Some time ago, an article appeared on the internet suggesting that the average price of British car ownership, when you factor in things like maintenance and fuel, is more than £100 pounds per week – or over £5k per year. No wonder car finance is so popular.
A car is one of the two guaranteed massive expenses in most people's lives. The other is a house – and it's no coincidence that in both cases, the most common way of buying them is through a finance package. In the case of houses, you get a mortgage. With a vehicle, you get a car finance
package, which is basically the motoring equivalent of a mortgage.
Let's look at some of the costs associated with car ownership. First, the car. A new car, which is the most reliable type of vehicle (and which has much better environmental and fuel usage figures, so it is also cheaper to run) costs a minimum of just under £10k, with an average of between £15k and £30k for something suitable for a family. If you haven't got that kind of money sitting around in the bank – or if you can't afford to have it all leave the bank at once – then a car finance package is the only way to put a new vehicle on your driveway or in your garage.
Servicing and MOT costs go up annually. Maintenance costs get more frequent and more expensive as a vehicle gets older. My own car is currently costing between £100 and £500 per month just to stop it falling to pieces. That's appalling financing – which is why at some point I'm going to have to get around to getting my own car finance package.
When you run a car on finance, you pay a single monthly figure to own the vehicle. If you do it from new, you are likely to be able to refinance regularly to trade in for more recent models. That will keep your fuel costs as low as possible, and may completely avoid servicing costs – because many new cars are offered with a couple of years' free servicing as part of the price.
Basically, what you need to look at is not the total cost of the car, or the full amount you borrow on a car finance package – but the monthly figure you will be paying to own and run your vehicle. Budget first, then shop for car
loans: otherwise you will always end up tempted to go that extra bit over what you can really afford.
Bear in mind, when you budget for your finance package, that you also have to factor in the cost of fuel, oil and general running (road tax, MOT, services). So if you've arrived at a monthly figure you can support for running a vehicle, that is not the amount you can afford to spend on your car finance payments. The payments on your finance package are a part of that figure: you have to come in under it, or level with it, when you have also accounted for your basic running costs.
In the modern world, lease hire is probably the most popular method of car ownership. In effect, a leased car is owned by the dealership rather than you. You pay a monthly fee for it (which often entitles you to some servicing and maintenance too) and are able to exchange it for a newer model every two or three years. That means you get reliable cost effective motoring for the whole life of your car finance package.