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Hidden Costs Of Owning A Car: How To Budget

by Tanya January 24, 2025

Car ownership can impose a number of costs.

Some of these arrive predictably at certain intervals, while others might emerge from thin air.

Many people focus on the upfront price of a vehicle, it’s the hidden costs of car ownership that often catch drivers off guard.

Creating a plan of spending for your vehicle might help you to manage all of the associated costs, and make your life behind the wheel considerably less stressful.

So, what goes into a good budget for a car? Let’s take a look at a few key considerations.

Purchase price and depreciation

The upfront cost of the vehicle can be considerable, especially when you’re buying brand new. You’ll pay a premium for a new vehicle, whether you’re leasing the car or buying it.

On average, new cars lose 20-30% of their value in the first year and around 60% by the fifth year. While depreciation doesn’t directly impact your cash flow, it significantly affects the resale value of your car.

New cars tend to depreciate rapidly during the first months and years of their time on the road.

You might easily find that you lose tens of thousands of pounds in value during the first year – and the benefits might be marginal when you compare the experience of driving a new car to that of driving one that’s nearly new.

If you’ve financed your car, the interest on your loan is another hidden cost. The total amount you pay can significantly exceed the car’s sticker price over the loan term.

Budget tip:

📌 Consider buying a reliable second-hand car that’s already gone through the steepest depreciation phase. Certified pre-owned vehicles from reputable dealerships offer a balance between cost savings and quality assurance.

📌 If you finance your car, aim for the shortest loan term you can afford to reduce interest payments.

📌 Compare financing options from banks, credit unions, and dealerships to secure the lowest interest rate.

📌 Consider paying extra toward your loan principal to reduce interest over time.

Insurance costs

Car insurance is a must when owning and driving a vehicle. If you drive without insurance, you could be vulnerable to a hefty fine, and even an outright ban from driving.

The amount you’ll pay for your insurance can vary substantially, based on several factors. Your experience as a driver, the vehicle being driven, and whether you’re parking on the street can make a big difference.

Here are some tips to get cheap car insurance.

Budget tip:

📌 Shop around and compare quotes from multiple insurers annually.

📌 Bundle your car insurance with other policies (like home insurance) for potential discounts.

📌 Opt for a higher deductible to lower your premium but ensure you’re financially prepared to cover it in case of a claim.

Fuel and maintenance expenses

Among the more significant ongoing costs of driving a car are those of fuel and maintenance. Thus, the reliability and fuel efficiency of your chosen vehicle will matter a great deal, particularly if you’re going to be travelling long distances in the car.

If you want to drive down your maintenance costs, then regular servicing is often worthwhile. Replacement tyres should also be regularly sought since worn tyres tend to adversely affect your fuel efficiency – even before the tread depth falls below the legal minimum.

Budget tip:

📌  Choose a car with good fuel efficiency or consider switching to a hybrid or electric vehicle (EV) if it aligns with your needs.

📌  Use apps or loyalty programs to find the cheapest fuel in your area.

📌  Adopt fuel-efficient driving habits, like maintaining a steady speed and avoiding excessive idling.

Road tax and registration fees

There are other fees to consider, too. The most obvious is road tax, which you’ll pay for the privilege of using public roads. The precise amount you pay will depend on the kind of vehicle you’re driving. Fuel-efficient vehicles tend to be cheaper to tax.

Depending on your location, road tax and vehicle registration fees can vary based on factors like the car’s age, emissions, and engine size. For instance, fuel-efficient or electric vehicles often have lower tax rates.

Budget tip:

📌 Research the road tax rates for different vehicles before purchasing a car.

📌 Factor these fees into your annual budget to avoid last-minute surprises.

Additional fees (toll, parking, congestion charges etc)

Consider any fees you’ll need to pay for using particular car parks, or roads. Think not just about the congestion charges that already apply in your vicinity, but about any clean air laws that might be introduced in the future.

Parking costs can quickly accumulate, especially if you live or work in a busy urban area. Additionally, toll roads and congestion charges can add to your expenses if you frequently travel through certain zones.

Budget tip:

📌 Use parking apps to find cheaper or free parking options.

📌 Plan your routes to minimize toll charges or invest in a pass if it offers savings.

📌 Consider public transportation for regular commutes to save on parking and fuel.

Summary

Owning a car is a significant financial commitment, but with careful planning and budgeting, you can stay in control of your expenses and enjoy the convenience it brings. By accounting for hidden costs upfront, you’ll not only avoid unpleasant surprises but also make smarter financial decisions for the road ahead.

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Tanya

The first Millennial blogger in the UK. Twitter @_luckyattitude

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