you choose to go down the PCP route, you can add monthly repayments and loan costs on top.

If you already know the registration number or make and model of the car you’re thinking of buying, you can use the Car Costs Calculator from MoneyHelper to work out the true annual running costs. You can also compare running costs with your income, and with the average costs for your region, using the NerdWallet monthly running costs calculator.

These monthly costs certainly add up, and that’s without considering the unexpected extra expenses that are harder to budget for, such as replacing a punctured tyre or a cracked windscreen. Little wonder, then, that 19% of us have taken on debt to pay for vehicle servicing costs. When the true costs of running a car can easily double compared to the monthly car payment, it’s worth thinking carefully about the best ownership method for you.

Car ownership methods

If you have savings you can dip into without affecting your longer-term ability to cover your monthly bills (and other expenses such as holidays or replacing a broken boiler), you may be considering an outright car purchase. If that’s the case, you’ll need to factor in not only the monthly running costs, but also the resale value. 

Depreciation means that your car is likely to decline significantly in value, so it may not represent a good investment. Use this car depreciation calculator to get an idea of how much your purchase may decline in value.

If you have less cash available to spend upfront and want to spread the cost of ownership, PCP (personal contract purchase) is another option. However, this model has a number of drawbacks, coming with all the monthly running costs you’d get with outright ownership while also locking you into a contract for several years, with high fees for getting out of the contract. This could pose a problem if your personal or financial circumstances change during the period of the contract.

The third option is a car subscription, which has the advantage of a single all-inclusive monthly payment with no unexpected costs.

How car subscriptions can help control costs

If you’re concerned about the sometimes unpredictable running costs of owning a car, or about getting locked into a two-to-four-year contract you may not always be able to afford, a car subscription can help you keep costs under control. 

With low upfront payments (from as little as £349), car subscriptions give you the benefit of a fixed monthly cost that includes tax, insurance, servicing, breakdown cover, new tyres and maintenance. In other words, everything except fuel. That means you’ll always know how much you need to budget, and you’ll be freed from worrying about how you’ll pay for unexpected repair costs.

And it’s not just the on-going car running costs that a subscription can keep under control. A rolling contract offers more flexibility and lower financial risk, all while giving you access to a variety of vehicles. There’s no long-term commitment, which means that if your financial circumstances change – you lose your job or have a baby, for instance, or start working from home and no longer need a commuter car – you have the freedom to either change to a different car better suited to your needs or hand it back. The monthly payments simply stop, with no hefty exit penalties. 

How much you spend on your car: making the right decision for your wallet and your wheels

Car ownership comes with a long list of on-going expenses that all need budgeting for when working out how much you should spend on it. The flexibility of a fixed-price car subscription gives you the freedom to move forward with car ownership, free from the worry of unexpected costs and with the ability to adapt to changing circumstances quickly if you need to. The result: you can focus on the things that matter to you and live life the way you want.