Look out of your nearest window, and there’s a good chance you’ll see several expensive tonnes of metal, glass, and plastic sitting idle.
In fact, I am doing that right now.
It wasn’t always this way for me. In the early phases of my investing journey, I managed to avoid the expense and responsibility of owning my own car.
But I could only hold out so long. And between work trips and the need to transport kids quickly and safely, the debate now isn’t whether we need a car – it’s whether we need a second.
Unless you live in a big city with a spiderweb of public transport routes, car ownership can feel mandatory.
But I’m employing every strategy I can think of to avoid ponying up for an extra vehicle.
And with all the app-based doorstep deliveries and on-demand transport options around now, that’s much easier than in the days of the Littlewoods catalogue and the milkman.
A car costs more than the metal
Cars are deeply personal. One person will swear by their 17-year-old Nissan, while another will insist it’s irresponsible to drive something without a top Euro NCAP safety rating.
So to figure out the cost of car ownership, I’ll have to make some broad assumptions.
This won’t match every Monevator reader’s particular needs – or their adeptness with an oil can and socket set.
But we must start somewhere, so let’s start with the key spending categories:
- Depreciation – The stealthiest cost of all. If you buy a car for £40,000 and sell it two years later for £28,000, you’ve spent £500 per month through depreciation. With leases, the depreciation is baked into the monthly fee
- Opportunity / financing cost – If you put £20,000 into a car in preference to filling your S&S ISA, you’re also missing out on investment growth. Borrow £20,000 to pay for it and you’ll be paying interest on the finance deal
- Running costs – MOTs, servicing, and fresh tyres. (Here’s your reminder to check your tread depth if you haven’t recently!)
- Tax – Vehicle excise duty depends hugely on the age and type of car. Pay-per-mile charges are on the way, too.
- Insurance – Particularly costly if you’re young.
- Fuel – Whether you pump it or plug it, the price of powering your motor adds up.
What’s the price of a Polo, anyway?
Let’s introduce two hypothetical investors. Both want to own a Volkswagen Polo. But they have very different driving habits and financial tolerances.
So how much financial damage can a modest German hatchback actually inflict?
Alice and the new car premium
Alice has a long commute – 10,000 miles a year – and she can’t afford to be late for work, so she values the reliability of a new car and a warranty.
She decides to buy a brand-new Polo for £20,000 outright.
- Depreciation: £3,000 (new cars shed value like a wet dog sheds water)
- Opportunity / financing cost: £20,000 at 5% is £1,000 per year
- Fuel: £1,500
- Running costs (including tax and insurance): £800
- Alice’s total annual cost: £6,300
Alice’s total commitment to her car is £121 a week. Every week. All for the privilege of driving 10,000 miles a year.
Note that opportunity cost reflects the investment returns you forgo on the money tied up in the car while you own it. Some of that capital can be recovered when you sell.
Gary and his sensible secondhander
Gary can get the bus to work if necessary, so he’s less worried about a new car warranty. Hence he buys a three-year-old Polo for £10,000.
Gary mostly uses it for errands and weekend trips, and clocks just 7,000 miles a year.
- Depreciation: £1,200
- Opportunity / financing cost: £10,000 at 5% is £500 per year
- Fuel: £1,050
- Running costs (with tax and insurance): £1,000 (older cars need a bit more TLC)
- Gary’s total annual cost: £3,750
Gary is paying £72 a week. Vastly cheaper than Alice’s shiny new motor.
How about skipping the car altogether?
We can do better!
Jess the car avoider
Jess took a close look at the purchases made by her friends Alice and Gary, and she decided she wants to forgo owning a car entirely.
She also realised she doesn’t want to spend a chunky chunk of her day chugging through traffic jams. Getting a job within walking distance of where she lives solved that problem.
Jess earns £25,000 per year. That gives her £21,521 after tax.
And when Alice points out there’s a vacancy paying a much higher £35,000 at her own workplace, Jess runs through the numbers:
| Walk to lower-paid job | Drive to higher-paid job | |
| Gross income | £25,000 | £35,000 |
| Net income | £21,521 | £28,721 |
| Car costs (based on Alice’s cost) | £0 | -£6,300 |
| Total income | £21,521 | £22,421 |
Jess would effectively only earn £900 per year more with the new job – albeit she’d also be treated to the joys of being stuck in traffic twice a day, thanks to its commute.
