The True Cost of Car Ownership: How to Budget Beyond the Monthly Finance Payment

When you’re shopping around for a new set of wheels, it is easy to focus entirely on one big number: how much does a car cost each month in finance?

At Refused Car Finance, we specialise in helping drivers secure affordable bad credit car finance so they can get back on the road with complete confidence. But part of being a responsible lender, and ensuring you enjoy your vehicle hassle-free, is making sure you can comfortably afford the cost of running a car day-to-day.

A monthly payment of £150 to £200 might fit neatly into your monthly budget, but what happens when you factor in insurance, road tax, fuel, and unexpected maintenance?

To prevent any unwelcome financial surprises, here is a complete breakdown of the ongoing expenses you need to budget for beyond your finance agreement.

How Much Does a Car Cost to Run Overall?

Aside from your monthly loan repayment, running an average petrol or diesel hatchback in the UK typically costs between £150 and £300 per month in ongoing expenses (including fuel, insurance, tax, MOT, and servicing).

The Essential Costs of Running a Car

1. The Fuel Tank: Cost of Petrol and Diesel

Whether you travel 5 miles a day for the school run or commute 40 miles on the motorway, fuel will likely be your largest ongoing day-to-day expense.

• Average Spending: UK drivers covering 7,000–8,000 miles per year spend approximately £100 to £160 per month on fuel, depending on local fuel prices and driving habits.
• Smart Budgeting Tip: Check the car’s official MPG (Miles Per Gallon) before buying. A vehicle that costs £20 less per month on finance might actually end up costing you £50 more in petrol if it’s a heavy gas-guzzler!

2. Legal Requirement #1: How Much Is Car Insurance?

Car insurance is non-negotiable; you cannot legally drive on UK roads without it.

• Average Spending: The average UK annual car insurance premium ranges from £500 to £900+ per year (£40 to £80+ per month), though costs vary widely based on your age, location, driving history, and credit profile.
• Insurance Groups: Vehicles are categorised into Insurance Groups 1 through 50. Cars in Group 1 to Group 10 (like a Ford Fiesta, VW Polo, or Hyundai i10) are the cheapest to insure.
• Smart Budgeting Tip: Always get a quick quote from a comparison site for the specific car model before signing your finance agreement.

3. Legal Requirement #2: How Much Is Road Tax (VED)?

Vehicle Excise Duty (VED), commonly known as road tax, is an annual fee charged to drive on public roads.

• Average Spending: Standard annual road tax for most post-2017 petrol and diesel cars sits at a flat rate of £190 per year (around £15 to £17 per month if paid via Direct Debit).
• Tax Rates Breakdown:
  • Brand New / Alternative Fuel Vehicles: Low-emission or electric cars may qualify for lower initial tax bands.
  • Pre-2017 Cars: Taxed according to their exact CO2 emissions, ranging anywhere from £0 to £300+ per year.
  • Luxury Tax: Vehicles with a list price over £40,000 attract a supplemental tax for the first 5 years.

4. Keeping It Legal & Safe: MOT, Servicing & Maintenance

Once a car is 3 years old, it requires an annual MOT test to prove it is roadworthy.

• MOT Cost: The maximum official fee for a car MOT test is £54.85.
• Servicing: Regular annual servicing (changing engine oil, spark plugs, and filters) keeps your engine running smoothly and costs roughly £150 to £250 per year.
• Wear & Tear: Parts like tyres, brake pads, wiper blades, and batteries naturally wear down over time. Replacing two new tyres can easily add £150–£200 to your annual bill.

Summary Checklist: Total Cost Comparison

How to Calculate Your True Car Budget

To ensure you never end up in a financial pinch, use this simple formula before applying for car finance:

Total Vehicle Expense = Monthly Loan Payment} + {Fuel} + {Insurance} + {Tax} + {Maintenance Fund}

The 20% Income Rule of Thumb

Financial experts generally recommend keeping your total vehicle running costs (including finance) under 20% of your take-home monthly pay.

For example, if your monthly take-home pay is £1,800:

• Your total car allocation (20%) = £360 per month.
• If running costs (fuel, tax, insurance) equal £160 per month.
• Your maximum comfortable finance payment is £200 per month.

Frequently Asked Questions

What happens if I’ve been refused car finance elsewhere due to bad credit?

Being turned down by high-street lenders or bank algorithms doesn’t mean you can’t get approved. At Refused Car Finance, we work with a specialist panel of bad credit lenders who look beyond a basic credit score to assess overall affordability.

Is it cheaper to finance a smaller engine car?

In almost all cases, yes! Cars with smaller engines (1.0L to 1.4L) generally use less fuel, fall into lower insurance groups (1–10), and often feature lower road tax brackets, making them significantly cheaper to run.

Should I set up an emergency car fund?

Yes! Setting aside as little as £20 to £30 per month into a dedicated savings account creates a safety cushion. When your annual MOT rolls around, or a tyre needs replacing, you won’t need to rely on credit cards to cover the bill.

Ready to Get Back on the Road?

Understanding the true cost of car ownership means you can pick a vehicle you love without worrying about monthly financial stress.

If you’ve had trouble getting approved in the past, Refused Car Finance is here to help. Applying with us uses a soft credit check, meaning it won’t impact your credit score, to help match you with an affordable deal.

Check Your Eligibility Today – No Impact on Credit Score.