Being able to drive can be the road to freedom for a lot of people, but owning a car can be expensive and confusing. There are a number of different costs associated with owning a car beyond the initial payment you make to own it. There are several ongoing expenses that you will need to budget for every month or year, and this should factor into your decision to buy or upgrade a car.
The purchase price
There is a lot to consider when buying a car – the price, the model, the mileage and even the colour. New cars cost more due to them being fresh off the assembly line. You may need to have a significant amount of savings if you want to buy one outright. Buying a new car on finance is an alternative and you may be able to negotiate with the dealer.
If a new car is out of your budget, consider looking at used cars. If you are buying from a reputable company, the cars will be in good condition for a reasonable price. Remember to do your research into the company to ensure they are trustworthy.
Operating costs
To be able to drive, you will need to fill your car with fuel or electricity. You will also need to take your car for MOTs and services. Whilst a service is not a legal requirement, an MOT is so it is important that you do it regularly.
All of these costs do add up, so you must keep on top of them to prevent any nasty surprises. An MOT should be completed yearly and the current maximum a garage can charge you is £54.85 for a standard car. You could always set this money aside from a paycheck the month before your MOT is due.
Insurance expenses
Getting insurance can feel a bit overwhelming as there are so many providers and options out there. Although it can be tempting to opt for the cheapest policy, you may find yourself underinsured and out of pocket. The amount you pay for your insurance is known as premiums.
The specifications of your car will affect your premiums, as well as any modifications that you have made. Unfortunately, where you live will also have an impact as insurers will look at the crime rate in your area, how busy the road you live on is, and even whether you have to park on a driveway or the road itself.
Depreciation and resale value
Depreciation is the difference between the amount you purchased the car for and the amount it will sell for. For newer cars, the depreciation value is between 15% and 35% in the first year, and 50% or more over the first three.
This is something to bear in mind when you are doing any sort of car-related budgeting, as you will typically be selling a car at a loss when you are done with it. One way to reduce depreciation is to keep the mileage as low as possible. Looking after your car will help too, as it will minimise long-term damage.