Now let’s acknowledge that Jess could find a cheaper car, just as Gary did.
But equally, many of the best-selling cars in the UK are more expensive than a Polo!
So clearly there’s a lot of people out there who either don’t do these sums, or who think it’s worth paying a premium for that new car depreciation smell.
Car ownership costs compound
Inspired by Jess and her savvy ways, Alice decides to do better.
Somehow Alice is able to ditch the car without losing her income. (Perhaps she found a different job, or moved to another city. Or she convinced her employer that working from home is trendy again…)
Alice is now spending £6,300 less per year (£525 per month) without a car. The money that previously went on motoring she can now plough into an investment ISA. Over a period of 20 years with a 5% return, she’d end up with £213,915.
Nearly a quarter-of-a-million quid, which could easily be the difference between retiring early or having to continue to slog away at the 9-to-5 for a few more years.
There are downsides
Not everyone can do without a car. You might have medical reasons for needing one, or children that have to get to a distant school. There are myriad other scenarios.
But often car ownership is more of a choice.
Our family already has one car. Our debate is whether we can manage without a second.
And I’ve found there are lots of options these days that lessen the need to have two Frugalist household vehicles doing the rounds.
Instead of driving to the supermarket, I can get an annual subscription for free grocery deliveries. Most supermarkets offer passes for around £40 per year. Adding on Amazon Prime (including Deliveroo) for £95 per year gives access to still more delivery options.
I could budget for an emergency £20 taxi ride every month. Between the local cab firms and Uber, I’ve found it’s pretty easy to find a ride.
A taxi won’t work for a week-long jaunt to the countryside though. So I could also budget to hire a car for one week a year at £200. There are a couple of traditional car hire places where I live. Turo and Enterprise Car Club are other options, depending on your needs and location.
Added up, these alternatives still only cost £570.
The point isn’t that all of the above are essential if you don’t have a car.
It’s that you can afford to splash out on some apparently extravagant services, because compared to spending several thousand pounds per year on a car, they no longer look so extravagant.
Your mileage may vary
For some people driving is a hobby first, and a mode of transport second. If driving and maintaining your car is something you love, then clearly money won’t come into it.
Or perhaps you have access to an excellent company car scheme. With due consideration of the Benefit In Kind brackets, you can enjoy some very cheap motoring.
But most of us are definitely forking out a pretty penny for every mile travelled and every month of ownership, even if we don’t have to feed coins into a dashboard to stay on the road. So it’s worth working out how much we’re spending and why.
How much would your life change if you didn’t have a car? Would your job become impossible? Could you find another employer closer to home?
Which parts of your life rely on having a vehicle, versus where it’s just nice to have? Could some of the challenges be offset with a bit of targeted spending elsewhere?
If you must own a car (or two)
Obviously staying away from the new car dealerships is the best way to reduce the hit to your future net worth.
Modern cars are so well made that many buyers can realistically keep even a used one on the road for a decade.
Pay cash if you can to avoid financing charges.
Finally, buy the smallest car that’s practical for your situation. It’ll usually be cheaper and it will reduce all the ongoing costs, too.
Buy a fancy pair of shoes if you want to show off. They’ll cost you £20,000 less in the long run.
Every little helps
I was talking to a neighbour recently who bemoaned their frustration at having to drive to the big retail park every time they run out of milk.
Somehow they were completely unaware of a small supermarket that’s within walking distance.
I suppose if I’d been driving myself – rather than walking back from said supermarket – then we’d never have even stopped to chat.
We’re all different. Personally though, I feel a bit richer by reducing my car use.
Not just financially, but physically and mentally, too.
Car ownership is still treated as almost a rite of passage. But if you can swallow your ego and buy a smaller used car, walk around more, and actively try to design your lifestyle around the newer alternatives such as supermarket deliveries, then you might just hit that more important milestone – early retirement – many years sooner than you expected.
Best cars are bangers just before they might become classics, so not much depreciation left, but potentially upside
With bangernomics it’s wear & tear + insurance + petrol + tax vs the cost of a yearly bus pass, but busses are slower than walking where I live
Cars save valuable time
Bangers are also a good way to hide wealth, as everyone assumes you’re poor
The point is well made about reducing the cost for those who view their cars as little more than functional A to B boxes like washing machines with wheels.
