How Much Should I Save For My First Car?

You should have £4,000-£6,000 saved up for your first car if you plan on buying it. Otherwise, most finance deals only require an upfront payment in the form of a deposit of around £1,000, but you’ll need to put money aside for the monthly payments.

Getting your first first car should be as cost-effective as it is exciting, which is why we’ve put together this guide to show you exactly how much you should save for your first car.

Costs of buying your first car

saving for first car

Trying to save up enough cash to buy your first car can take months or even years depending on what model you’re looking for. We recommend looking at the used car market for bargains on motors with a bit of history, but are up to date with MOT and service history.

If you don’t need to carry passengers or much luggage, you can even focus on smaller hatchback/city cars with smaller engines to really drive the price down.

Should you be adamant on owning your first car, here are all the factors you need to consider when knowing how much money you need to save.

Purchase price

Some people can be put off by the idea of purchasing a car due to high asking prices and depreciation (when a vehicle loses its value over time). However, if you’re a new driver looking to get on the road quickly and affordably, buying a second-hand model is a great way to start.

For example, you can pick up a 2015 Ford Fiesta with 34,000 miles on its odometer for just over £5,000. Older models with similar mileage on the clock are advertised at less than £3,000, with full service history available with them too.

Many private sellers and dealers advertising used cars can be open to lower offers, so you should contact them when you have most of the cash saved up. You could end up getting your first car a lot cheaper than first expected this way.

Insurance

Insurance for new drivers is among the highest premiums, especially when the policyholder is young (aged 17-25). According to Uswitch, you can expect to pay around £1,795 for the first year of cover on your first car.

This shouldn’t leave you thinking that you’ll need to save this much in order to get insurance. Your personal details and those of your car will also determine how much you pay. Even if it is around this much, you can choose to pay monthly in order to spread the cost. Just beware that you’ll pay slightly more overall when doing this, as insurers add interest to pay-monthly cover.

Find out more about how much insurance costs for new drivers in our other guide.

Road tax and fuel

Running costs for your first car won’t necessarily require you to save up, but you’ll still need to set money aside for them. On average, this works out at around £67.63 per month for the average UK driver, according to figures from Motoring Research.

Picking a smaller model which is more fuel-efficient will mean you save on road tax and filling up at the pump.

If your first car isn’t brand-new, then you won’t have to pay the first year rate of tax, which is often the highest for petrol and diesel models because it’s calculated based on CO2 emissions. However, after the first year the flat rate is £150 per year, or £140 for hybrid models.

Maintenance

Maintenance can be a cost that you forget to factor in amid the excitement of jumping behind the wheel of your first car.

The average cost of maintenance for drivers in the UK is £191.53 for the year. Similarly, £159.09 a year was spent on unexpected repairs and breakdowns.

Although £350.62 doesn’t sound like a lot, oftentimes this could come in one go if your car is found to have issues when you take it for an MOT. Instead, it’s better to have service intervals for your new car so that any potential minor issues can be fixed before they cause possible major damage.

You can also save money by having a maintenance checklist of things you can do each week to keep your car running efficiently while reducing your spend at garages.

Costs of financing your first car

money for a car

Financing your first car is an attractive option because of the availability of low monthly payments for better models that would otherwise be out of your price range.

With finance, you pay monthly for a car and will sometimes have the option to own once your contract is finished. This method of getting a vehicle means that most of the money you need to save is for a deposit, though you should keep money aside for insurance, running costs and in some cases repairs and servicing.

There are three main methods of financing a car. Here’s how much you should save if you decide for each one.

1. Leasing

Leasing a car means that you’ll hire a vehicle long-term from a finance provider, usually for 2-3 years. At the end you hand the car back and walk away or take out another lease agreement with nothing more to pay (as long as there’s no damage that needs repairing and you’ve stuck to your agreed annual mileage).

Low-cost, flexible initial payments and affordable monthly rentals for a brand new car makes leasing a great option if you don’t have a lot saved up.

