The cost of running a car

Car insurance

Unless your car is declared as off the road through a Statutory off Road Notification (SORN), it is a legal requirement to have car insurance. There are different levels of car insurance available, with the minimum level being third-party only insurance. This is a basic level of insurance that will cover you for damage caused to other property or injury to others when you’re found to be at fault. It won’t cover you for theft or damage to your car from things like fire or vandalism.

If you desire a higher level of cover, you could opt for a third-party fire and theft insurance policy. In addition to the elements covered under third-party only insurance, this will also cover you if your car is stolen, damaged by a fire, or damaged during an attempted theft.

The highest level of car insurance available is comprehensive cover. Comprehensive policies will cover your car, another car, and any third party in the event of an accident.

Car insurance is calculated based on your risk, with insurance for younger, less experienced drivers generally being higher than for older and more experienced drivers. Other factors that can affect the cost of insurance include where you live, your driving history, if you have any outstanding convictions, and the car insurance group of your vehicle. You can choose to pay for your car insurance either yearly or monthly, however, there is often a credit charge for choosing the latter, making the overall cost more expensive.

To find the cost of your insurance per mile, follow this equation:

Insurance premium / Annual car mileage x 100 = Cost per mile (pence)

Road tax

Road tax, also known as car tax or vehicle exercise duty, must be paid to drive most cars on public roads. For cars registered between March 2001 and April 2017, the cost of road tax is based on how much CO2 your vehicle produces, based on the official figures displayed in your V5C document.

For all cars registered after April 2017, the first year rate for a brand new car is based on CO2, but from then onward the standard rate is the same for all vehicles except those with zero emissions. Since the government updated road tax costs in April 2018, the amount of road tax you pay will also take into consideration the list price of your vehicle. Additionally, an extra charge is payable for five years after the first year on cars that have a list price of more than £40,000.

The cost per mile of car tax is calculated as follows:

Tax bill / Annual car mileage x 100 = Cost per mile (pence)

Depreciation

This can be an easy cost-factor to overlook, but it’s likely to be one of the biggest costs that comes along with purchasing a car – especially if you plan to sell the car at a later date. Depreciation is the difference in value between when you buy a car and the current value. All cars depreciate at different rates, with some cars holding their value better than others.

A new car will begin to depreciate from the minute it drives off the forecourt and will depreciate most over the first three years of its life. In order to minimise the rate of depreciation, you can keep the car in good condition, manage your mileage, and ensure the car is serviced at regular intervals.

Depreciation can be difficult to calculate, but you can get a rough idea by following this process:

Annual depreciation cost = (Value when bought – Current value) / Years owned

Depreciation / Annual car mileage x 100 = Cost per mile (pence)

Loan interest

When you purchase a car, you’ll either pay up front or borrow the money to do so. If you have to borrow money, you will likely buy a car on finance or use a personal loan. If this is the case, you will need to factor in the interest payments when considering the overall cost of ownership. It is important when taking out finance that you check how much interest you are paying over the duration of the loan to ensure you’re not overpaying.

If you decide to use cash that you have in a savings account, then you should also factor in how much interest you are likely to lose by using it to purchase a car.

Fuel

Fuel can be one of the highest running costs of a car, especially if you regularly drive long distances. Because of this, fuel economy should be one of your main considerations when choosing a car. There are four main factors that will affect your fuel cost per mile: price, type, consumption, and how you drive.

The cost of fuel will depend entirely on where you purchase it. Prices vary across the country and vary at different petrol stations, so to keep these costs at a minimum you should shop around to discover the cheapest locally.

In the same way, the price will depend on what kind of fuel your car needs. Diesel is generally more expensive than petrol, but you will generally get a higher miles per gallon.

Additionally, the car itself will have a lot to do with it. You should thoroughly research what your car’s MPG is, and what that means for your fuel economy. If you constantly rev your engine and accelerate quickly, you will burn through your fuel a lot quicker. So, do your research to see what your car’s fuel economy will be to get a full picture of your car’s running costs.

It’s easy to work out how much your fuel costs you:

Litres x Fuel price / Number of miles = Cost per mile (pence)

Cost per mile x Average mileage / 100 = Annual running cost (converts to £)

Need help calculating your fuel costs? You can use our online fuel cost calculator.

Services and MOTs

Every car that is over three years old must have a valid MOT certificate and must be tested every 12 months to ensure it is in a safe, roadworthy condition. In addition to MOTs, it is recommended that your car is serviced at regular intervals, in accordance with the manufacturer’s recommended schedule.

Unlike an MOT this isn’t a legal requirement, but by regularly servicing your vehicle, you will be increasing the car’s lifespan and reducing the chance of underlying issues that could be costly to repair.

The total annual cost for services will be shown on your annual service bill. Then, follow this equation:

Service bill / Annual car mileage x 100 = Cost per mile (pence)

Replacement parts

The parts on your car will become worn and eventually need replacing. Parts that may need replacing regularly as a result of driving include tyres, brake pads, oil, filters, bulbs and wipers. However, as your car becomes more worn, you may need to replace bigger parts such as transmissions, engines or suspensions. It is important to budget for repairs to ensure you can afford to do them as they’re required.

More expensive cars will likely have more expensive parts, whereas older cars may need parts that are difficult to source, therefore, repairs can really see the cost of running your car shoot up. When considering the costs of replacement parts, you will also need to consider the labour costs, which will vary by garage.

The annual cost of parts simply equates to the amount spent on any items purchased for the car in that year. To get the cost per mile, follow this sum:

Total cost / Annual car mileage x 100 = Cost per mile (pence)

Parking and toll charges and Clean Air Zones

Parking and toll charges may not be applicable to everybody, but if you regularly drive in areas where these fees apply you will need to factor them into your monthly running costs. If you regularly need to pay for parking at work or have to drive on toll roads regularly your costs will be inevitably higher.

Alongside the standard parking and toll charges, many cities have introduced or are introducing Clean Air Zones, meaning any vehicle with high emission rates will have to pay a fee to drive in a specific area. London has had ULEZ fees for many years now, and cities such as Birmingham and Bath are set to introduce them across 2021. If your car is non-compliant, you will have to pay a daily fee to use it within the limits set by the city.