Rural living means a car or two is essential (but it can be an uber), although I think it would be stretching a point to argue that my sixth was an essential element of family life.
Last car I bought cost 7.5k and is now worth 35k. Free of CGT, too. Worth examining what happens when the depreciation flows the other way… But it isn’t a financial asset for me (not on my balance sheet at all), but a source of great pleasure to drive and to share with other drivers.
No point earning it if you don’t get some pleasure out of it.
One “hidden in plain sight” thing to look for are pre-registered (pre-reg) cars which are basically ex-demonstration “new” cars. I’ve had a couple of these. The upside is you get something which is indistinguishable from a new car to any normal person (one had 10 miles and the other had 90 miles on the clock). Normal warranty etc. But you pay a much lower price, usually 20-30% off. Like a new car without the depreciation. The downside is you have no choice at all over the colour, features, etc. and just have to take or leave whatever the dealer has that day. For people like me who don’t care about cars in the slightest beyond that they work reliably to move me from A to B, I don’t care what the car looks like within reason.
I believe there are certain times of the year when dealers need to meet quarterly sales figures so if you know what those are you can get even better deals on these.
Also technically pre-reg cars are second hand cars, but that made no practical difference at all for the two that I owned.
The mileage does vary enormously for contractors and higher rate taxpayers. A salary-sacrifice EV operates on entirely different financial physics from buying a petrol car outright.
Also, outsourcing personal logistics to taxis and delivery services often costs more than the delivery fee alone. Eg, grocery deliveries mean missing out on the discount aisle bargains and having little control over substitutions. You can reject unsuitable replacements, but you can’t pick a better alternative that’s sitting on the shelf that day. Some goods and services simply aren’t available for delivery. Likewise, many taxi drivers won’t take dogs, what if you need to get yours to the vet?
Then there’s the option value of physical mobility. An asset-light lifestyle can become a liability during periods of economic uncertainty (see: redundancy). A depreciating asset can act as a hedge for geographical flexibility or even become a source of income when things change (parcel deliveries during COVID are an obvious example), rather than a drain on capital.
Personally, I suspect having a car will matter more to me in retirement than it does in the runup to it. That’s when I expect to finally make proper use of my National Trust membership (brace yourselves, lovely NT volunteers… you may also want to refresh your recollection of the differences between haute-lisse and basse-lisse tapestry weaving, because I have questions. Also about fountain mechanics, historic window frames, caring for oak floors, weird music boxes, and whether the dwarf orange trees in the orangery are genuine historic varieties or if you’ve just bought a few from a Dutch catalogue last year to complete the look?)
And, with the way the NHS is going, there are situations where being able to get yourself (or your spouse) to A&E is quicker than waiting for an ambulance.
@Mathmo #2… “Rural living means a car or two is essential (but it can be an uber)”
You don’t live rural if you can Uber 🙂
We are in the wilds, and car ownership is pretty much essential. I agree with anyone who lives in areas well served by transport being an optional car owner, but realistically, not having a car can take a lot of fun and opportunity away from an individual. Being spontaneous and having a weekend away because the weather looks good or you saw a concert in a distant town you fancied at the last minute could be hard work getting to without one. Taking rubbish to the dump is a ritual with a car, not easily achieved without one (Ubers might balk at a dumpy bag full of rubble).
One of my hobbies involves pulling a trailer with a very small car to motorsports venues – try hire a car with a tow hitch.
Buying any relatively new or new car is not necessarily cheaper without the finance, I will explain why. Car sales dealership are primarily credit brokers. If you go with cash, they do not give you the best deal as a lot of the profit is in the finance. Taking the finance (and then paying it off as soon as possible) will get a better deal most of the time.
I do advocate end of life vehicles, and end of life – in my life time – has moved from 7 year old cars to 17 year old cars as they don’t fall to bits as readily as they used to.
We have two cars. One is over 18 and the other is a mere 16 year old. At the last MOT the 18 yo romped through and my mechanic said it might manage yet another for me. 147000 miles, high profile cheaper tyres, C.£500 servicing this year. Annual mileage 12000. Depreciation is about £300 pa.
