How to calculate your car’s running costs

Owning a car comes with its own set of costs, yet it is a practical necessity for many. By finding out more about the long-term running costs – such as tax and insurance rates, fuel consumption etc. – you can make sure that you choose the most cost-effective option. Here’s what you need to know:

What are running costs?

Most people don’t have time to work out running costs before they commit to purchasing a car. Instead, they settle for the best insurance rate on offer, and lose track of the cumulative amount paid out on fuel.

The average driver spends £3,000 a year just to keep their car on the road. With a little research and a few quick equations, this hefty sum can be reduced significantly.

Factors that affect your running costs include:

• Insurance
• Fuel
• Tax

You can break your running costs down into two distinct sections:

Standing charges

Standing charges are costs accrued just to keep your car on the road. These include annual car tax, insurance, breakdown cover, cost of capital and depreciation.

Cost of capital is the hypothetical amount that you lose having invested in a vehicle, rather than putting the money in a bank account that could generate interest. Average interest rates are currently just over 2%, but this would depend on the agreement you have in place with your bank. If you have funded the car purchase with a loan or hire purchase agreement, the additional interest due for such arrangements would also be added to the cost of capital.

Depreciation is the amount of potential re-sale value that a car loses over time. A number of different factors will affect the rate of depreciation. The average rate of depreciation is 15% – 20% per year, so use this as a rough guide if you can’t find specific information relevant to the car you intend to purchase.

The costs of driving

These are the costs that you build up by actually driving the car. Such sums generally include fuel, parking, tolls, tyres, servicing and repair costs.

How do I work out my total costs?

Standing charges

1. Establish your average annual mileage, and jot this figure down.
2. Tot up your tax, insurance, depreciation and cost of capital figures.
3. Add these together to get your total standing charge cost.
4. Divide this figure by your total mileage to work out your cost per mile.

The costs of driving

5. Divide your expected mileage by your car’s average MPG to work out how many gallons of fuel you’ll use each year.
6. Find out the average cost of fuel per gallon, then times this by the number of gallons you predict you’ll use each year. This will give you an estimate of your total fuel cost.
7. Estimate a total for your annual parking, toll, tyres, servicing and repair costs.
8. Add your total fuel cost to the total from the previous point to come up with how much you spend on driving per year.
Total costs
9. Add your total standing charge cost to your total running cost to come up with your total annual cost.
10. Divide this by 12 to work out your average monthly cost. Or, divide this by your mileage to work out your total cost per mile.

Taking the time to work out your prospective running costs will let you know how much you’re likely to spend on a car before you’ve even taken it for a test drive. There are also a number of nifty ways to reduce your running costs once you’re out on the road, provided you’re driving efficiently.

If you’re thinking about getting a new car, talk to your local Perry’s dealer today.