How to buy a cheap car

18 June 2012

Reducing your car bills has become an imperative as motoring costs soar.

The average driver will be well aware of the painful rise of fuel bills and insurance premiums, which have gone up by 17% and 24% respectively in the past two years, according to the AA.

The RAC Annual Cost of Motoring report, published late last year, found the average new car costs £6,689 a year to run when you add up fuel bills, insurance, depreciation and servicing. Based on an average household income of £35,300, that means we now spend 19% of our money running a new car.

So what can you do to bring down those costs?

There are the usual recommendations for improving your fuel consumption and lowering your car insurance but the best way to really save money is to buy the right car in the first place. Here we look at how to purchase a car that is going to save you money for years.

Small cars are the cheapest

The first thing to consider before you hit the showrooms is the pence per mile of various cars. “Pence per mile figures are a powerful tool in the search for the true cost of motoring,” says future values expert Jeff Knight from automotive price analysts CAP.

We asked CAP to produce some basic cost per mile figures using fuel costs, depreciation and servicing and maintenance figures. The three cheapest cars are shown in the table below, but the top 20 revealed a basic truth: small cars are cheapest.

All but one were city cars or superminis. The winner was the VW Up!, which costs just 24.2p a mile to run based on an annual mileage of 10,000, so that’s £2,420 a year.


The next thing to consider is how quickly your car is going to lose value once you’ve driven it off the forecourt. The AA’s Motoring Costs report shows that more expensive cars lose a disproportionate amount of their value as they get older.

On average, a new petrol car costing less than £12,000 sheds £1,217 of its value a year. However, if you buy a car worth in the region of £16,000 to £20,000 that figure is doubled. While diesel cars retain their value slightly more, the mantra of buy cheap to spend less still rings true.

The three cheapest-to-run cars

VW UP! 1.0l Take up three door £7,995 £3,875* 24.2
Kia Picanto 1.0l One five door £7,995 £3,725* 24.4
Peugeot 107 1.0 Access three door £7,995 £3,475 25.8

*After three years/30,000 miles

With that and every other motoring cost taken into account, the AA reckons that on average a sub-£12,000 petrol car - your superminis, for example - will cost you 46p per mile over 10,000 miles (42p for a diesel version). That’s £4,600 a year and around £2,000 less than the RAC’s total average figure for motoring bills.

As a result of their cost-effectiveness to run, the supermini sector has grown by 34% over the past decade, according to the Society of Motor Manufacturers and Traders, beating family cars, such as the Ford Focus, to become Britain’s biggest car segment. That demand translates into a higher resale price, but the best resale performers are not always small.

According to a recent survey by CAP, family car the Audi Q5 SUV is Britain’s slowest depreciating, keeping 72.5% of its value after three years and 30,000 miles. And as a general rule, premium brands are best when it comes to resale values – after all, a three-year-old Ferrari is better than no Ferrari at all – but mainstream brands, such as Ford and Fiat, do well with smaller cars and more niche models such as SUVs.


So what else should you consider before you buy a car?

How about tax? It’s never fun handing money over to HM Revenue & Customs so how can you minimise the amount of your car budget that goes to it? The government has been persuading us to buy ever more emissions-friendly cars by manipulating the vehicle excise duty (VED) tax band. The less CO2 your car produces, the less tax you pay.

If it produces under 100g/km of CO2 you pay no tax at all. The carmakers have jumped on this and now there are 108 VED-free cars on the market. They’re not all tiddlers either. In the family category you’ll find a Ford Focus, Volkswagen (VW) Golf, Audi A3 and Citroën C4.

The problem is that cars in the low to zero tax band are often more expensive. The VW Polo Bluemotion 1.2 diesel will set you back £4,000 more to buy than the equivalent 1.2 petrol model. The £100 per year tax bill you save won’t cover that premium.

The reason for this is that most low-emission specials are diesels and they are more expensive to produce than lighter petrol units. On top of that, you need eco equipment such as stop-start (which turns off the engine at traffic lights), low-rolling resistance tyres and aerodynamic modifications, all of which will cost you money.

So should you go for an eco-friendly diesel car or the petrol model?

Diesels are more tax-friendly because they’re more economical, and can feel faster on the road, thanks to the extra muscle they have over petrol cars. They also make more money on resale. On the other hand, as we’ve seen, they’re more expensive to buy, as well as noisier and heavier.

The main consideration though in the petrol vs diesel debate is fuel economy. In many cases diesel cars earn back their purchase premium within months as they are so much more economical than their petrol cousins. For example, the Alfa Romeo MiTo 1.3 litre diesel manages 78 miles per gallon.

On the government website, the fuel cost is recorded over 12,000 miles at £1,022. That’s compared to the 1.4 litre Multiair petrol version, which would cost £500 more over the same distance. That means the £500 extra the diesel costs to buy is wiped out after 12,000 miles, and there’s the annual £120 saving on tax too.

According to Parkers cost calculator, even the VW Polo Bluemotion diesel would almost recoup its heavy price penalty over the 1.20 petrol version, with fuel costing £13,565 over 30,000 miles compared to £13,374 for the petrol.

So, if you want a cheaper driving experience over the long term, your best bet is a diesel supermini.

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