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The Real Cost of Owning a Car: What to Budget for Beyond Your Finance Payment
When you’re weighing up a new car, it’s natural to focus on the monthly finance payment and the car's overall cost. The finance agreement is only part of the picture; you also need to consider insurance, tax, servicing, and the occasional unexpected repair. All these little things together can add up quickly, especially if you haven’t budgeted correctly.
One of the biggest questions motorists ask is how much their vehicle costs beyond the price tag, and it’s not new to hear stories of people who had to sell their cars because the costs were higher than they expected. At Octane Finance, we want you to enter any new car purchase with a full understanding of what it will cost. We have created a practical rundown of what to budget for so you can work out the true cost of the car you want to buy before you commit.
Look Beyond Your Finance Monthly Payment
With most finance agreements, your monthly payment stays the same for the term, but most other costs don't. Insurance renews every year, and fuel prices topped an all-time high in October 2026.
Many drivers only plan for their predictable bills. Research commissioned by Creditspring in 2026 found that only 20% of drivers budget for unexpected repairs, compared with 46% who budget for insurance and 42% who budget for their MOT and road tax.
A more useful way to think about affordability is your total monthly cost of motoring: the finance payment plus everything else that keeps the car on the road.
Car Insurance
Insurance is usually the biggest running cost after fuel. According to the Association of British Insurers (ABI), the average private motor insurance premium paid in April to June 2026 was £566, or roughly £47 a month. That figure already includes Insurance Premium Tax, which is charged at 12% on motor policies.
Your premium could differ, as age, postcode, driving history, annual mileage, and the car’s insurance group all play a part. Younger drivers are hit hardest, with Confused.com’s price index putting the average quote for a 17-year-old at £1,755 in July to September 2026.
Prestige and performance cars typically sit in higher insurance groups, so it’s worth getting an insurance quote for the specific car before you purchase it.
Vehicle Road Tax
Since 1 April 2026, the standard annual rate of Vehicle Excise Duty for cars registered after April 2017 has been £200. First-year rates for new cars are based on CO2 emissions and can reach £5,690 for the highest-emitting models. New electric cars pay £10 in their first year, then move onto the standard rate.
If you’re looking at a higher-value car, keep the Expensive Car Supplement in mind. For 2026/27, it adds £440 a year to the standard rate for petrol, diesel, and hybrid cars with an original list price above £40,000. The threshold for electric cars rose to £50,000 from April 2026.
The supplement is charged in years two to six and is based on the car’s original list price, so it can still apply when you buy a used prestige car.
Fuel or Charging
Fuel is where running costs can swing the most. In early October 2026, RAC Fuel Watch reported that the average price of diesel had reached a record 200.01p a litre, with unleaded at 174.71p. The RAC calculated that a driver covering 10,000 miles a year in a 45mpg diesel car would now spend around £2,020 a year on fuel.
To be on top of the fuel costs, you should build in some headroom, starting with a realistic estimate of your annual mileage and the car’s real-world fuel economy
If you buy an electric car, charging at home is cheaper than relying on public chargers, but you may need to budget for a home charger’s installation and consider how your energy tariff may change.
Servicing, MOTs and Repairs
MOT is required every year after the car is 3 years old, and then you have to think about servicing.
In a Which? Survey of more than 63,000 car owners, carried out in April to June 2025, found that servicing at a franchised dealer cost £361 on average, compared with £260 at a local independent one. If your car’s still covered by warranty, check the servicing requirements before choosing where to go.
Repairs are where people get caught off guard and where budgeting comes in handy. Bumper’s AutoBI report found that the average repair bill has climbed to £597.48, up 26% since 2021. Creditspring’s research found that 40% of drivers couldn’t cover an unexpected repair bill over £249 without cutting back elsewhere, borrowing, or delaying another payment.
Setting aside a small amount each month for repairs means that if anything flags up in your MOT, it becomes more of an inconvenience rather than a crisis.
Tyres, breakdown cover and the other small expenses
There are other smaller things to factor in, such as:
- Tyres
- Breakdown cover
- Parking
- ULEZ areas
What a Year of Running Costs Could Look Like
Cost | Example Annual Figure |
Insurance | £566 |
Road Tax | £200 |
MOT | Up to £54.85 |
Service | £260 to £361 |
Fuel (10,000 miles, 45mpg diesel) | £2,020 |
Total | Around £3,100 and £3,300 |
That works out at roughly £258 to £267 a month, before you add your finance payment, breakdown cover, or parking.
How to Factor Running Costs into Your Finance Decision
A little planning before you apply for finance can go a long way:
- Work out your total monthly cost of motoring before choosing a car
- Get insurance quotes before starting the financing process
- Check out the car’s tax position
- Consider creating a buffer for repairs and fuel price changes
If you’re struggling to keep up with monthly costs, MoneyHelper offers free, impartial guidance.
Plan the whole cost
A car that fits your budget is one where the finance payment and the running costs can sit comfortably together. At Octane Finance, we work with a panel of lenders to help you find a finance agreement that suits your circumstances, whether you're buying an everyday family car, a prestige model or a classic. Our team can talk you through your options so you can decide with the full picture in front of you.
Explore your car finance options with Octane today. Finance is subject to status and affordability.
FAQs
How much does it cost to run a car in the UK each year?
It depends on the car, your mileage and where you live, but insurance, road tax, an MOT, a service and fuel for 10,000 miles can easily come to around £3,000 or more a year based on current figures. That's before repairs, tyres, breakdown cover, parking and your finance payment.
What costs should I budget for besides car finance?
The main ones are insurance, Vehicle Excise Duty, fuel or charging, servicing, the MOT once the car is three years old, and repairs. Smaller costs include tyres, breakdown cover, parking and clean air zone charges. Depreciation is also worth considering, as it affects what the car is worth when you sell or part-exchange it.
Is insurance included in car finance?
No. Car finance covers the cost of the car itself, and insurance is arranged and paid for separately. Some lenders require fully comprehensive cover as a condition of the agreement, so check your terms before you buy a policy.
Does the Expensive Car Supplement apply to used cars?
Yes. The supplement is based on the car's original list price when new, not what you pay for it. If a used petrol, diesel or hybrid car had a list price above £40,000, you'll pay the supplement in years two to six of the car's life, even if you bought it second-hand for less.
Are electric cars cheaper to run?
They can be, particularly if you charge at home on a suitable tariff and benefit from lower servicing costs. However, electric cars now pay road tax, tyres can cost more, and public rapid charging is usually more expensive than charging at home.