Car running costs explained

Owning a car in the UK involves significant ongoing costs that extend far beyond the initial purchase price, often catching new buyers off guard. The true financial commitment of vehicle ownership includes a range of regular and irregular expenses that can quickly add up, making accurate budgeting a challenge for many UK car owners.

Managing the energy costs of your vehicle, especially if you drive an electric car, can make a big difference to your overall expenses. Fuse Energy helps you understand and optimise your home energy use.

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Why calculate your car's running costs?

Beyond the purchase price

The price tag on a car is just the beginning. Many drivers focus solely on the upfront cost or monthly finance payments, overlooking the broader financial picture. The average cost to run a car in the UK is approximately £3,484 per year, or around £290 per month, based on an average of 7,100 miles annually, and this figure excludes finance payments, according to some analyses. Other estimates suggest annual motoring costs typically range from £3,000 to £5,000, depending on vehicle type, mileage, and driving habits.

Empowering financial decisions

Accurately predicting and budgeting for the total financial outlay of owning and running a vehicle is crucial. Understanding these costs empowers you to make informed financial decisions, giving you more control over your household budget. It helps avoid the common pitfall of underestimating the true financial impact of your vehicle, preventing unexpected strain on your finances.

Key components of car running costs

Car running costs can be broken down into several categories, some more obvious than others.

Fuel and energy expenses

Whether you use petrol, diesel, or electricity, fuel or energy is a primary ongoing expense. This cost is directly tied to your mileage and the efficiency of your vehicle. For a typical petrol car, annual fuel bills can be around £943, based on average UK mileage. For electric vehicles (EVs), these costs can be significantly lower, particularly with home charging.

Insurance premiums

Car insurance is a legal requirement in the UK. Premiums vary widely based on factors such as your age, driving history, vehicle type, and location.

Vehicle Excise Duty (road tax)

Vehicle Excise Duty (VED), commonly known as road tax, is an annual fee for using your car on public roads. Historically, electric vehicles have been exempt, but this is changing.

Servicing and maintenance

Regular servicing and maintenance are essential to keep your car safe and running efficiently. This includes routine checks, oil changes, tyre replacements, and the annual MOT test for cars over three years old. Basic servicing can range from £150 to £300 a year, while a full service might cost between £300 and £600. The average annual cost for MOT, service, and repairs for a car was £613 in December 2022.

Depreciation: the hidden cost

Depreciation is often the largest single running cost for a new car, yet it is frequently overlooked. This is the loss in value of your vehicle over time. New cars can lose between 15% and 35% of their value in the first year alone, and up to 60% or more by the third year.

Other variable expenses

Beyond the major categories, other variable costs can add up. These include parking fees, tolls, congestion charges (if applicable to your area), breakdown cover, and car cleaning. While individually small, these can contribute to the overall burden of car ownership.

Calculating your car's running costs: a step-by-step guide

Understanding your car's total running costs requires a systematic approach.

Gather your vehicle information

Start by noting your car's make, model, fuel type, engine size, and age. These details influence many cost components.

Estimate annual mileage

Your annual mileage is a critical factor for fuel and maintenance costs. The average UK driver covers around 7,100 miles per year. Be realistic about your own driving habits.

Factor in fuel or energy consumption

Research current fuel prices or electricity tariffs. For petrol and diesel cars, calculate your car's miles per gallon (MPG) to estimate annual fuel usage. For electric vehicles, consider your car's efficiency (miles per kWh) and the cost of electricity, especially if you charge at home. You can find more information on EV charging at home.

Obtain insurance quotes

Get up-to-date insurance quotes based on your vehicle and personal details. Online comparison sites can provide a range of options.

Research VED and other taxes

Check the current VED rate for your vehicle on the UK government website. Also, factor in any local charges like congestion or clean air zone fees if you drive in affected areas.

Budget for maintenance and repairs

Allocate a monthly amount for routine servicing, MOTs, and potential unexpected repairs. Older cars typically require a larger maintenance budget.

Consider depreciation

While harder to predict precisely, research typical depreciation rates for your car's make and model. This gives you a clearer picture of the true cost of ownership, especially for newer vehicles.

Electric vehicles: a different cost landscape

Electric vehicles (EVs) present a distinct cost profile compared to petrol or diesel cars, with significant changes to VED applying from April 2025.

