What does a car actually cost per year to run?

Ask most households what their car costs and they will name the insurance and roughly what they spend on fuel. The full figure is normally several times that, because the largest single cost — the value the car loses each year — never appears as a payment. Building the real number is not an argument for giving up the car; it is what makes decisions about which car, whether to keep it, and whether a second one is worth it, possible at all.

Step by step

1. Start with depreciation, because it is usually the biggest.What the car was worth a year ago against what it is worth now. Look up completed sales for the same model, age and mileage. Newer cars lose more; a car at the flat part of its curve may lose very little, which is the strongest argument for buying used.
2. Add insurance, as the annual premium.The total for the year, including any monthly-payment surcharge if you pay that way — paying monthly for insurance is a credit arrangement and it costs more than paying annually.
3. Add vehicle tax.The rate depends on the vehicle and when it was first registered. Check the current figure for your registration on the government vehicle enquiry service rather than assuming.
4. Work out fuel or charging from your real mileage.Annual miles divided by your actual consumption, times the price you pay. Use your own figures from the last year, not the official consumption figure, which is a test result rather than a prediction.
5. Add servicing, tyres and consumables.The service interval cost, plus a yearly allowance for tyres — divide a set's cost by the years a set lasts you — plus wipers, bulbs and fluids. Tyres are the consumable people forget and they are not small.
6. Add MOT and repairs.The test fee plus a realistic annual allowance for what fails. On an older car this is the volatile pot, and one substantial repair a year is a reasonable planning assumption once it is past its first decade.
7. Add parking, permits and tolls.Residents' permits, workplace parking, congestion or clean-air charges, and ferry or bridge tolls if you use them regularly. In some places this is one of the larger pots.
8. Total it, and divide by your annual mileage.Cost per mile is the number that lets you compare with alternatives — a taxi, a train, a hire car for the occasional long trip, or a car club. It is often surprisingly high for low-mileage households.

Tips

• Set a monthly sinking fund for tax, insurance, servicing, tyres and the MOT so none of them arrives as a shock. They are all known dates and known approximate amounts.
• If your annual mileage is low, run the cost-per-mile figure against hire and taxi costs before replacing the car. The answer sometimes favours not owning one.
• A second car is rarely half the cost of the first — insurance, tax and depreciation all repeat in full even if the mileage is low.

Common mistakes

• Leaving depreciation out because it is not a payment — It is the largest cost for most cars, and ignoring it makes an expensive newer car look similar in cost to a cheap older one when the gap is usually substantial.
• Using the official fuel consumption figure — It comes from a standardised test cycle and rarely matches real driving. Work it out from your own fuel spend and mileage over a few months.

Questions people ask