How much should I spend on a car UK?

A common rule is to spend no more than 10-15% of your gross annual income on a car. So if you earn £40,000, aim for a car costing £4,000-6,000. For total car costs (including running costs), try to keep below 20% of take-home pay. Remember: cars depreciate, so spending less leaves more for savings and investments.

Is PCP a good way to buy a car?

PCP (Personal Contract Purchase) can offer lower monthly payments than HP, but you don't own the car unless you pay the balloon payment at the end. It works well if you want a newer car every few years and don't do excessive mileage. However, you pay more in total compared to buying outright or using a personal loan.

What car running costs should I budget for?

Budget for: insurance (£300-2,000+/year), road tax (£0-600/year), MOT (£55 max), servicing (£100-500/year), fuel (varies hugely), repairs (budget £500-1,000/year for older cars), and depreciation (10-15% annually for newer cars). Total running costs are typically £2,000-6,000/year.

Car Affordability Calculator UK — How Much Car Can You Afford? | PocketWise

A car is a major expense. Here’s how to calculate what you can really afford, including all the hidden costs.

Quick Affordability Guide

Your Annual Income	Max Car Price (10-15%)	Max Monthly Cost (all-in)
£25,000	£2,500-3,750	£300-400
£30,000	£3,000-4,500	£350-450
£40,000	£4,000-6,000	£450-600
£50,000	£5,000-7,500	£550-700
£60,000	£6,000-9,000	£650-850

Max monthly cost = finance payment + insurance + tax + fuel + maintenance

True Cost of Car Ownership

Purchase Price Is Just the Start

Cost Category	Annual Cost Range	Notes
Finance/depreciation	£1,000-5,000+	Biggest cost
Insurance	£300-2,000+	Age, car, location dependent
Fuel	£500-3,000+	Mileage dependent
Road tax	£0-600	Based on emissions
MOT	£55 max	Annual after 3 years
Servicing	£100-500	More for premium brands
Repairs	£0-2,000+	Older cars = more repairs
Tyres	£200-600	Every 2-3 years
Parking/tolls	£0-2,000+	Location dependent

Example: True Cost Comparison

	£5,000 Used Car	£25,000 New Car (PCP)
Monthly payment	£0 (paid cash)	£300
Depreciation/year	£500	£3,000
Insurance	£400	£600
Road tax	£180	£165
Fuel (8,000 miles)	£1,200	£900
Servicing	£200	£150
Repairs budget	£500	£0 (warranty)
MOT	£55	£0 (under 3 years)
Total annual	£3,035	£8,415
Monthly equivalent	£253	£701

Car Finance Comparison

Finance Options Explained

Type	Own the Car?	Typical Term	Best For
Cash	Yes, immediately	—	Best value if funds available
Personal Loan	Yes, immediately	1-7 years	Fixed payments, own the car
HP	Yes, after final payment	2-5 years	Owning at end, simple
PCP	Only with balloon payment	2-4 years	Lower monthly, newer car
Lease	Never	2-4 years	Business use, hassle-free

Monthly Payment Comparison: £20,000 Car

Finance Type	Term	Deposit	Monthly	Total Cost
0% Credit Card	24 months	£0	£833	£20,000
Personal Loan (7%)	5 years	£0	£396	£23,760
HP (9%)	4 years	£2,000	£445	£21,360
PCP (7%)	3 years	£2,000	£280	£10,080 + £8,000 balloon

PCP: Own the car only if you pay the balloon payment.

Fuel Cost Calculator

Annual Fuel Cost by Mileage

Annual Mileage	Petrol (40mpg)	Diesel (50mpg)	Electric
5,000 miles	£750	£550	£250
8,000 miles	£1,200	£880	£400
12,000 miles	£1,800	£1,320	£600
15,000 miles	£2,250	£1,650	£750
20,000 miles	£3,000	£2,200	£1,000

Based on £1.45/litre petrol, £1.50/litre diesel, 5p/mile electric (home charging)

EV vs Petrol: 5-Year Comparison

Cost	Petrol (£20k car)	EV (£30k car)
Purchase price	£20,000	£30,000
Fuel (10k miles/yr × 5)	£6,000	£2,500
Road tax (5 years)	£900	£0
Servicing (5 years)	£1,500	£750
Total 5-year cost	£28,400	£33,250
Resale value	£8,000	£15,000
Net 5-year cost	£20,400	£18,250

EVs often win over longer ownership despite higher purchase price.

Insurance Cost Factors

Factor	Lower Premium	Higher Premium
Age	Over 25	Under 25
No-claims bonus	5+ years	None
Annual mileage	Under 5,000	Over 12,000
Location	Rural	Urban/high crime
Car insurance group	1-10	30-50
Parking	Garage	Street
Job	Office worker	Delivery driver

Typical Insurance Costs

Driver Profile	Annual Premium
Experienced driver, small car	£300-500
Average driver, medium car	£500-800
Young driver (17-21)	£1,500-3,000+
New driver (any age)	£800-1,500

Road Tax (VED) Guide

Cars Registered After April 2017

Emission Type	First Year	Subsequent Years
Zero emission (EV)	£0	£0
1-50g CO2	£10	£190
51-75g CO2	£30	£190
76-90g CO2	£135	£190
91-100g CO2	£175	£190
101-110g CO2	£195	£190
151-170g CO2	£680	£190
Over 255g CO2	£2,745	£190

Cars over £40,000 pay extra £410/year for years 2-6.

Budget Worksheet

Your Income

	Monthly	Annual
Take-home pay	£	£
20% of take-home (max for car)	£	£

Your Car Costs

Category	Estimated Cost
Finance payment / savings for car	£ /month
Insurance	£ /month
Road tax	£ /month
Fuel	£ /month
Maintenance + repairs	£ /month
Parking	£ /month
Total monthly car cost	£
As % of take-home pay	%

Decision Framework

Buy Cheaper Used Car If:

Want to minimise total spending
Happy to deal with occasional repairs
Don’t need latest features/warranty
Can pay cash or use low-interest loan

Consider New/Nearly New If:

Value warranty and reliability
Can comfortably afford higher costs
Want latest safety/efficiency features
Doing high mileage (fuel savings matter)

Don’t Get a Car If:

Live in city with good public transport
Work from home / short commute
Could use car clubs/rentals for occasional needs
Car costs would strain your budget

Key Takeaways

10-15% of income on car purchase price max
20% of take-home on total car costs max
Include ALL costs — not just the purchase price
Used cars save money — let someone else pay depreciation
Shop around for insurance — prices vary hugely
Consider going car-free — if public transport works

For more, see our car finance guide and budgeting guides.