How much should I spend on a car in the UK?

Before you buy a car, decide how much you can afford to spend on it. Think about your income, how you use your vehicle, and what you need it for day to day. You should also think about depreciation, factor in running costs like insurance, tax, fuel, and regular maintenance, and ask yourself if you plan to keep it for a few years or trade it in sooner.

But there’s more to it than that. In this guide, we’ll go through the key details that help you set a realistic budget.

Why It’s important to set a car budget before buying

Buying a new vehicle can be exciting, but without a clear budget, it can quickly become overwhelming. First, you need to determine how much you can realistically spend. Your overall financial situation plays a key role in deciding how you spend your income on a car, so you avoid putting pressure on other expenses.

The cost of the car goes beyond the purchase price, so try to understand all the financial terms attached to loans, finance deals, or leasing agreements. You should also consider a pay yourself first approach to maintain savings and cover essential expenses, even while planning for a new car.

Check out our article on: How to save for a car in the UK?

Car budgeting rules based on your income

The 10-15% rule for car payments suggests keeping payments within 10-15% of your monthly income. The 20% rule recommends spending no more than 20% of your annual income on overall ownership expenses.

The 20/4/10 car finance rule, often cited by financial experts, advises a 20% down payment on the price of the vehicle, financing for no more than four years, and keeping total monthly costs under 10% of monthly income. Similar guidance comes from the 20/10 rule, whereas the 50/30/20 rule helps balance car spending with other financial priorities.

How much should you spend on a car if you earn £30k, £40k, or £50k?

A common rule is to spend no more than a set percentage of your income, but the right figure also depends on your expenses, lifestyle, and priorities. However, just to practice, let’s try setting a budget for a car based on three income levels.

Buying a Car on a £30,000 Salary

With a £30,000 salary, most people don’t have too much to spend on a car. At this budget, a new vehicle is likely out of reach, so the used car market becomes your main option. Careful research helps you find a car that is reliable and efficient.

Budgeting for a Car on £40,000–£50,000 Income

For an income of £40,000-£50,000, your overall car budget can reach £15,000-£20,000. At this level, you can balance cost and features to get the best car for your money.

Budgeting for a Car on £60,000–£70,000 Income

Earning £60,000-£70,000 gives more flexibility to explore both used vehicles and higher-spec new models. Keep the initial purchase within £25,000-£30,000 to avoid letting lifestyle creep push you into unaffordable choices.

What are the hidden costs of owning a car in the UK?

Knowing the total cost of ownership (TCO) in advance will help you budget properly and avoid unpleasant surprises down the road.

Car insurance (and how it varies by age, postcode, and car type)

Insurance premiums vary depending on insurance groups, engine sizes, and the type of car you drive. Younger drivers or those in higher-risk areas tend to pay more. Your annual mileage also affects costs, as higher mileage increases risk.

Road tax (VED), fuel, and maintenance costs

The cost of vehicle ownership includes other operating expenses. Fuel costs vary depending on the engine type: petrol engines tend to consume more fuel and have lower MPG (miles per gallon), and diesel engines are more fuel-efficient for longer distances but use more expensive fuel.

Luxury models may include additional luxury car tax, and CO2 emissions determine the tax bracket for many vehicles. You can also go hybrid or electric (EV) for improved fuel efficiency and lower taxes.

MOT, repairs, and service costs (average UK figures)

Owning a car comes with regular maintenance. Standard car costs include MOT tests, vehicle inspection, tyre replacement, oil changes, brake checks, and routine servicing. Technical parameters, such as engine type and age, affect how often repairs are needed and the overall service costs.

UK drivers typically spend between £500 and £1,000 per year on these.

Depreciation: The biggest hidden cost most people forget

Depreciation is not one of the most discussed car expenses, but it can take a large chunk of your budget. Consider the total amount lost over time to calculate the cost per mile and the future resale value of your vehicle.

Should you buy outright or use car finance?

In this section, we’ll look at how the different options work and what to think about before choosing.

Buying with cash vs using car finance: Pros and Cons

Paying cash for a car gives you full ownership immediately and avoids interest. However, buying a car on finance helps manage your cash flow and fit into broader financial strategies.

Some buyers use salary sacrifice schemes to reduce their taxable income, and others consider a balloon payment or a personal loan to make monthly costs more manageable.

Understanding PCP, HP, bank loans, and leasing

Different finance options affect how much you pay each month and the flexibility of ownership.

• PCP (personal contract purchase): Lower monthly payments, with an option to purchase fee at the end if you want ownership.
• HP (hire purchase): Fixed monthly payments are spread evenly, and ownership automatically transfers once the term ends.
• Bank loan: Borrow the full amount upfront and repay in fixed monthly instalments, owning the car outright when finished.
• Leasing: Pay a set monthly fee to use the car for a fixed term, then return it at the end; ownership is not possible.

Other costs, like arrangement fees and early repayment charges, also apply depending on the plan.

How interest rates affect your total cost

Interest rates have a direct impact on your monthly repayment and the overall amount you pay. Use a finance calculator to estimate the total cost and see how quickly you can pay off the loan.

How long should you finance a car for?

When financing a car, the length of the loan term influences your payments. Longer terms reduce monthly payments, which makes the car more affordable month-to-month, but they also increase total interest.

How Carplus can help you finance your new car

Once you’ve worked out how much you can spend on a car, the next step is finding a finance deal that works for you. That’s where Carplus can help.

Carplus is a car finance broker. We don’t sell you cars—we help you get the finance to buy one. Instead of applying to different lenders yourself, you fill in one application. We compare options across our trusted panel of UK lenders and match you with a deal that suits your budget and credit profile.

You save time and avoid unnecessary credit checks. We explain your options clearly, help you understand the terms, and guide you through the process from start to finish.

Step-by-step guide to creating your car budget

A clear budget is the first step to buying a car you can truly afford. Here’s how to work it out:

Step 1: Work out how much you can afford per month

Start by asking yourself, “How much can I afford each month without stretching my finances?” Use an income vs expenditure analysis to see where your money goes and apply a zero-sum budget approach if possible. This helps with setting a realistic budget and still keeps other expenses under control.

Step 2: Estimate your running costs

Next, consider ongoing costs, such as insurance, road tax, and maintenance. Factor in fuel economy for the types of cars you’re interested in and any interest charges if you plan to finance the purchase.

Step 3: Set a realistic deposit and emergency fund

Decide on a deposit that leaves room in your budget for regular payments and unexpected costs. Calculate how much you need to cover initial costs like a down payment and any admin fee associated with financing. Also, set aside an emergency fund for repairs or unforeseen expenses.

Step 4: Match your budget to cars in the UK market

Finally, when purchasing a car in the UK, consider your finances and look at the options available. Look for a specific car that meets your needs within your budget. Consider a range of powertrains, including traditional petrol or diesel engines as well as plug-in hybrid, mild hybrid, and EVs.

Final words

When you know the importance of a clear budget for your next car, it helps you focus on what works for your situation. The amount you spend on a new car will affect how much money you have available for everything else. Look for the best deal for a new or used car and account for unexpected costs.

So, spend wisely and drive confidently!