Independent expert Harvey Jones tells us how best to run a car without leaking money
“I’ve recently been offered a new job and car travel will be essential. How can I buy and run a decent car without paying for it until retirement?”
The cost of car travel these days is enough to worry anybody. But whether you’re buying new or used, there is plenty you can do to keep your expenses down.
Splashing out on a shiny new car is always tempting. It means no scuffs, no dirty door wells, no wear and tear. Better still, you get a manufacturer’s warranty, which covers anything that goes wrong in the first three to five years – as long as it isn’t your fault. New cars are also safer and more fuel-efficient.
"The drawback is of course, depreciation. After three years, your new car will typically be worth just 40 per cent of what you paid for it. That’s quite a hit. But if you still think you’d like a brand new set of wheels, decide how much you can afford to spend. This may impact the make and model you choose. You may have enough cash to buy outright. Or you may have a small amount each month to put towards a finance deal. Start comparing prices online for the type of car you’d like."
Websites such as Autotrader and Motors.co.uk are great for checking how much different makes and models are selling for, both new and used. Book a few test drives and get a few quotes for specific vehicles before you decide which road you’re going to head down. Don’t just walk into the nearest dealer and hand over your cash!
You should also work out how much the vehicle will cost to insure. You will pay more to cover a high-value, high-performance car that is attractive to thieves.
A large gas-guzzler also costs more in road tax and fuel than a more economical vehicle with a smaller engine. For example, running a Vauxhall Corsa costs around £4,800 a year, compared to around £8,000 for a Ford Mondeo, according to RAC figures. Some lower-emission cars now have no road tax to pay for at least the first year and after that are only £20 or £30 each year. Check how much you’ll have to pay against the make, model and year of manufacture of the car you plan to buy.
Buying a second hand car can be a hazardous business, especially if you buy from a private owner. If you aren’t sure what you’re doing, find a knowledgeable friend to accompany you to auctions and dealers. Here are some tips:
Always view the car in daylight and examine it carefully for rust, mismatched paint and uneven gaps between body panels, which may indicate previous repairs.
Test drive the vehicle for at least 15 minutes and on different types of road, and listen for abnormal noises or vibrations. If you’re opting for a soft-top make sure you test it top up as well as down.
Check the car’s V5 registration document, service history and any previous MOT certificates, and confirm the Vehicle Identification Number (VIN) matches the VIN on the V5 document (remember a V5 is not proof of ownership).
Get a free valuation against the registration number to see if the quoted price is fair.
If you buy from a dealer, you have some protection under the Sale of Goods Act, against tricks like car clocking (fixing the mileage), or cut-and-shuts. This is where two write-offs have been welded together to create a potentially deadly new car. But if you buy privately, and anything does go wrong, you will have to prove the previous owner knew about any fault that appears later. So it pays to do your homework before you buy.
In the unlikely event you buy a car with outstanding finance, or one that has been stolen or written off, you could lose the car and all your money. Play safe by paying for a professional vehicle inspection from The AA, RAC or get an HPI check, normally only a few pounds online.
Professionals like this will check for mechanical and structural faults. These inspections cost from £120 to £180 but it could save you thousands in the long run. And you’ll have peace of mind about your safety and that of your passengers.
Whether you’re buying new or used, be prepared to haggle. There are plenty of cars out there. If you’re not happy with the price, walk away. Dealer finance is still the most popular way to buy a new motor. Two out of three car buyers fund their purchase with forecourt finance, and personal contract purchase (PCP) plans are now more popular than Hire Purchase (HP).
With PCP, you pay a deposit, then a regular monthly amount for three of four years, after which you can return the keys, part exchange the car against another, or make a final ‘balloon’ payment to own the car outright.
Always shop around to see if you can get cheaper finance elsewhere. Car dealers typically charge interest rates of between nine per cent and 12 per cent a year. If you’re borrowing more than £7,500, you might find a personal loan or further advance on your mortgage is only six or seven per cent. For smaller sums, you could pay between nine per cent and 15 per cent.
Once you’ve bought your car, keep close control of your running costs. Shop around for affordable insurance. Use a price comparison site. Get several quotes to ensure you aren’t paying over the odds. But don’t skimp on cover. Make sure you get all the benefits you need. Do you need a courtesy car, for example? Legal cover? Personal injury protection, or breakdown assistance?
Much of this may depend on how many miles you do each year, how far you live away from work, what alternative transport links are like in your local area, and how often you travel on the motorway. It’s up to you to weigh up what you need against things that are just nice to have. But it may be worth an extra £20 or £30 a year to make sure your policy is watertight for your individual circumstances.
You also need to ensure your job title is up to date on the policy, as well as the details of any named drivers, as this can have a marked effect on what you pay. You can cut your premiums by building a full no-claims discount on the vehicle and agreeing to pay a higher voluntary excess on any claim.
Installing security measures and parking your car in a driveway or garage at night will also reduce your premium. Consider paying in a single annual lump sum as this is usually cheaper than paying monthly. If you pay by Direct Debit, most insurers treat the money as if it was a loan, and charge sky-high APRs. And look out for deals like 12-months' cover for the price of 10, which are often advertised on TV, in newspapers and on insurance websites. Shop around and you should come across them.
With petrol prices at an all-time high, it pays to know where the best prices are, and this can change frequently. Before setting out, check local pump prices at Petrolprices.com. You can pay an extra 5p or 10p per litre at garages just a few miles apart. Choosing the right forecourt could save you up to £4 when filling a 40 litre tank.
Aggressive or clumsy drivers are simply burning money. Accelerating and braking smoothly, ensuring you are in the correct gear, staying within the speed limit and good anticipation can dramatically cut your fuel use. You can also boost fuel efficiency by ensuring your tyres are at the right pressure, stripping out extra weight in the boot or from an unused roof rack, and using air-conditioning or heating sparingly.
Buying and running a car isn’t cheap, but millions of us manage it somehow. Happy motoring!
- If you have a general financial query or dilemma unrelated to a specific financial services provider, email Harvey at email@example.com.
- Harvey regrets that he cannot answer your questions individually. These are his personal views and not those of Virgin Money. Nothing in the article constitutes legal, financial or other professional advice.
- If you have a specific financial concern, you should always seek your own professional financial advice.
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Links to external websites are for information only. Virgin Money receives no income from them and accepts no responsibility for the website content. The information in this article is correct as at 24 July 2012.