What does a car really cost a year?
Fuel, insurance, tax and servicing added up at current fuel prices, the cost per mile, and the cost most people leave out.
The finance payment is only part of what a car costs. Insurance, fuel, tax and servicing come out of the same monthly budget, and on a cheaper car they can cost more than the finance itself. So the useful question is how much you can spend on motoring in total, and what is left for the car once the running costs are paid.
There is no official rule for how much of your pay should go on a car. MoneyHelper's advice is to budget for the running costs as well as the repayments. In the examples below, with typical running costs of about £233 a month, a monthly motoring budget of 15% of take-home pay leaves very little for finance on a £25,000 salary.
Start with the running costs
Our example uses insurance of £700 a year, fuel of £120 a month, £200 a year of vehicle tax and £450 a year for servicing and repairs. Spread across the year, that comes to £232.50 a month before you have paid anything towards the car itself.
Vehicle tax for most cars registered since April 2017 is £200 a year from 1 April 2026. If the list price was over £40,000 you pay an extra £440 a year for five years, starting from the second time the car is taxed. Electric cars have paid vehicle tax since 1 April 2025.
What your salary could buy
The table takes the monthly take-home pay for each salary, with no pension or student loan, and sets a motoring budget of 15% or 20% of it. The running costs above come off first. What is left is the finance payment, over 48 months at 9.9% APR, with a £2,000 deposit.
| Salary | Take-home a month | Budget | Left for finance | Car price |
|---|---|---|---|---|
| £25,000 | £1,793 | 15%, £269 | £36.50 | £3,442 |
| £25,000 | £1,793 | 20%, £359 | £126.50 | £6,997 |
| £35,000 | £2,393 | 15%, £359 | £126.50 | £6,997 |
| £35,000 | £2,393 | 20%, £479 | £246.50 | £11,737 |
| £45,000 | £2,993 | 15%, £449 | £216.50 | £10,552 |
| £45,000 | £2,993 | 20%, £599 | £366.50 | £16,478 |
The 15% and 20% figures are examples, not a rule. Your own budget depends on your rent or mortgage, your other bills and how much you need a car. The point the table makes is that running costs are fixed whatever car you buy, so a small budget leaves much less for the car than you might expect.
The main ways to pay
- Personal loan. You borrow the money, buy the car outright and own it from day one. Repayments are fixed, usually over one to five years.
- Hire purchase (HP). You pay a deposit, then monthly payments that cover the whole price. You own the car after the last payment and a small option fee. Payments are higher than PCP, but it is usually better value overall.
- Personal contract purchase (PCP). Lower monthly payments, because a large part of the price is left as a final balloon payment. You only own the car if you pay it. Otherwise you hand the car back or trade it in.
- Leasing. You pay an upfront rental and then a monthly fee, and you never own the car. There is a mileage limit, and you pay extra for miles over it or for damage beyond fair wear and tear.
On HP and PCP you can end the agreement early and hand the car back once you have paid half the total amount payable. On PCP that total includes the balloon payment, so you may only reach it near the end.
Work out your own figures
The car finance affordability calculator starts from your monthly budget, takes off your own running costs and shows the car price you could reach. To compare a PCP deal with HP over the same term, use the PCP vs HP calculator, and the take-home pay calculator gives you the monthly pay to start from.
Sources: MoneyHelper, How to buy a car and Buying a car with PCP; GOV.UK, Vehicle tax rates and Vehicle tax for electric vehicles. Take-home pay uses 2026/27 rates for England, Wales and Northern Ireland. Checked 1 November 2026.
This is general information, not financial or tax advice.
It explains published rules and figures. Your own position depends on your full circumstances,
so speak to a qualified adviser before acting on it.