How much can I afford for a car?

On this page

What car can I afford?

How much can I afford for a car, including maintenance costs?

Buying a car is incredibly exciting. It’s not age – it applies to the most experienced drivers!

Most of us know someone who drives a car that doesn’t match the rest of their life – for instance, working for minimum wage at the check-outs in Tesco and driving an Audi A3! Hmm. That won’t end well.

Purchasing a car that significantly burdens your income is a mistake. You must take an honest look at what car you can comfortably afford. The wrong choice of car can have a massive effect on your freedom and finances; it’s essential to calculate your car budget sensibly to ensure it remains affordable.

The following will guide you through everything you should consider regarding how much you can afford to spend on a car and maintenance costs based on salary.

How much should I pay for a car? No more than 15 to 20% of your income!

It’s time to think about how you will pay for the vehicle. Unless you are to receive the car as a gift – lucky you. Otherwise, you have two options buy the vehicle outright or look for a car finance deal.

When buying a car with finance,  you must keep it affordable. You don’t want to get into debt.

So, how much car can I afford based on salary? A sensible budget option is to spend no more than 15-20% of your net monthly salary/income on the car. That means monthly repayments for the finance and the car’s running costs, including insurance, fuel – the lot!

These next few years could be financially challenging, so it’s time to be careful.

 

How much can I afford for a car based on salary?

Example: A Gross monthly income of £2000 equals a Net £1683 after tax and insurance. And 15 to 20% of the Net income gives a car budget of between £252 and £357 a month, including car finance and running costs.

To calculate an exact net salary, go to salaryaftertax.com

GMI = Gross Monthly Income; NMI = Net Monthly Income; Between 15-20% of  your net take-home pay 

GMI  NMI  15% 20%
£ £ £ £
1000 1000 150 200
1500 1349 202 270
2000 1683 252 337
2500 2017 303 403
2673* 2153 323 431
3000 2350 352 470
3500 2684 403 537
4000 3018 453 604

*According to the ONS, the UK average monthly estimated earnings in August 2022 is £2673 (£32,084 per annum). Based on these figures, the average monthly Net pay is £2153. Taking 20% of the Net income leaves a monthly budget of £430 to spend on a car, the finance payment and running costs. To calculate the Net Monthly Income, we use the minimum Tax Code of 1257L and the Income Tax & NI deduction.

What is included in a car’s running cost?

Nearly two-thirds, 66% of UK drivers don’t know how much they’re paying to run their vehicle!

Not surprisingly, not knowing the cost of driving a car often catches people out with the finance.

As part of the budget, to determine “What car can I afford?”, you must be aware of all the expenses of running a car. Unfortunately, it’s not as simple as buying a car and pouring in some petrol.

Your budget to calculate how much car can I afford based on salary UK should include the following:

·       1. Insurance

·       2. Fuel

·       3. Road tax

·       4. MOT

·       5. Servicing costs

·       6 Breakdown cover

Can I afford a car on the National Minimum Wage?

Example of how you can afford a car on a minimum wage

All characters appearing in this work are fictitious. Any resemblance to actual persons, living or dead, is purely coincidental.

This is a story of a sister and her younger brother buying their first cars for 15-20% of their minimum wages. They found this page on google with the search term ‘how much car can I afford based on salary uk.’

Jenny

So, a minimum wage worker, Jenny will make around £9.18 an hour, or about £1411 a month after tax. That leaves around £ 280 per month she can afford to spend on a car.

Her car payment is £102 per month, she spends £50 on fuel a month, and her insurance is £90 monthly. She also signs up for a car breakdown service at £6 a month. Thankfully, she bought a sensible car that doesn’t cost anything in road tax! The maximum fee for an MOT test is £54.85, but Jenny manages to find a reliable garage doing an MOT for £45. The garage also does a complete service for £100. To cover these annual costs, Jenny puts £12 away a month.

Her monthly motoring costs amount to £260, comfortably under her budget of the 20% limit. No problem! She knows how to afford a car and will get a loan.

Her brother, James, however, isn’t so careful.

