When buying a new or used car, the sticker-price is just the tip of the iceberg when it comes to calculating how much your next car will cost you while it’s in your ownership.
There are six main areas of cost that you’ll need to be aware of if you want to work out your true running cost. And to help explain some of these points we’ll use a car with a £20,000 sticker price.
Money
Funding your purchase is usually the starting point for working out running costs but it will depend on how you’re buying the car.
Unless you’re buying a very low cost car, the majority of car buyers use some kind of finance. That could be a loan from the bank, a finance agreement with the dealer or some form of lease agreement.
Rather than get bogged down in a multitude of finance methods, let’s split them into two groups; agreements where you carry the risk of the car’s depreciation and ones where the finance company carries the risk.
In the former we’re mostly talking about person loans and we should also include those rare occasions where you buy the car outright with savings – because it’s you who will be hit if the car’s value goes down more than you expect over the time you own it.
For this group, your costs are the interest on the loan and the depreciation of the car.
In other words, a typical 2.9% loan on £20,000 over three years would cost you £895. The other cost would then be the difference between the £20,000 and the price you sell it for after three years, for example this difference could easily be £10,000. So for this section the costs are £10,895.
In the second group we have finance agreements such as PCP schemes, Personal Contract Hire and standard lease agreements. Typically, these work with a deposit, monthly payments and then you either hand the car back or, in the case of a PCP deal, you can either pay a final fee to own the car or hand it back and start again.
Assuming you don’t buy the car at the end of the contract (most don’t) the figures could look like this. Put down a £2,000 deposit on a £20,000 car, pay, £232 for three years on a 2.9% PCP deal and then hand the car back. That will have cost you £10,357.90. It costs less than the loan because the finance cost is only for £8,000 not £20,000.
Insurance
Everyone has to have insurance, it’s a legal requirement if you want to drive on the road. It’s a fairly obvious cost too as it’s either a simple annual payment or a regular monthly direct debit. For our £20,000 car example, let’s say it will cost £300 a year.
Tax
Another simple one – but people often forget about it and it can catch people out. That’s because there are a host of different tax bands depending on when the car was registered, it’s fuel type and even how much it cost new.
Make sure you factor this fee in when working out your true running cost.
Fuel
We all know not to believe the official quoted mpg figure from the manufacturer but what figure should you use to work out your true fuel costs?
Most cars now have a trip computer which will give an mpg stat, but that too can often be a touch optimistic. The simplest way to get a true mpg is the brim-to-brim method.
If you initially brim your car with fuel and make a note of the mileage (or zero the trip) then brim the car again when you need to fill up you’ll be able to work out exactly how much fuel you’ve used over an exact mileage. And because you also know how much you paid, you can work out how much it cost per mile.
To give an example, if you’ve done 200 miles at about 30mpg and it cost £40 to brim the tank then it’s cost 20p a mile. And if you did 10,000 miles a year, that’s £2,000 in fuel. However, if you either drove more efficiently or picked a more efficient car in the first place then this figure could be reduced.
Servicing
Working out in advance how much servicing and MOT will cost is difficult as prices will vary over time. However, for new cars and some used cars many dealer now offer servicing packages which cover this cost for a fixed fee (often rolled into your monthly finance payment).
But remember, while this will cover regular servicing it won’t cover the cost of additional work or maintenance. If your car is new enough the manufacturer’s warranty may give you cover for additional work – or you can add the cost of an independent warranty for a used car.
Maintenance
The last thing to factor in is those parts that wear or are used up such as tyres, screen wash and wiper blades. But if you’re doing higher mileage or run an older car it could include things like the clutch, suspension components and even some engine components.
Totalling up
Once you’ve worked out all of the above, you’ll not only know your total car running costs but you’ll be able to work out how much it really costs you per mile and which costs you can influence if you need to make savings.
While the depreciation and finance costs are the largest figure in the mix, there’s not a lot you can do about it once you own the car. The same goes for tax and insurance and even servicing – although you can shop around for the best deal.
However, you can reduce the second largest cost – fuel – by driving more economically and picking the cheapest places to fill up.
Keyword: How to work out your car’s true running costs