How Much Does a Car Really Cost Per Year?
Fuel is the cost people track and usually not the largest one. Depreciation, insurance, servicing, tax and parking put most cars at several thousand a year.
In short
A typical car costs its owner between 3,000 and 6,000 a year once everything is counted, and fuel is often less than a third of that. Depreciation is usually the largest single cost, followed by insurance, then fuel, servicing and tyres, tax and parking. A car bought new can lose 15 to 30 percent of its value in the first year alone.
Ask most owners what their car costs and they will tell you what they spend on fuel. That is the cost with a receipt. The larger ones arrive without one.
The full list
Depreciation. The difference between what you paid and what you will sell it for, spread over the years you own it. For a newer car this is the largest cost by a distance, and it is invisible until the day you sell.
Insurance. Highly variable by age, location and vehicle, but rarely small, and rising faster than inflation in recent years.
Fuel or electricity. The one everyone counts. At 10,000 miles a year in a petrol car doing 40 miles per gallon, roughly 1,600 to 1,800 depending on price.
Servicing, tyres and repairs. A service, an inspection, a set of tyres every few years, brake pads, plus the occasional expensive surprise.
Tax. Vehicle excise duty, which depends on emissions and age.
Parking, tolls, congestion charges. Small individually, substantial annually for anyone driving into a city.
Finance interest. If the car is on a loan or PCP, the interest is a cost of the car, not of the loan.
A worked example
A four-year-old hatchback bought for 14,000, kept four years, 10,000 miles a year:
- Depreciation: sold at 7,000, so 1,750 a year
- Insurance: 700
- Fuel: 1,700
- Servicing, tyres, repairs: 600
- Tax: 180
- Parking and tolls: 300
Total: about 5,200 a year, or 435 a month. Fuel is a third of it. Depreciation and insurance together are nearly half.
Why older cars are cheaper even when they break
Depreciation is front-loaded. A new car can lose a quarter of its value in the first year and half within three. A ten-year-old car worth 3,000 might lose 400 a year.
So an older car with 800 a year in repairs is frequently cheaper to own than a newer one with none, because the newer one is quietly losing 2,000 a year in value. The repairs are visible and annoying; the depreciation is invisible and larger.
Cost per mile
Divide the annual total by annual miles. The example above gives 52p a mile. That number changes decisions: a 20-mile round trip is not free because the car is already paid for, it is about 10 pounds. It also reframes the 45p per mile business rate as roughly accurate rather than generous.
Do you need it
For a household in a city with decent transport, doing under 5,000 miles a year, the arithmetic often favours no car at all: occasional hire, taxis and a car club, even at their apparently high per-use prices, total less than the fixed costs of ownership. The fixed costs are the point. A car costs most of what it costs whether or not you drive it.
Common questions
What is the biggest cost of owning a car?
For most cars under ten years old, depreciation. A 25,000 car that is worth 12,000 after four years has cost 3,250 a year in lost value before a litre of fuel was bought. Older cars depreciate slowly, which is why they are cheaper to own even when they cost more to maintain.
Is an electric car cheaper to run?
Per mile, usually yes, particularly when charged at home overnight on a cheap tariff. Purchase price, insurance and depreciation on newer models can offset that, so the total depends on mileage and how long you keep it.
How much should I budget for maintenance?
A rough rule for a car out of warranty is 1 to 2 percent of its original price a year, rising with age. Tyres, brakes and a service are routine; a clutch, a timing belt or a repair after failing an inspection are the lumps that budgets forget.
Sources
Every factual claim above traces to one of these. Follow them rather than taking this article's word for it.
- Household expenditure statistics Office for National Statistics
- Inflation and price indices Office for National Statistics
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