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Budgeting for your first car

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Buying your first car is a significant moment in most people’s lives; a car gives you more independence and flexibility to get around. It’s a moment you’re unlikely to forget and the freedom it brings is in itself an exciting rite of passage. However, before you start shopping around it’s important to know what to budget for.

Being honest with yourself in terms of what you can afford rather than what you desire, will lead to a more enjoyable and smooth leasing process and life. So be smart. Don’t lease an Audi or a BMW because you want to if you can’t afford it!

Missing any payments can negatively impact your credit rating which can have knock-on effects with other financial decisions in the future including credit card applications and mortgages. Furthermore, missed payments could lead to late fees, additional payments and ultimately, if it continues, the vehicle being repossessed.

You may already know some of your first car costs, such as not only the car itself, fuel and insurance but it’s easy to overlook some other key expenses. Our complete guide will help you to understand how to budget for your first car and evade any unpleasant surprises.

Car Insurance for young and new drivers

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According to data from MoneySuperMarket which is accurate as of January 2021, car insurance costs 17-24-year-olds an average of £1,977 for vehicles fitted without telematic devices. Without a doubt, car insurance will be one of the biggest costs that young and new drivers have to factor into their decision making when shopping around for their first car.

One of the key factors which determine the price of car insurance is age and experience. Insurance works by calculating the possibility of risk – therefore, new and inexperienced drivers are simply a bigger risk. This is because statistics show that there’s an increased probability that a fairly new driver could be involved in an accident, due to the lack of experience or poor standards of driving.

For example, the latest statistics from the AA and the Department of Transport show that young or new drivers are a third more likely to die in an accident compared to more experienced drivers and that as many as 23% of new drivers are involved in an accident in their first two years of driving.

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However, the longer you drive and the more years you build up your no claims discount or bonus, the lower your premiums should become. If you’re aged 17 to 24 you should shop around for ‘Young Driver’ insurance. 

The insurance company will likely insist that you have a telematics/black box device installed in the vehicle so it can record your driving behaviour, including how fast you drive, how fast you brake, and the distance you drive. However, this is a good way to lower the expensive premiums for young drivers and insurers will reward young drivers for driving sensibly.

Other ways to include reducing your annual insurance premium is to increase the voluntary excess payment, which is the amount of money you have to pay in the event of making a claim. By doing this it shows insurance providers that you’re less likely to make a false claim as you’d be adversely impacted by paying the higher excess amount. 

By adding an experienced driver onto your insurance policy it will demonstrate to the insurer that it won’t be just you using the vehicle and the premium should be decreased. 

It is also important to consider which insurance group the car will fall into. There are a total of 50 insurance groups, with 1 being the lowest (and cheapest) and 50 being the highest. You will want to try and find a vehicle that falls into one of the lower insurance groups to try and keep your insurance premium as low as possible.

You can check which insurance group is allocated to a vehicle by using the following tool provided by Thatcham Research.

Some of the vehicles with low insurance groups include the following.  For a review of each of these vehicles visit here.

Insurance Group
Kia Rio 1 DPi 1.2L

Ford Fiesta Trend Ti-VCT 1.1L

VW Polo Active MPI EVO 1.0L         

Peugeot 108 Access 1.0L 

VW Up! MPi 1.0L   

Hyundai i10 SE MPi 1.0L

Seat Ibiza FR MPi 1.0L

Renault Clio Iconic SCe 1.0L

Kia Picanto 1 DPi 1.0

Toyota Aygo JBL Edition TSS VVT-I 1.0L     










Finally, don’t forget to shop around for car insurance quotes and use comparison sites such as, or USwitch. You enter the relevant details into a comparison site and it will retrieve quotes from multiple insurance providers associated with the comparison site.  However, not all insurance providers are on comparison sites, such as Direct Line.

When comparing quotes it’s important to know that the cheapest deals don’t always necessarily represent the best value for money. You should always check and compare the terms of each policy as some will differ in the extent of cover.

See our “Ways to lower car insurance premiums for new and young drivers” guide for more tips to decrease your car insurance costs.

Car tax

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Officially known as the Vehicle Excise Duty (VED) it’s more often referred to as car tax.

If your car was first registered between 1 March 2001 and 1 April 2017, the cost of the tax depends on how much CO2 it emits. This will be shown on the V5C registration document. For cars registered before 1 March, 2001 VED is based on the size of the engine.

