Running a car can be an expensive business. First, you’ve got to actually buy that car itself, or at least make a down payment if you opt for leasing or a financing deal. That’s going to set you back anywhere between several hundred pounds and whatever the latest top-of-the-range Ferrari costs. Throw in petrol, road tax, MOTs, insurance, monthly payment if you haven’t bought it outright and the rest and you get the picture. A car, is a financial commitment.
But it’s a financial commitment many of us come to the conclusion is necessary. Depending on where we live, lifestyle and family commitments, public transport might not be a convenient option for getting to and from work, the supermarket, school runs and all the other little and longer trips we make from A to B (often via C, D and E).
The good news is, like most expenses we face, there are lots of little things that can be done to ease the financial burden of running a car. The first, and usually biggest, financial decision you have to make is which option you will choose between buying, financing and leasing.
Buy, Finance or Lease a Car?
Things are rarely black and white. There are many different considerations that might affect why someone opts for car leasing or financing. Each option has its budgeting pros and cons. Let’s take a look.
Buying a Car Outright: pretty straightforward. You find a car, new or second hand, that fits your requirements and budget, you pay for it in cash and you then own it.
Pros: the car’s price is its price. And you might even be able to negotiate it down or have some extras added. Once you’ve paid for it, you’re done other than running expenses.
Cons: you need to either have the cash available to pay for the car outright or be able to save it up by the time you need it. Buying a car outright is an upfront expense. If it’s a second hand car, especially if it’s an older model, and you buy it from a private owner, it may not come with any kind of service warranty. There’s also no guarantee how reliable the vehicle will prove. It could be a real trooper and give you years of problem free use or it could develop issues.
Buying a Car On Finance: the same idea as buying a house with a mortgage with the caveat there’s a reasonable chance a property will grow in value while you own it and unless it’s a vintage model most cars lose resale value over time. You’ll put down a deposit which is usually at least 10% of the total price of the car and then pay monthly instalments over several years until the balance is paid off. At that point you own it outright.
Like a mortgage, the finance provider charges an interest rate but usually a significantly higher one. A quick glance at comparison sites suggests that will range from anywhere between 6.5% and 25% APR. You can do the math.
Pros: less upfront expense. Spreading payments will probably mean you could get a more expensive model.
Cons: once interest payments are added over the financing period it will probably cost you a lot more than having paid for the car outright.
Leasing a Car: a lease is like a long term rental agreement. Can be compared to renting rather than buying a property. You pay a deposit and your monthly lease and after a lock-in period can hand it back.
Pros: modest upfront expense. A smaller deposit and monthly charges might mean you can lease a more expensive model. Servicing often included so no unexpected pick-up and repair expenses.
Cons: the car is never yours, you are just renting it. If you add up your deposit, monthly leasing fee and whatever is taken off your deposit at the end, which can sometimes be a nasty surprise, in most cases leasing will work out as the most expensive way to run a car even if it has pluses in terms of cash flow.
Bonus Tips To Running A Car On A Budget
Other than the cost of the car itself there are numerous ways you can make running it more budget friendly. These include:
- Opt for a make and model that is economic on fuel while still meeting your general requirements.
- Research makes and models for long term reliability. Putting a bit of effort in here at the beginning can significantly reduce future repair expenses.
- Servicing your car regularly and generally taking care of it should mean it runs for longer with fewer issues.
- Ask yourself if you can run your current car for a little longer before getting a new one.
Photo - Sebastien Marchand