He’s only 18, so he makes the minimum wage of £6.83. With a 40-hour work week, he makes £1108 a month, after-tax. That gives him a maximum of £221 monthly he can afford for a car.

However, he opted for a sporty VW Golf with a monthly payment of £150 for the car alone. He drives like a nonce, so he spends £70 on fuel per month. And because the car is powerful, his insurance is a whopping £120 a month, plus road tax of £10 per month! He uses the same garage as Jenny, so he spends £45 per year on his MOT test and £100 per year on a full service – this works out to an extra £12 per month.

He’s paying a whopping £372 a month just for his car. That’s over one-third of his income – and it isn’t sustainable! It doesn’t even include a breakdown cover!!! He’ll need lifts from his sister – He won’t get approved for a loan.

National Minimum Wage applies from the school leaving age.

National Living Wage applies from 23  – the minimum wage will still apply for workers aged 22 and under

How much can I afford for a car with cash?

You might decide to pay for your car with cash savings tucked away or a decent loan from a partner or parent,

Cash is the traditional way to buy a car. You’re only paying what you can afford, and you won’t pay any extra costs on interest. Plus, you own the vehicle from the beginning.

However, spending thousands of pounds upfront can be nerve-wracking and isn’t always the best move.

For instance, say you’re looking at buying a car for £5,000 – the entirety of your savings. You buy the car, and you lose your job three months later. You have no emergency savings to fall back on. Alternatively, paying cash can limit how much you can afford to spend on a car.

Instead, imagine you financed the car with a decent interest rate. You’d be paying around £100 monthly, but your savings are intact. You could use your savings to keep you afloat until you find another job.

If possible, you should always have an emergency fund – a couple of months’ wages. If you don’t have this, it might be better to put a larger deposit down on a car finance deal and keep the remainder for your emergency fund.

However, this assumes that you’ve financed a sensibly priced car. If you’ve taken a PCP out on a £250 per month BMW, you will be in trouble if you lose your job! Always be realistic about what you can afford, and don’t get ahead.

Overall, if you’re doing well financially and have a bit of backup savings, then buying a car outright will cost you the least amount of money over the long term.

Can I afford a car loan?

When you calculate your car budget, you’ll know how much you can afford for a car, both the car finance and running costs monthly.

Now you can decide what type of finance is best for your circumstances; two options dominate car finance, HP and PCP.

PCP

A PCP is the go-to car finance for new cars. You can also get PCP on used vehicles, but it’s a bit more involved for cars over a few years old.

A personal Contract Purchase, generally 2-4 years, is where you pay off the car’s value over a set period, excluding depreciation. The outstanding amount of the vehicle is then paid off at the end of the contract in a balloon payment, typically thousands of pounds, and many choose to hand the car back instead.

PCP is one of the cheapest ways to finance a car, but it’s not without its downsides. For one, you have a mileage limit. You may face excess mileage charges if you change jobs and have a much longer commute to work.

Secondly, you never own the car – unless you pay the final payment. Any ding or dents on the vehicle that wouldn’t bother you will annoy your dealer! You could face damage charges for the condition of the car.

Finally, as with most finance options, you’ll be paying interest on the car!

HP

Hp is the most popular finance for used cars of any age.

Hire Purchase, known as HP, is where you pay the car off over a contract term. Unlike PCP, you have no mileage limit and no final payment. When the contract ends, you own the vehicle. You make equal payments, including interest, over the contract term, generally between two and four years.

The advantage of HP is that you can sell the car when you’ve finished your contract. While the car will likely depreciate, you should at least be able to make some money back.

The car running cost will dictate how much you can afford for the finance

Paying the monthly car finance repayments is only half the cost of motoring. Keeping the vehicle on the road is often a higher expense. So when you ask, “how much can I afford for a car,” you’ll have to consider running costs just as much as the car finance.

1. Car Insurance

Car insurance will likely be your most significant expense after buying the car. Prices for drivers under 24 years old are often astronomical, sometimes costing thousands of pounds yearly. While you can’t change your age, there are a few things you can do to get the lowest insurance price possible.

The vehicle insurance group sets insurance costs; every car has a group number. The groups go from 0-50, with 50 being the most expensive.

