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Cost of ownership

When you’re weighing up the cost of a new car, you need to consider the cost of ownership so you’re clear what you’re in for. This covers everything from what car insurance premium you’re likely to pay to how much road tax will be and what the car will cost to run, service and repair. And these costs can vary wildly between different makes and models. The following section gives you an overview of all the costs you need to think about.

Car insurance groups

The Insurance Group Rating Panel allocate "groups" to new cars based on research by the Motor Insurance Repair Research Centre. The Panel looks at a number of things such as the price, performance, repair costs, cost of parts, and the type of security system fitted to a car to decide what group the car falls into. This directly influences the cost of your car insurance so it’s worth checking the insurance group before you make a purchase.

In essence it pays to choose your vehicle with car insurance in mind: cheap motor insurance for women gets even cheaper on cars with smaller engines and good security features. A car like this can also save you money on running costs too.

Cheaper car insurance

There are a number of factors affecting premium, which insurance companies call risk factors. These include age, gender, vehicle type and location. You’ll be pleased to know that with Sheilas’ Wheels we reward the fact that women are safer drivers so you get the benefit of cheaper car insurance. See the Making it even cheaper section of our website to find out other ways to keep the cost of your insurance down.

Depreciation

This is actually the biggest running cost of a brand new car. Put simply it means your new car is worth less the minute you drive out of the showroom, and a new car typically loses most value in the first three years. In other words, you won’t be able to sell it for the same amount you bought it for. Some cars hold their value better than others so if you’re planning to buy new, check this information out first.

Cost of finance

When it comes to raising finance to fund your car purchase the most important thing is to shop around. It’s also a good idea to review your credit rating before you apply for finance - this gives you a picture of how lenders see you and puts you in a stronger position to negotiate a better deal.

There are a number of methods of finance available:

Hire purchase (HP)

With HP you pay an initial deposit, usually about 10% of the cost of the car, and the balance is paid in monthly instalments, plus interest. The key thing with this option is that you only own the car at the end of the payment period and the car can be repossessed if you fail to pay on time.

Personal contract plan (PCP)

With PCP you also pay a deposit but part of the cars full value is deferred until the end of the contract, which is usually two or three years. This lowers your monthly repayments, which can help with affordability.

PCP gives a number of options at the end of the term, namely you can hand the car back as the final 'payment' on what you owe’ you can sell the car privately to fund the final payment, you can pay the deferred lump sum and own the car, or if it’s worth more than you initially agreed, you can trade it in as a deposit on a new car.

Personal leasing

With personal leasing you still pay a small deposit, which is usually about three months’ payments. Then in effect you pay a fixed amount each month to "hire" the car for up to three years, after which the car is handed back to the leasing company. This option gives you a relatively cheap way to drive a new car and with some schemes the monthly payment covers running costs, including breakdown cover and road tax, which makes it virtually hassle-free.

The downside is that you never own the car and if you exceed an agreed mileage or the car is in poor condition, you’ll be penalised by the company.

Unsecured personal loan

You can also simply borrow the money from a lender and pay back the money plus interest over an agreed period of months. With this option the car belongs to you straight away. Interest rates also tend to be lower on a personal loan than with dealer finance options, but you need to check if there’s a penalty for paying the loan off early.

Credit cards

If you have a big enough credit limit then this could be a feasible payment option, but interest rates are usually higher than with other types of finance and you may face a card processing fee on top of this. You do get extra protection though: the card issuer is jointly liable with the dealer on transactions between £100 and £30,000.

Comparing finance options: Annual percentage rate (APR)

When it comes to deciding which finance option is best for you, you need to make sure you’re comparing like with like. A simple way to do this is to look at the APR.

APR stands for "annual percentage rate" and is used to describe the true cost of the money borrowed on mortgages, loans, and credit cards. The way APR is calculated is laid down by the Financial Services Authority (FSA) and takes into account the basic interest rate, when it is charged (daily, weekly, monthly or annually), all initial fees and any other costs you have to pay.

Because all lenders calculate APR in exactly the same way, you can make a direct cost comparison between different lending products.

Often companies will promote a "typical" % APR. This means the deal advertised is not necessarily the deal you’ll be offered – it depends on your credit rating and the amount of money you want to borrow. So it’s important to get actual quotes from a number of companies before you make a decision.

Fuel and fuel consumption

When you buy your car one of the decisions you’ll need to make is what type of fuel your car will run on. The two main fuel types are still petrol and diesel. In terms of miles per gallon diesel is cheaper than petrol, but a diesel car costs more. Of course there are environmental factors to take into consideration as well, but from a financial point of view you need to be clocking up substantial mileage to make the additional cost of a diesel car worthwhile.

Actual fuel consumption depends on the size of the engine and the efficiency of the car. It’s worth checking out efficiency of a car before you buy. You can also choose a car with a smaller engine to keep the running costs down. The more power you have, the more fuel you’ll guzzle and the more your car will cost you per mile.

Maintaining your vehicle in top working condition is another fuel-saving measure - this includes ensuring your tyres are always in good condition and at the correct tyre pressure.

Of course it goes without saying that avoiding unnecessary travel is the most fuel-efficient strategy of all and some insurers, such as Sheilas’ Wheels will reduce your car insurance premium if you drive fewer miles per year.

Servicing and repairs

Expensive brands typically mean expensive parts and expensive service costs. It’s worth taking a look at what the car you’re interested in will cost to service for a year and how much parts are. These can vary dramatically between different makes so it’s well worth looking into this in advance so there aren’t any nasty surprises.

Car parts that need replacing most frequently are tyres, brakes and exhausts, so it makes sense to look at these costs first. The cam belt (also known as a timing belt or timing chain) is one engine part that has to be changed at regular intervals. This can be anything between 40,000 and 120,000 miles and will be stipulated by the manufacturer. If you’re buying second hand it’s really important to check when this was last changed and how much it will cost to replace.

The cost of car repairs are a factor in the price of your car insurance.

Road tax

All cars are banded according to their fuel type and the CO2 emission levels. That means your car choice will influence how much road tax you pay. Although this isn’t a big part of running costs, it’s another good reason to choose a small, fuel efficient and eco-friendly car.