Saving for a lease

In order to help you save for your first car on a lease, it helps to see a full breakdown of the total cost of an agreement. Here’s an example of a standard Seat Ibiza lease on a 36-month contract, three months’ initial rental and an annual mileage of 8,000 miles.

  • Initial payment: £608 (£202.83 x 3)
  • Processing fee: £199
  • Monthly payments: 36 months x £202.83 = £7,301.88
  • Manufacturer’s annual service: £179 per year = £537
  • Fuel: £2,678.40 for three years of driving 8,000 miles per year*

Total lease cost: £11,324.28

The on the road (OTR) price of the same model is currently priced at just over £17,000, one and a half times more expensive than the total cost of leasing. More importantly, the lease amount is paid off over the course of three years, not as a lump sum which most new drivers would struggle to afford.

*Fuel price based on current average UK petrol price of £1.24 and assuming you drive the full 8,000 miles per year of your agreement.

2. PCP

PCP differs from leasing in that you have the option to own the car at the end of the contract. However, the terms of the agreements are identical as you will pay a deposit, have the vehicle for a few years and agree on an annual mileage.

Saving for a PCP agreement

A PCP agreement often has cheaper monthly payments than HP and leasing. This is because you’re paying the difference between the car’s price at the start of your deal and its GMFV (Guaranteed Minimum Future Value), what it’s likely to be worth at the end.

When you’ve made the final payment, you’ll need to pay a ‘balloon payment’ in order to own it. This could be more than a third of its cash value, so you’ll need to save some money while your agreement goes on if you do plan to own the car at the end. Otherwise, the dealer financing the vehicle should let you refinance it so that you can pay off the remaining debt monthly.

Of course, you don’t have to pay the final balloon payment if you decide that you don’t want to own it. Instead, you can part-exchange the vehicle against the deposit for another vehicle on a seperate PCP deal. Or you can hand the car back to the dealership with nothing more to pay (as long as you’ve stuck to the annual mileage and there’s no damage to the car.)

Here’s an example of the same Honda Civic in the previous section but on a PCP agreement.

  • Deposit: £1,000
  • Monthly payments: 36 months x £209.34 = £7,536.24
  • Optional final payment: £5,035.26
  • Manufacturer’s annual service: £180 per year = £540
  • Total charges payable (fees and interest): £1,871.50
  • Fuel: £2,310.12 for three years of driving 8,000 miles per year

Total PCP cost (owning): £18,293.12

Total PCP cost (without owning): £13,257.86

3. HP

A HP car finance deal involves you paying off the full value of a car over a term which suits you, whether that’s 12 months or as long as five years.

Once you’ve made the final monthly payment, you automatically own the car.

The amount you should save for a HP agreement will be more than if you were to lease a car because of the higher monthly payments associated with these deals. A HP payment goes towards the whole cost of the car and you have a small ‘option to purchase’ fee at the end that you can pay if you want to own it. In the case of a ‘Conditional Sale’ (CS) agreement, this optional payment won’t apply and you’ll automatically own it once your final installment has been made.

You’ll also need to have some form of deposit saved to put towards the car, which will make your monthly payments cheaper. However, a lot of the time this can be as little or as much as you wish. 

Here’s an example of a Conditional Sale finance plan** for a three-year old Honda Civic on a 36-month contract, an annual mileage of 8,000 miles and a £1,000 deposit.

  • Deposit: £1,000
  • Monthly payments: 36 months x £333.46 = £12,004.56
  • Manufacturer’s annual service: £180 per year = £540
  • Total charges payable (fees and interest): £1,304.56
  • Fuel: £2,310.12 for three years of driving 8,000 miles per year

Total HP cost: £17,159.24

**Figures from AutoTrader finance calculator

Are you considering leasing your first car? If so, check out how much you can save on upfront payments with our latest lease deals, all with flexible deposits and monthly payments to suit your budget.

If you need more tips before you hit the road, head over to our new driver guides for all the information you need before deciding on your first car.

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