The more the value and power of the car, the higher the insurance group. Your mum’s old Toyota Aygo hairdryer will be in groups 0-5. Your mate from Tesco’s Audi A3? 18-20. Which group the car is in can be a difference of hundreds, if not thousands of pounds, a year.

Before looking to buy a car, be sure to look up the vehicle insurance group. You can use a site like Car Insurance Groups to do so.

2. Fuel

How much you’ll spend on fuel should be one of your first considerations when looking at a car. Opt for a ‘thirsty’ car, and you could spend most of your wage just getting around!

To get a rough estimate of a car’s fuel costs, follow these quick steps:

  • 1. Find out the MPG of the car on HonestJohn. Manufacturers’ official’ MPGs are often inaccurate.
  • 2. Work out how much you drive in a month. Say you drive 20 miles to work and back each day, five days a week – that’s 100 miles a week and 400 a month.
  • 3. Use a fuel cost calculator to determine your spending. Enter your car’s MPG and monthly mileage. With an mpg of 40, that’s around £65 per month. Opt for a less efficient car, with 30 mpg, and that cost will go up to just under £91 per month. Remember, fuel prices vary daily, so this can go up and down.

3. Road Tax

It’s a legal requirement to pay the road tax for your car. Road tax contributes towards maintaining roads. Most cars these days are relatively low in road tax, but it’s still essential you factor in the cost.

Use Gov.UK to determine how much tax you’d pay on the car you like. Your road tax depends on the CO2 emissions of your vehicle, so smaller-engined (newer) cars will have a road tax of £30, or sometimes even £0. The more significant engines and older inefficient cars could cost you £120 a year.

As a young driver, you’ll likely want a petrol car, as diesel cars cost a fortune in road tax. Thankfully, newer petrol engines are reasonably clean – so they shouldn’t cost you too much in road tax.

You can pay your road tax outright for six months, the year, or pay it in 12 monthly instalments.

4. MOT costs

An MOT is a health check of your vehicle that ensures it’s safe to be on the road – for you and others. You’ll need to have this completed once a year.

The government has a maximum MOT fee of £54.85, but you’ll likely find it cheaper in many local garages.

Do your research on the garage – check TrustPilot, Google Reviews, and Facebook reviews. Find a trusted mechanic who won’t mess you around with MOT results. A good tactic can be to go to a local council MOT centre, which doesn’t do repairs. So no motivation to deceive you!

If your car fails your MOT, you’ll need to repair the issues before legally taking it back onto the road. It’s a good idea to stick ten or twenty quid aside each month in anticipation of any MOT repairs.

5. Breakdown Cover

There’s nothing scarier than your car breaking down on a dark country road. You pull over and sit in the car and call your breakdown cover. What if you didn’t have a breakdown cover? Eek!

Don’t find yourself in that position! Breakdown cover is relatively cheap in the UK and is essential for all drivers.

You can’t go wrong with the big names, like AA and the RAC. Use a comparison site, like Money Supermarket, to find the cheapest rates. You’re talking around £10-15 a month for the top level of cover.

If you opt not to get breakdown cover and need to phone a tow truck to come and get you, plus a taxi to drive you home, you’ve already spent at least double your yearly breakdown cover cost. Not worth it!

6. Maintenance

While your MOT will probably pick up most maintenance issues, taking your car for regular services is wise. Your car’s handbook should have a service history detailing when your vehicle needs servicing (usually every 12,000 miles or once a year).

You can opt to have a service done around the same time as your MOT or whenever you like. If you’re keen on making the car last as long as possible, consider part services, usually done every six months. For a service, you’re talking around £100-125, and half that for an interim service.

By taking your car for regular services, you significantly increase its resale value if you sell it in a few years.

Summary

There’s a lot of information here, so here’s a quick recap on the top points:

  • Ensure you buy a car that’s sensible and affordable. Look for good MPG, low road tax, and low-insurance groups.
  • Buy outright if you have the funds. If you finance, only opt for what you can afford, and remember to factor in interest rates.
  • Spend no more than 15-20% of your wages on your car.

Infographic financing a car on a minimum wage

Budget for running a car

Infographic with the running costs of a car