You should look at how much car tax will cost you before buying a car. The cleanest cars may not pay any VED - for example, most electric cars don't.

For newer cars (registered since April 2017), there's a standard rate of VED that applies to all but the cleanest cars.

However, with Personal Contract Hire, car tax is normally included in the contract so it’s one less thing to worry about paying for.


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Once a car is older than 3 years old it must undergo an annual MOT inspection to ensure the vehicle is still roadworthy and meets minimum safety requirements. Any maintenance needed to make the car fit for driving and to pass the inspection has to be carried out. This can include brakes, tyres and headlamps. The car must pass the test to be allowed on the road.

If you lease a car through Fleet UK the good news is that you probably won’t have to worry about getting your new or nearly-new vehicle MOT’d if your contract is two years long.

Fuel costs

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When searching for your new car, you should always check and calculate is its fuel economy.

To estimate how much the car is likely to cost in fuel for a year, you can use the manufacturer’s official MPG (miles per gallon) figure – although this is not always a real-world representation as factors such as traffic conditions and driving habits affect fuel consumption.

MPG refers to the distance you can travel in your car on a certain amount of fuel. Every new car in the UK has three official fuel consumption (fuel economy) ratings:

a) Urban

b) Extra-Urban 

c)  Combined

Urban signifies city driving, Extra-Urban represents country roads and motorways, and Combined is an overall figure.

According to, the average car in the UK drove 7,400 miles during 2019 (before the Covid pandemic). Let’s round this up to 8,000 miles.  If you lease a car that returns 50 mpg, it will use 160 gallons of fuel per year based on an annual mileage of 8,000 miles.

We’re talking about the measurement of gallons right now, but petrol stations in the UK sell fuel per litre! 

There are approximately 4.55 litres to a UK gallon, so if petrol costs about £1.30 a litre, a vehicle that returns 50 mpg will cost you around £728 per year (approx. £60 per month).

It’s worth using to find the most cost-effective prices on fuel. You can also make your petrol go further by improving your driving habits with the following:

  • Declutter the car – any extra weight in the vehicle means extra fuel consumption
  • Take it easy on the pedals – avoid sharp braking, heavy accelerating and high speeds. Plus any of these activities will be picked up by a black box/telematics device if you have one fitted to your vehicle to reduce insurance premiums
  • Check your tyre pressures regularly – a drop in tyre pressure will end up with increased fuel consumption
  • When to open the windows – if driving at high speeds it’s more efficient to use your air-con instead of opening windows. At lower speeds, it’s more efficient to open the windows


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The vast majority of vehicles need servicing annually.  During the service, it’s typical for the engine oil and filter to be changed and any scheduled maintenance will be taken care of.  The car should receive a mechanical once-over to ensure it’s in good condition.  

Depending on the type of vehicle service you have, the costs will vary from as little as £150 to several hundred pounds should any parts need to be replaced.

If you lease a car through personal contract hire you can take out an optional maintenance contract for a monthly payment to cover the cost of servicing, replacement tyres and other repair costs. Another benefit of leasing a new or nearly-new vehicle is that it will also have the manufacturer’s warranty.


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Tyres can be another big expense so it’s best to get the most out of them. With some careful driving and regular checks, you should be able to get around 20,000 miles out of front tyres on a front-wheel vehicle and around double that for rear tyres.

You should:

  • Check tyre pressures regularly – both under and over-inflation can increase wear and tear
  • Check for uneven tread wear – either incorrect wheel alignment or having a worn suspension can contribute towards cutting tyre life and fuel consumption can increase as well
  • Drive carefully – try to drive gently to avoid hard braking and cornering

And while tyres might seem like one of the most boring purchases you’ll have to make, they are the only link between you and the road surface, so don’t be persuaded to buy part worn tyres to save a few quid as many have dangerous defects – it’s just not worth putting your life and others at risk.

Easy ways to cut the cost of driving

Once you’ve bought your car and it’s taxed, insured and ready to rack up some miles, there are some steps you can take to lower the cost of driving:

  • Don't delay or skip regular servicing – it keeps your car running at its best and will pick up any faults early
  • Remember to check tyre pressures, engine coolant and the oil level every couple of weeks or so
  • You could consider a hybrid or electric car as they are cheaper to run with lower maintenance and fuel costs

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