I have yet to break down in it (I am touching wood for luck after saying that).
JimJim
To live/work without a car you need to be in a city, which tends to jack up your housing costs. They also compound.
Obvs you could live in the sticks within cycling distance of work I guess, and arguably I did for many years, and indeed sort of wrote something similar in my purer frugalista days
But my life would be very crimped if I didn’t have a car. Life is too short to accept the slowness of a bus, and that would add an hour round trip just to get to the nearest station.
But sure. If you’re rich enough to live in London, a car would be a right pain in the backside until you’re in Zone 5/6. What you’re saving on the car you’re more than giving back in rent/mortgage 😉
We chose a cargo ebike instead of a second car, covering all trips within 5 miles. It carries the weekly shop, up to 4 children and can be parked almost anywhere. It was an ex hire at £2800 8 years ago and it probably wouldn’t be too far off that value now. Far cheaper, plus you get the health benefits of cycling as a bonus!
Seems I’m aligned to most readers in valuing a car, even though I do not rely on it to commute at all.
I’ll add a data point on my own economics for comparison:
Purchase price 4 years ago (was already 10 years old): £4000
Let’s be pessimistic and treat this as £1k a year depreciation. I’ll pretend that pessimism offsets opportunity cost exactly to avoid figuring that out.
Annual insurance around £300
Annual maintenance around £600
Annual road tax £170
Annual fuel around £1000 (around 6000 miles)
I therefore reckon on an annual cost of approximately £3k or around £60pw.
It’s a little more than I had thought, so good exercise to write it out, but honestly that still feels like a bargain considering how useful it is to be able to take the kids to extracurricular activities several times per week, go shopping, camping, whatever, whenever and wherever I like. I also take it on the ferry sometimes, which isn’t a goer for Uber or hire car.
I recently got a 10-year old Citybug. It’s cheap to insure and run (averaged 57mph) and other than a slight worn synchro on the gear box the wear and tear is indistinguishable from the 3-year old I handed back on the work scheme.
Fair to say that while we had the discussion whether we can make do with one car it wasn’t a very long one, though our other car is 12 years old so most of the depreciation hit has already been felt.
We live a bit out of town with rubbish bus service so a car is a necessity. However we have 2 and once had 4 but they were all cheap. My aim is always to be the last owner of a car which has worked out asI have been lucky (current car 2008 plate 26000 miles). Keep track of old folk getting rid of their cars !
However, as the available cars get to be later plates maintenance requirements go up. If you own anything from 2016 you really need to keep on top of oil changes etc. This is because regs have forced manufacturers to sweat the technology to the limit of what is sensible.
If you own anything with ‘eco’ in the name sell it now!
In most cities these days, the best ans easiest method of transport is bike, followed by ebike. Even my plumber turns up on a cargo bike.
Three of my university long vacation jobs needed personal transport: I’d bought a motorbike using the money I’d saved from my summer holiday jobs as a schoolboy.
My first cars were a couple of old bangers. Then I bought the only new car I’ve ever bought, using a bank loan. I kept the car for 15 years and then sold it for almost as much (in nominal terms) as I’d paid for it. Ain’t inflation wonderful?
Since then we’ve always had a car en route either to being stolen (one) or ageing gracefully to 20 or so. Our present 2005 car does us just fine – heavens there’s not much more than 200,000 miles on the clock. (2005 because 2006 saw the introduction of buggeration devices imposed on diesels by the EU.)
For years “school runs”, commuting, and errands were done by pushbike. I’m too ill to drive; when my wife is too old to drive I’m certain we’ll miss it. Her preferred mode of gadding about at the moment is to drive to the Park-and-Ride and then use the busses. Works a treat for many purposes. And Free! (in the sense that someone else pays for the bus and the parking).
@mathmo that has to be the dream right? A car that you love and an appreciating asset as well!
@hosimpson absolutely, I am thinking about doing an EV and salary sacrifice analysis as well, but it would have turned this article into a mammoth. Of course, that option is that it depends a lot on your employer. The quality of service question is an interesting one. Personally, I’ve settled on Ocado in part because substitutions are so rare. With the mainstream supermarkets it was constant and it was annoying. The cost might be a bit higher, but with careful choices it is competitive. The bigger advantage for me (which is absolutely personal) is that I’ve removed an hour of driving and trolley pushing from each week and can put it towards something more enjoyable. This is getting a bit off-topic, but my local supermarket is now like Fort Knox and between the self-service tills screaming at me and the endless queues at the manned tills, I wasn’t enjoying the experience either.