Lower fuel costs with home charging

One of the most attractive aspects of EV ownership is the potential for significantly lower 'fuel' costs. Charging an electric vehicle at home, particularly using an off-peak electricity tariff, can cost as little as 2-5p per mile. This makes EVs considerably cheaper to drive per mile than petrol or diesel cars, with annual fuel savings for EV drivers estimated at more than £1,100. Even at the domestic price cap, an EV can cost around 7p per mile, which is often three times cheaper than petrol or diesel. For a detailed breakdown, see our article on electric car charging costs.

VED changes for EVs from 2025

From April 2025, electric vehicles are no longer exempt from VED.

• New EVs registered on or after 1 April 2025 now pay £10 for the first year, then £200 annually.
• Existing EVs registered between 1 April 2017 and 31 March 2025 also began paying £200 annually from April 2025.
• Additionally, EVs with a list price over £50,000 are subject to the Expensive Car Supplement from April 2025.

Maintenance and insurance for EVs

EVs generally have fewer moving parts than internal combustion engine (ICE) cars, which can lead to lower servicing costs. However, specialist EV components like batteries can be expensive to replace if damaged. Insurance premiums for EVs can sometimes be higher due to the cost of parts and specialist repairs, though this is evolving as the market matures.

Reducing your car running costs

There are several strategies you can employ to bring down the cost of running your car.

Optimise driving habits

Smooth acceleration and braking, maintaining appropriate tyre pressure, and avoiding excessive speed can significantly improve fuel or energy efficiency.

Regular maintenance

Keeping your car well-maintained not only ensures safety but also optimises performance and fuel economy, potentially preventing more costly repairs down the line.

Shop around for insurance

Always compare insurance quotes annually. Prices can fluctuate, and loyalty does not always pay.

Consider an electric vehicle

If your driving patterns and home setup allow for convenient home charging, switching to an EV can offer substantial savings on fuel costs, despite the VED changes.

How Fuse Energy helps EV owners save

Fuse Energy empowers electric car owners to significantly reduce their vehicle's running costs by optimising home charging through smart tariffs, seamless EV charger installation, and app-based energy management.

Smart tariffs for cheaper charging

Fuse's smart tariffs are designed to help EV owners take advantage of cheaper, off-peak electricity rates. By scheduling your EV to charge during these periods, you can drastically cut the 'fuel' component of your running costs, making EV ownership even more economical.

Seamless EV charger installation

Fuse offers the Easee One EV charger installation for £899. This includes full installation (up to 15m of cabling), surge protection, and a 3-year warranty. Fuse is an OZEV (Office for Zero Emission Vehicles) approved installer.

While the old Electric Vehicle Homecharge Scheme (EVHS) for owner-occupiers in houses with off-street parking has been discontinued, other domestic OZEV chargepoint grants are available until 31 March 2027. For these grants, the customer applies themselves via the GOV.UK application page; the installer does not apply on their behalf.

• The EV Chargepoint Grant for renters and flat owners provides up to £500 towards installing a chargepoint if you own and live in a flat, or rent any residential property, and have private off-street parking.
• The EV Chargepoint Grant for households with on-street parking provides up to £500 towards installing a chargepoint if you own or rent the property, only have on-street parking, and are installing a cross-pavement solution (e.g. a charging gully).
• The EV Chargepoint Grant for landlords offers up to £500 per socket, for up to 200 sockets per year, for residential properties.
• The Workplace Charging Scheme (WCS) offers up to £500 per socket, for up to 40 sockets across all sites, for eligible businesses, charities, and public sector organisations. A higher rate of up to £2,000 per socket is available for state-funded education institutions.

App-based energy management

The Fuse app provides transparency and control over your home energy consumption, including EV charging. This visibility allows you to monitor usage, schedule charging, and maximise savings by optimising when and how you power your vehicle.

Final thoughts on car ownership expenses

Accurately calculating and budgeting for your car's running costs is essential for sound financial planning. By understanding all the components involved, from fuel and insurance to depreciation and maintenance, you can make informed decisions. For electric vehicle owners, optimising home charging with smart tariffs and efficient charger installations, like those offered by Fuse Energy, provides a clear path to significant savings and greater control over your energy expenses.

Managing your energy bills should be clear and easy to understand. Fuse Energy focuses on straightforward pricing, so you can see exactly what you are paying without unnecessary complexity. If you have a smart meter, you can view detailed usage data through the app or website, helping you understand how you can lower your bills. Our 24/7 human support team is always on hand with fast response times whenever you need help. Click here to switch to Fuse Energy today. Find out about our mission by clicking here.