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

Time to read: 4 Mins

Key Points

• Your car is likely the second most expensive thing you’ll buy after your home, so it’s important to budget carefully to keep it affordable
• Align your car budget with your income to avoid financial strain—overspending is common when shopping for cars
• Consider your personal needs and preferences: whether you see a car as a practical tool or a lifestyle choice affects your budget
• MoneyUnder30 suggests using a percentage of your annual income to set your car budget:
  • 10–15% of your income for a simple, functional car (e.g., £3,496 – £5,244 based on average UK salary)
  • 20–25% of your income if you want a comfortable new car (e.g., £6,992 – £8,740 for the average UK salary)
  • 35% of your income is a “one-size-fits-all” rule, covering most car-buying scenarios
• Most new cars exceed a 10–15% budget, so consider high-quality used cars for better value
• Don’t forget to factor in ongoing costs like repairs, maintenance, registration fees, and insurance—not just the purchase price
• If you use finance or loans, spread the total amount you can afford over your chosen repayment period to calculate monthly payments
• Common car finance options include PCP (Personal Contract Purchase), HP (Hire Purchase), PCH (Personal Car Leasing), personal loans, and part exchange
• Research the best finance option for your needs and always plan for extending your car’s warranty after the manufacturer or dealer warranty expires to avoid unexpected repair costs
• Warrantywise offers tailored extended car warranties to suit different needs and budgets, providing extra protection beyond the manufacturer’s warranty

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. However, you can often find a used car with a better specification that if you bought new, since your budget stretches further and allows you to afford more advanced features, or even a model from a more premium brand than you could if purchasing a new vehicle at the same price point.  

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 per year to spend on a simple and functional car, such as a used Vauxhall Corsa or Renault Clio.  

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. This makes sticking within your budget worthwhile, even if it means buying a used car.  

The Compromise: 20% – 25% of Your Income  

You’re in the market for an affordable car that is comfortable and built to a high standard. If this sounds like you, you might want to set aside 20 to 25 per cent of your total annual income for a new car. Using the average UK salary of £34,963 per year, this gives you about £6,992 – £8,740 per year to spend on a new car.  

With this budget, you may be able to afford some used small city cars such as the Vauxhall Corsa or the Kia Picanto, both of which are available for around £8,000. For just above this price point, you could also consider using a Citroen C1. These models are known for their low running costs and accessibility – making them a good choice for buyers looking to stick to their budget. Most of these cars originally come with a three-year manufacturer warranty, so when bought nearly new, buyers can still benefit from this, which adds to their appeal. 

If you need a larger or more powerful car, you will need to look at the used car 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.   

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

This rule covers most bases. For someone earning £16,000 a year, it suggests a car budget of £5,600 – enough to purchase an older but dependable used vehicle. On the other end of the spectrum, an individual with an annual income of £118,000 could afford to spend around £41,300, opening the doors to a wide selection of brand-new cars, including more reliable and luxurious like a used BMW 3 Series, Audi A4, or even a used electric vehicle such as a Tesla Model 3.  

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

By now, you may have probably worked out how much you can afford using the percentage technique. If you don’t have the cash to buy a vehicle outright and would prefer a loan or finance deal, simply spread the amount you can afford over a set period, depending on your chosen repayment option. 

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 purchasing option for you. Once the manufacturer’s warranty period expires, consider making room in your budget for an extended car warranty to help you avoid 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 today for an extended car warranty.  

• Sources of data
• [1] Money Under 30 – How much should you really spend on a car?
• [2] Average weekly earnings in Great Britain: Oct 23

Disclaimer:

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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