@dearieme yes we had one of those veritable tanks, right until someone slammed into it and it resembled an accordion. I certainly wouldn’t be without any vehicle at all, far too useful for hospital trips and the like. But I do like to question every so often whether we’re getting value for money from things!
Like me, you forgot to include the hours spent commuting. When I included those hours in my calculations, I took early retirement very soon afterwards.
In this example, Jess could take home £900 more, but 10,000 miles/year can take around 2 hours/day, or more in a big city.
So in the example given, lets assume Jess works 35 hours/week for 52 weeks, and walks for 30 minutes each way:
Including travel costs and time commuting, Jess pockets:-
£21,521 ÷ 40 hrs/week = £10.34/hr.
For the new job option, lets assume Jess drives 30 miles at an average 30 mph each way, each day. Her second option becomes:-
£22,421 ÷ 45 hrs/week = £9.58/hr.
Try working these numbers for yourself.
I currently drive a 105,000 mile 2016 Tiguan bluemotion, 4wd which has been handy out in the sticks. I got rid of my last car (Golf bluemotion) at 274,000 miles. FYI, when I retired, I learned to fly and spent £100k on a small private plane, and don’t regret it one bit. I knew my frugal car habits would be worth it in the end!
@Matt — So you swapped a fancier commute for a six-figure plane? Love it. Ramit Sethi would be proud. 🙂
Hmmm, understand your point but the choices of example seem to suit the argument.
Perhaps a better analysis would be to look more at Alice’s situation.
Does she buy second hand and pay for premium breakdown cover.
What are the opportunity costs of working locally vs commute vs buying a local property.
You touch on these but without grounding it in actual data.
Clearly these are case by case judgements.
Owning a bright shiny new car to impress the neighbours (no one) is obviously a terrible financial judgement, commuting to a city 25 miles (10k pa?) away to earn 2x is probably not.
It’s long winded way to say buy 2nd hand or public transport depending on circumstance.
Oh car economics contains multitudes. I’ve usually bought used at 2-3 years old and run them into the ground. Which usually means a final voyage on a recovery truck (perhaps the automotive equivalent of a viking funeral). But then you have the inevitable big bills in later life to adjust to and it’s tempting to do an economic analysis on each. Most recently about 20 mins from home after a long road trip my clutch, to use the garage’s actual technical assessment, massively s##t itself (he actually said he’d never seen one explode that badly outside of drag racing). Replacement cost was maybe 40% of the car’s value. But it keeps me on the road, in a car that I’ve generally not had that many problems with, and saves me the capital cost and hassle of replacement. Plus as an ICE estate it is a dying breed and every year I can hold on, the better the choice of e replacements will be even if I have to accept a dreaded SUV shape.
I’d add that although I do not need a car for work and technically I could use public transport for most journeys, the specific journeys I do most often to family and weekend leisure would be considerably more difficult. So for me it’s an essential lifestyle tool, maybe more so than a sofa etc.
There’s a time and a place for this…. And a big but…
Once you hit FI it just doesn’t matter! I continue to work because I love what I do and maybe in mid 50s I’ll stop but not in my mid 40s.
I bought a new 2026 EV (R5) for £25k. Sold the 10 year old petrol car it replaced for £4k. The quality of my commute is far better and probably saves £150 a month in fuel on the side, as well as being green.
The years of saving, being frugal and living below means has worked out quite nicely.
It’s worth remembering that some jobs require access to a car. With both of us working in construction we had to have 2 cars, insured for business use. We’re down to 1 car now, even allowing that we qualify for free public transport now, I can’t see us going totally car free for the reasons others have mentioned. Our current city type car was about £4k, 36000 miles, 5 years old, we’ve had it about 8 years now. Zero road tax, lowest possible insurance, about £250 (including business use for my self employed gig) just got back from a weekend away where we got high 60s mpg. Normal fuel cost is about £500/ year. Maintenance maybe £200/year. I’ve always been lucky with cars, my last two were both about 20 years old when changed, hope this doesn’t jinx it….
