Buying a used car can seem like a good deal at first, but there are hidden costs you need to take into account when budgeting. Being prepared for these expenses will help ensure you can actually afford the car you want. This guide will walk through some key considerations around financing, insurance, maintenance, and repairs so your used car purchase stays within your budget.
Car Finance
One of the main factors in budgeting for a used car is how you will pay for it. Car finance spreads out the cost over time but also adds interest and fees. Here are some common car finance options to weigh up:
- Personal loan – Borrow a lump sum from a bank or lender. You’ll pay it back with interest over 1-7 years typically. Benefits include predictable payments and the fact that you own the car. Drawbacks are higher interest rates and required good credit.
- Hire purchase – Like a personal loan but financed by the dealership. Payments are usually spread over 3-5 years. You only own the car fully once payments are complete. Watch for high interest rates.
- Personal contract purchase (PCP) – Pay for the depreciation on the car and borrow the rest. After payments for 2-4 years, you either buy, return, or refinance the remaining amount. Low monthly costs, but you may owe a large lump sum later on.
It is possible to get affordable car finance if you research interest rates, compare lenders, and negotiate the best deal. Having a good credit score will help secure lower rates, too.
Insurance
Another cost that is easy to overlook when budgeting for a used car is insurance. Car insurance is required by law, and pricing depends on the age, make and model of the vehicle. Get quotes from multiple insurers to find the best rate. Consider what coverage levels you need as well – minimum liability insurance may be cheaper but leave you unprotected. Adding comprehensive and collision coverage is advisable if your car has significant value. Budget an extra 10-20% of the car’s price annually for insurance.
Maintenance and Repairs
While maintenance costs are lower for used vs new cars, they are still an inevitable part of car ownership. As an older vehicle, a used car may require more maintenance, too. Here are some common maintenance expenses to expect:
- Oil changes – £100-£200 per year
- New tyres – £300-£600 every 3-5 years
- Brakes – £200-£400 every 2-3 years
- Batteries – £100-£200 every 3-5 years
It’s smart to budget at least £500 per year for routine maintenance. Additionally, be prepared for surprise repair costs, which are hard to predict. It’s wise to have an emergency fund of £1000 or more set aside for any major repairs like transmission work or engine issues. Proper maintenance and regular checks will help avoid big repair bills.
Buying a used car represents a major purchase and ongoing commitment. While the upfront price seems low, additional costs like car finance, insurance, maintenance, and repairs add up. Doing your research, planning ahead, and budgeting extra will ensure hidden expenses don’t break the bank.
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