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How much of your salary should you spend on a new car?

Young Family looking at a white car in a showroom

Your choice of car can have a huge effect on both your personal freedom and your finances. Since your car is likely the second most expensive thing you’ll buy, after your home, it’s important to budget carefully to make sure it stays affordable.  

Determining affordability for buying a car 

When considering how much you can spend on a car, it’s essential to align your budget with your income. Overspending during the car shopping process is common, especially when enticing models and extras catch your eye. To avoid financial strain, plan your budget based on your earnings. 

Considering your needs and preferences 

Your attitude towards cars plays a significant role in determining your budget. Some view cars purely as a means of transportation, while others are passionate enthusiasts. Your intended usage, whether for daily commutes or leisurely road trips, also influences your budget allocation. 

How much should I spend on my car?  

MoneyUnder30 recommends using one of four percentages[1] to work out how much you can afford to spend on a new or used car based on your needs.  

Here’s a breakdown to help you determine how much of your income to allocate using a tiered system.  

You need a simple, functional car for 10-15% of what you earn

If you view a car as more of a functional tool than a lifestyle item or a status symbol, it’s best to budget about 10 to 15 per cent of your annual income. According to the National Office of Statistics, the average weekly earnings in the UK is £661[2] (£34,963 per annum). Based on these figures, this gives you a budget of  £3,496 – £5,244 to spend on a car.

Since most new cars exceed this budget, it’s best to look at the used car market. For less than £5,000, you should be be able to find a range of high-quality used cars less than eight years old with reasonable mileage and in good condition.

While it can be tempting to go over your budget in order to get a higher quality car for your money, or alternatively to buy a brand new car, it’s important to remember that the cost of buying a car isn’t the only cost of owning a car.

From repairs and maintenance to registration fees and insurance, you’ll also need to pay a range of other costs in order to own and operate your car. This makes it worth sticking within your budget, even if it means buying a used car.

The Compromise: 20% – 25% of Your Income  

You’re in the market for a comfortable new car, built to a high standard and affordable. You don’t want something that’s already been used – instead, you want your car to be completely new. 

If this sounds like you, you might want 20 to 25 per cent of your total annual income on a new car. Using the average UK salary of £34,963 per year, this gives you about £6,992 – £8,740 to spend on a new car. 

Around this budget, you’ll be able to afford some small city cars such as the Vauxhall Corsa or the Kia Picanto, both of which are available for around £8,000. If your budget extends slightly beyond this limit, the Citroen C1 is available from just over £8,000. 

If you need a larger or more powerful car, it’s worth looking at the used market. A wide range of cars are available for 20-30% off their new price after just one or two years of light use, making them great low-cost comfortable choices. 

It can be tempting to go over your budget to get a higher quality car for your money, or to buy a brand new car, but it’s important to remember that the cost of buying a car isn’t the only cost of owning a car.  

From repairs and maintenance to registration fees and insurance, you’ll also need to pay a range of other costs to own and operate your car. This makes it worth sticking within your budget, even if it means buying a used car. 

The ‘One-Size-Fits-All’ Rule: 35% of Your Income 

This covers most bases. If you earn £16,000 a year, it gives you a budget of £5,600 which is enough to buy an older yet still reliable used car.  On the other end of the spectrum, someone earning £118,000 a year might spend £41,300 on a new car. That will buy a wide range of brand-new cars, including luxury models.  

How much money do you spend on your car each month?  

By now you have probably worked out how much you can afford using the percentage technique. If you don’t have the cash to buy the vehicle outright and would prefer a loan or finance deal, simply spread the amount you can afford across a year or two or three (depending on your repayment option) and work out how much you’ll need to pay monthly.

There are a number of payment options available, to make your costs a little more affordable, such as:

  • PCP (Personal contract purchase)
  • HP (Hire purchase)
  • (PCH) Personal car leasing
  • Personal loan
  • Part exchange

Be sure to do your research to find out which is the best finance option for you. Make sure that you extend the warranty of your car after the manufacturer or dealer warranty period expires to help to avoid any nasty shocks with repair costs. Warrantywise stands out for its tailored approach, allowing customers to choose an extended car warranty that best suits their needs and budget, making it a preferred choice for many car owners seeking extended protection beyond the manufacturer’s warranty. Start your quote for cover you can be confident in today.


Warrantywise does not provide financial advice. The information offered by Warrantywise is intended for general informational purposes only and should not be regarded as financial guidance. It is advisable to seek advice from a qualified financial advisor for personalised guidance regarding your individual circumstances. Warrantywise is not accountable for any decisions made based on the information provided and disclaims any liability for actions taken in reliance on such information. 

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