Setting a realistic budget for your next car

Start with the monthly figure, not the windscreen price

Most of us begin car shopping the wrong way round. We look at the price on the windscreen, decide it seems manageable, and only afterwards discover that insurance, tax, fuel and servicing add another few hundred pounds a month to the bill. In the West Country, where many of us cover long distances between towns and rely on the car for almost everything, that oversight can be genuinely painful.

A better approach is to work backwards. Decide what you can comfortably set aside each month for motoring — realistically, most households should aim to keep total car costs under about 15–20% of take-home pay — and then choose a car that fits inside that figure. The purchase price is only one slice of the pie.

The purchase price — and how you actually pay for it

The way you fund the car changes the monthly maths more than the car itself does. A bank loan or hire purchase spreads the whole cost; a PCP deal keeps the monthly payment low but leaves a large balloon payment at the end, which you either settle, refinance, or hand back by walking away with nothing.

• Deposit: the bigger it is, the less interest you pay and the lower the monthly figure. Ten per cent is a reasonable minimum.
• Term length: stretching to five or six years lowers the payment but means you may owe more than the car is worth for years.
• Age of car: a three-year-old model has absorbed the worst of its depreciation, so your money buys far more metal for the same monthly outlay.

It is worth using a total-cost-of-ownership calculation rather than comparing deposits alone. A cheaper car with a thirsty engine and a high insurance group can easily cost more per month than a pricier, more efficient one.

Insurance, tax and fuel: the bills that keep arriving

These are the costs that surprise people most, and they vary enormously between one car and the next.

• Insurance: check the group before you buy, not after. Engine size, repair costs, where the car is parked overnight and your postcode all matter. Rural West Country addresses can be cheaper than city ones, but claims for deer strikes, flooded lanes and single-track scrapes are common, and young drivers still face four-figure sums.
• Tax: vehicle excise duty depends on CO2 emissions for older cars and on a first-year rate plus a flat standard charge for newer ones. Electric vehicles now pay road tax as well — a token first-year rate, then the standard annual charge, plus the expensive-car supplement if the list price was over £40,000.
• Fuel: use realistic economy figures, not the official ones — knock 10–15% off. If you drive 8,000 miles a year at 45 mpg with petrol at £1.45 a litre, you are spending roughly £1,170 annually, or about £98 a month.

Add a little more if your regular routes include steep Devon hills or long, exposed A-roads in Cornwall, both of which drink fuel.

Servicing, tyres and the West Country factor

Routine maintenance is predictable if you plan for it. Budget £200–£400 for an annual service at a good independent garage, more at a main dealer. An MOT costs a maximum of £54.85, though repairs are extra. Tyres run from around £60 to £150 each depending on size, and our narrow lanes, high hedges and potholed back roads punish them — plus suspension arms, bushes and alloy wheels.

Two local factors deserve extra cash in the pot. First, coastal salt air accelerates rust and corrodes brake lines, so underbody checks are worth the money. Second, rural mileage means higher wear on clutches, brakes and cambelts. A contingency fund of £600–£1,000 a year, saved monthly, turns a nasty garage bill into a mild inconvenience.

Running an electric car: a different set of sums

Electric vehicles flip the equation: higher purchase price, much lower running costs. Charging at home on an off-peak tariff can cost around 7p per kWh; public rapid chargers can be 60–80p. At 3.5 miles per kWh, 8,000 miles a year costs roughly £570 on home charging, or well over £1,500 if you rely on rapid chargers.

Servicing is cheaper with no oil changes, but tyres wear faster and insurance premiums can be higher. Before committing, check whether you can charge at home — without a driveway, the savings largely evaporate. For road trips into deepest Cornwall or across Exmoor, plan charging stops in advance and never assume the next village has a working charger.

Depreciation, resale and the true monthly cost

Depreciation is usually the single biggest cost of ownership, and it is invisible until you sell. A new car can lose 40% of its value in three years; a three-year-old car loses far less. Buying at two to four years old and keeping the car for six or seven years is the cheapest route for most drivers.

When you sell, a private sale normally fetches more than part exchange, but it means time, viewings and tyre-kickers. Whatever route you choose, a full service history, two keys and a clean MOT record protect your resale value.

Finally, do the simple sum. Add the purchase price, finance interest, insurance, tax, fuel, servicing, repairs and any extras, then subtract what the car will be worth when you sell. Divide by the number of months you plan to keep it. If that figure sits comfortably within your budget, you have found your car.