With a credit crunch looming and budgets being stretched to the limit, you need look no further than your driveway for a sure fire way to shape up those finances.
That car is your fastest depreciating asset that gets more expensive to maintain every year, and for what? Sure there are households that simply can’t function without one, but for many of us it’s little more than a convenience.
And with petrol breaching the £1 a litre mark in some areas and the government targeting motorists as a way to replenish its coffers, owning a car makes less sense every day. Buy a run-of-the-mill new car now and you will be over £10,000 out of pocket in a year’s time.
So never mind the environmental debate, here’s a reason for not driving that you can take to the bank.
Compare car loans hereA practical case study
Let’s assume your existing car no longer suits your needs, so you decide to bite the bullet and purchase a brand new Ford Focus Style 1.8, the most purchased car in the UK last year.
The car costs £14,622, but you get £4,000 off for exchanging you existing car. In order to minimise the cost on the remaining debt, you
avoid the costly showroom finance deals and opt instead for a five-year loan from
Moneyback Bank at a rate of 6.3%.
But of course this is just the start of your outlays. The most significant cost to factor in is depreciation, but ironically this is the one most overlooked. Of course this is variable cost that depends greatly on how you treat your car, but uSwitch estimates a Ford Focus Style will lose an astonishing 48% of its value in the first year – that’s £7,086! (
Click here to compare cost of depreciation on your car)
Next you need to factor in insurance, which uSwitch estimates will be roughly £255 a year for this particular car, while basic
breakdown cover is an extra £35.
You then need to factor in petrol costs. The Department for Transport’s National Travel Survey in 2004 estimated that motorists travel some 6800 miles annually, meaning you will spend roughly £767 on fuel.
Total costs after one year| Depreciation | £7,086 |
| Loan payment | £2,482 |
| Fuel | £767 |
| Insurance | £255 |
| Breakdown cover | £35 |
| Total | £10,625 |
Click here to compare car loansAssuming you have no maintenance issues and remain accident free, you’ve still lost £10,625. Plus the car you’re now driving isn’t worth significantly more than the one you traded in a year ago.
When you look at the figures in this way it’s a wonder why anyone would bother with a new car, and yet nearly 140,000 Focus’ were sold here last year alone. The reason is that no one ever pays with a lump sum up front, but rather dilutes the costs over time. If anything that just makes it more expensive and an even greater reason to think twice.
It’s not just new cars that are pricey
The used car market has a fairly shady reputation, and with good reason. A recent survey found that over a quarter of UK motorists admit they would rip off a fellow driver to sell their used car.
Topping the list of misleading tactics used is hiding scratches, while more serious mistruths include exaggerating a car’s performance and over a million drivers would "forget" to mention that a car has been involved in an accident.
And even with all the added risks, a used car is still not particularly cheap to own. According to RAC, the average family car now costs £5,627 a year to keep on the road, with fuel, maintenance, insurance and tax adding up to £1,977 alone. Depreciation constitutes the largest chunk, constituting £2,357 of that total.
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So what are the alternatives?Considering how much money you can save, getting rid of the second car is really a no-brainer. You won’t really feel the impact on your lifestyle, but the impact on your wallet will be massive. Could you go one step further and live without a single car in your driveway, and what would the alternatives cost?
Car clubs, where you share a small pool of cars among a larger group of people, are proving extremely popular. It’s the most convenient alternative to owning a car, but can work out quite expensive if you need to use the cars often.
Prices vary among the big car clubs in London, but you’ll need to put down a deposit of between £100-£150 (which you will get back upon leaving), and some will charge a joining fee, usually around £25-£40.
Now down to using the car. You’re generally going to pay £5 an hour for use, but you can also book cars for 24-hour periods (around £35 on weekdays, and £55 on weekends) or longer. With these deals, you get the first 30 miles free, after which you are charged around 20p per mile travelled.
So let’s assume you use your car an average of three times a week. Once to take your kid to football (three hours), once to the shops (two hours) and one unexpected trip (two hours).
Then let’s also assume you’ll need a car for 24 hours once a month - on a weekend - for a family outing somewhere 50 miles away. That works out to £35 a week, and one £75 monthly outlay (£55 for the day plus £20 for 100 miles travelled). With four and a half weeks in the average month, that works out to £2,790 a year, significantly cheaper than owning a car.
Use the transport networkYou could save even more if made use of public transport, especially if you opt for season tickets. For example, South West Trains says an annual ticket between Kingston and Waterloo will cost you £1280, or £1720 with a London travel card.
Finally, the cheapest (but least convenient) option is to switch to pedal power. Thanks to a little known
government initiative, you can purchase a new bicycle free of VAT, NI and income tax, saving you up to 50%.
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Times have changedFor many people a car is an invaluable part of their lives. The aim of this article is not to demonise driving –that’s the government’s job apparently – but rather to get people thinking just how much a car costs.
Don’t buy into the adverts you see on TV: We need cars less today than ever before. Public transport is widely available, while the proliferation of Internet shopping means you can do everything from banking to buying your monthly groceries all from your PC.
What this means is you’ll probably be less inconvenienced than you think, plus you’re absolutely guaranteed to save a packet.
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