How to budget for a new car
Working out how much your new car will cost you day-to-day can pay dividends
When you come to set a budget for buying your new car, don’t make the mistake of thinking that you only need to worry about the asking price. Yes, that's going to be a huge expense, but you also need to factor in how much it will cost to run the car. There's no point blowing all your hard earned savings on that sporty SUV you’ve had your eye on if the monthly fuel bill subsequently bankrupts you. Similarly, it's no good buying a car on loan if the monthly repayments stretch your finances so tight you can’t afford to actually drive it. You should always work out the running costs on any new car before buying it. Here are some tips on how to do that.
Work out the basics: fuel and tax
The most obvious running costs for a car are fuel and road tax (or vehicle excise duty, often abbreviated to VED). It's critical you have a good idea of how much both of these will cost you before buying a car.
Road tax is fairly simple to work out. Every new car has an official CO2 emission rating which determines its tax band. Most manufacturers will make this rating clear on their websites. Alternatively, you can find the CO2 emission figure, the tax band and the annual cost in the CarBuyer review of the car you’re interested in. Click on the “Prices & Specs” tab at the top of the review, then click on the engine and specification you are interested in, and you will find all these statistics and more.
• Check out our Best road-tax-free cars article
Fuel costs can be a little trickier to calculate. Although all new cars come with an official mpg figure to show how economical they are, these generally range from mildly inaccurate to wildly misleading. The best way to get an accurate idea of the sort of economy you can expect from a new car is to take it for a test drive on a route that reflects the kind of driving you’ll be using it for.
Drive it carefully and keep a close idea on the economy figure. If it's particularly bad, the salesperson may tell you that new cars take a while to “bed in” and that the economy figure will improve the more it's driven. Don’t be fooled – it may go up a bit, but a car that's reading 40mpg is not going to start returning 60mpg once it's got a few miles under its belt. So pick a car that returns a figure as close as possible to what you want.
• Check out our Most economical cars article
The salesperson will be able to tell you how many litres the car's fuel tank holds – and from there you’ll be able to calculate how much it costs to fill it up. And with the accurate economy figure from your test drive, you’ll be able to work out how many miles the car will go in between fill ups – and how much the car will cost to drive your monthly mileage.
Picking between petrol and diesel
Diesel models have better economy figures than petrol models, but don’t assume that means a diesel is a better option for you. Diesel cars cost more than petrol cars, and diesel costs more at the pump than petrol. Generally speaking, you’ll need to be doing 14,000 miles a year or more for a diesel model to make financial sense.
Also bear in mind that emission regulations require diesel models to be fitted with a diesel particulate filter (DPF) – a gadget that removes soot from the exhaust gas and gets rid of it by burning it at high temperatures. For this process to work, a diesel car needs to be regularly driven at motorway speeds – otherwise the DPF can’t burn off the soot, and it gets clogged up and leaves you with an expensive repair bill. So if you only use your car for short trips – don’t buy a diesel.
A service is when you take your car in to a garage for a check-up and get the oil changed. Most manufacturers advise you do it annually. You will need to get your car serviced regularly in order to keep the warranty valid and ensure it stays in top condition. But many people buy a car without taking into account how much this will cost them – and get a nasty surprise when the first service comes around.
Plenty of manufacturers now offer a fixed price service plan with new cars – so you pay an upfront fee that covers the first three services. These are often great value and a brilliant way to fix your costs.
If this isn’t available with the car you want to buy, it's worth calling round a few dealers and independent garages and getting some quotes for how much the first three services will cost, so you can factor it into your budget.
It's generally cheaper to get your car serviced at an independent garage rather than at a dealer – but, if you do, make sure the garage follows the manufacturer's service schedules and uses official parts, or your warranty could be invalidated.
It can be worth paying the extra money that main dealers charge, though. Car manufacturers appreciate this kind of “loyalty” and often reward it by agreeing to contribute to – or pay outright for – fixing older cars that are no longer under warranty as a “goodwill gesture”. Although there is no guarantee that they will do this.
Generally, the biggest cost of running a car is depreciation. The moment you buy a new car, it starts losing value – many new cars end up being worth less than half of their price from new after just three years. And the faster a car depreciates, the more money you’ll lose when you come to sell it on.
This isn’t such a big deal if you’re buying a car that you intend to keep for a long time. But if you’re likely to be selling it on within three or four years, then it's critical you pick a car that holds on to its value well.
Before buying a car, you need to check how much it will cost to insure. The simplest way to do this is to run its details through a price comparison website.
• Check out our Cheap cars to insure article
Don’t forget to factor in all the other taxes and charges that may apply to you – they soon add up. For example, will you be driving in London? If so, you’ll have to pay the daily Congestion Charge unless you buy a car with emissions under 100g/km.
Is there free parking available near your home? If not, check the cost of a residents permit. Factor in the costs of parking at work, too, as well as any tolls you may have to pass along the way.