Larsen, what car did you get? 4k for 5 years old and 36k miles is way better than anything I can find. 60mpg! It’s perfect! You sure you haven’t dreamt you bought this car 😉
@Rhino, Larsen bought the car 8 years ago, in the good old pre-inflation years. I agree you’d probably spend at least double that today for a similar car.
@Rhino, @countzero is correct, I just did a search on Autotrader and you’d need about £8-9k now, that’s quite sobering.
I’ve tended to go for the 2-4 years old and keep until 10 ish. Paid for typically by negotiating hard leveraging the sales teams incentives to sell PCP deals etc then pay off immediately using interest free credit cards. Its served me well over the years and I think that strategy is my preffered for personally owned vehicles.
Its certainly worth considering company car schemes if they are available to you. I opted into a refreshed company car scheme around 18 months ago. I sold my long ago paid off 12 year old golf and took a high spec premium EV company car. Even with the loss of a car allowance its working out substantially cheaper per month. Having run the numbers and forecast out known changes is tax etc I’d say that is only possible for certain tax bands and with full EV vehicles. Its worth looking into for anyone with that option open though.
@Frugalist – you’ve left me in suspense! Will you do without the second car? Can you really make do with a bunch of delivery subscriptions and Uber?
Is there a gap in views between you and your partner?
Mrs TA wouldn’t countenance living without a car. It spells freedom to her. She’s not into messing about with taxis or car clubs either. Maybe if an autonomous vehicle turned up on demand she’d be OK with that. She wouldn’t have to talk to it but she would want to drive it.
We’ve always been fine with one car but then we don’t have kids. I imagine that’s gotta be the tipping point for most.
Buying new cars is nuts. Does anyone do that in the UK? It looks like they do but surely they’re mostly lease cars or company cars?
I guess the lease cars option is asking for trouble financially?
How about buying a banger for a couple of hundred quid then ditching it whenever it needed a repair?
I recently bought a Nissan Xtrail 7 seater pre-reg with 200 miles on the clock. List price was ~£39.5k ( so no extra road tax for 6 years) and got around £12k off. We did have to drive 200 Miles to collect though – the plan would be to keep for 10 years and sell for £5k+.
It’s the second “new” car I’ve bought (ex co cars) – my wife was feeling poor v her other friends driving around in new cars….she was/is very happy
I sold a Fiat 124 about a year and upgraded to a Mercedes SL350 before they’re banned – best £5k upgrade I’ve ever spent. Fingers crossed for the reliability of a 11 year old car
This is a academic analysis of the lifetime cost of driving from 2022.
https://www.sciencedirect.com/science/article/pii/S0921800921003943
I enjoy counting all the money I have saved by never having a car.
“ Buying new cars is nuts. Does anyone do that in the UK? It looks like they do but surely they’re mostly lease cars or company cars?”
Generally true I guess, but not always. We bought the new MG4 a few months ago. Would have been cheaper through salary sacrifice but that particular upgraded model wasn’t available through the scheme (too recent probably, it had just come out), and I’m retiring in the next 12 months so it would’ve been a non-starter anyway. 8-year warranty, don’t remember the annual service cost but cheap, charging more or less free with solar panels, +/- a month or two over winter and an odd road trip where even the most expensive rapid charger still works out at about a third of the cost of petrol.
Back-of-a-fag-packet calculation: take the purchase price, divide by eight years, and that’s roughly our annual depreciation. Everything else is peanuts.
Obviously China is dumping EVs into Europe, but as a consumer I have absolutely no (zero. zip. zilch) objection to Chinese taxpayers subsidising my motoring.
Admittedly, this is only one of our three vehicles, but the other two are toys, so don’t really count.
Oh, and if I was a contractor, I could write some of it off on tax.
I’ve only ever bought one car new. That was a Skoda Fabia. I will never but a Skoda again. Terribly unreliable with some unfortunate design choices.
However, in all my car owning years, I have yet to work out when to get rid of a car. In the absence of an exploding engine, it’s the regular trickle of hefty bills. Especially for things like brake drums and suspension arms, that I always expect to last over a hundred thousand miles, but don’t seem to any more.