Budgeting for a car in 2025: balancing loans, deposits, and running costs

Buying a car is a big financial commitment at any point. But, given the cost of living crisis in the UK in recent years, you may feel like budgeting is more important than ever in 2025. 

Planning carefully before financing a car could help you manage your finances more effectively and help you get behind the wheel. So, from how much of your pay to tuck away to the extra costs to factor in, we’ve created a blog to everything you might want to consider when budgeting for a car.

How much should I spend on a car?

How much you should spend on a car depends on your income and your other financial commitments. A common guideline is to allocate 10-15% of your monthly income to car finance payments. But, this should factor in the total cost of the car, including running costs like fuel and insurance.

When deciding how much to spend on a car, you may want to consider:

• Your income: Calculate what you can comfortably pay each month without putting other financial priorities at risk.
• Saving for a deposit: A larger deposit could reduce your monthly payments and may improve your chances of being accepted for finance, depending on the lender’s criteria.
• Running costs: Insurance, fuel, road tax, MOTs, servicing, and repairs can all add up. It’s important to factor these in when setting your budget.

Note: This is just a guide and isn’t financial advice. Always make sure you understand the terms of your finance deal and get expert financial advice if you need it.

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Build your deposit

Saving for a deposit can help you borrow less, which could mean lower monthly payments and a better chance of getting approved for finance. In uncertain times, saving gradually can help make things easier.

• Use a high-interest savings account – Putting your savings into a high-interest account could help your deposit grow faster.
• Set realistic savings goals – Work out how much you need for a deposit and set a monthly savings target. Setting realistic savings goals based on what you can afford could help you reach your target faster.

Factor in running costs

When budgeting for a car, you need to think about the costs of owning and using it, not just the loan or payment. Here’s how to plan for them:

• Insurance – Get quotes from different companies before you buy the car. If you choose a car in a lower insurance group, you could save hundreds of pounds a year.
• Fuel – Work out how much you’ll spend on fuel each month based on how far you drive. Hybrid cars can be cheaper to run for some people as you don’t need to fill up with petrol as often.
• Maintenance and repairs – Budget for regular servicing, and put some money aside for unexpected repairs. If you’re buying a used car, bear in mind it may cost more to maintain than a new one.
• MOT and road tax – These are yearly costs that depend on the car’s age and emissions.
• Depreciation – Cars lose value over time, which affects how much you could sell it for later.

Remember, not being able to keep up with payments can hurt your credit score so it’s a good idea to make sure you can afford car finance before making a commitment.

Choose your car carefully

The car you choose will have a big effect on how much it costs to own. If you want to save money, you may want to think about buying a used car. Used cars are usually cheaper than new ones and lose value more slowly. However, they can cost more to fix.

You should also factor in whether the car is fuel efficient. Cars with better mileage or electric options can save you money on fuel and road tax.

Time your buy

When you buy a car can make a difference to the price. Dealerships sometimes have discounts, including:

• End of a financial quarter – Dealers might lower prices to hit their sales targets.
• New registration plate periods – New plates come out in March and September. Dealers may discount older models to make room for new stock.
• Seasonal sales – End-of-year sales and special offers could help you get a better deal.

Save for unexpected costs

It’s important to have a backup fund for any surprise costs. Repairs, new tyres, or higher fuel prices can all hit your budget if you’re not ready! Having money saved away can help you cover unexpected bills without needing to borrow money.

Choose the right car finance plan

Car finance can make buying a vehicle more manageable, but it's important to select a plan that aligns with your budget.

• Hire Purchase (HP): This option spreads the cost of your car across fixed monthly payments. Once you've made all the payments, the car is yours. HP may suit those looking for straightforward budgeting.
• Personal Contract Purchase (PCP): PCP typically offers lower monthly payments but requires a larger final 'balloon payment' if you want to own the car. This could be a good choice if you're unsure whether you want to keep the vehicle at the end of the agreement.
• Personal Contract Hire (PCH): Whilst we don't currently offer PCH, you effectively lease the car and return it at the end of the contract. This avoids concerns about the vehicle's future value but does mean you'll never own the car.

The best option for you will depend on if you want to pay less monthly, or less in total, and if you want to own the car at the end.

When comparing finance options, always make sure to factor in all the costs, including interest, fees, and charges. Check the APR to see how much the loan will cost you overall.

The takeaway

Budgeting for a car in 2025 might be tricky, but by carefully weighing up the various costs of car ownership, you can make it happen. Choosing the right finance option can make a big difference, and it’s always wise to plan for unexpected expenses, like a breakdown or repairs.

Before committing to any finance option, make sure you understand all the terms and do an affordability check to make sure you can manage the payments without stressing your finances.

If you're interested in exploring car finance options, get a free quote to see what you could qualify for.

Disclaimer: Car Finance 247 Limited is a credit broker and not a lender. We can introduce you to a range of lenders, but we cannot provide financial advice. Car finance is subject to approval, and terms and conditions apply. It's important to carefully consider whether the monthly payments fit your budget.