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How Do I Calculate the Total Cost of Car Finance?

In the UK, the second biggest purchase in people’s lives is buying a car, that comes right after a house or a flat. It’s a pretty big deal, and there are so many decisions involved. There are also plenty of ways to make buying a car more affordable, like purchasing used instead of new. Additionally, buying a car on finance makes it more viable for the average household than buying it upfront, in cash. However, you’ll have to consider many different factors first - assessing whether or not you can afford a car, even with finance, is no easy feat. Let’s talk about how you can calculate the total cost of car finance. 🤓

The Cost of Your Vehicle

Though it will change according to which lender or financial institution you choose, you’re going to need to gather a few different bits of information before you can find out how much your car will cost you. Let’s take a look at some of the most common expenses you’ll be faced with during the car finance process. 

Your Vehicle’s Sale Price

The first thing to consider is the total amount the car is being sold for at a car dealership or online marketplace. If you’ve got your eyes set on a car, but you haven’t seen the right listing yet, just look up similar listings on different online car marketplaces to estimate the sale price. You can also check the manufacturer's website - do try and leave room for negotiation and/or price fluctuations. 

You don't have to be stuck with your local dealerships these days. Here are some car marketplaces and online dealerships you can browse through if you need to find your car’s sale price. If you’re not sure which car to go for, we’ve made some detailed guides on different cars you can get for under £150, £200, or £250 per month. Feel free to check them out! Here are some online sites to check out:

Deposit or Down Payment

With most car finance options, like Hire Purchase (HP), Personal Contract Purchase (PCP), and leasing, you’ll have to pay a deposit before you can drive away with your new car. These deposits usually amount to up to 10% of the total loan amount, or in some cases even more. Some no-deposit options do exist, but you’ll have to pay more in interest rates and these options are only available to people with very good credit scores. 

Our car finance calculator will allow you to input a figure for a deposit to see how it impacts your loan payment. You can then increase or decrease the amount, to be able to change your monthly repayment amount and see if you can afford it. It really comes down to the idea that paying a higher deposit means lower monthly payments. 

The Trade-in Value of Your Current Vehicle

If you have a car to trade in or sell, you’ll probably find that the older your car is, the less you’ll get in trade-in value. There are plenty of websites that specialise in trade-in car appraisals. It really is a great starting point tool to know how much you can shave off from your new car’s price by trading in your own car. In fact, it can sometimes be a strong negotiation asset to have a well-priced car to trade-in! But be aware these sites often actually offer less once they have inspected the car. It's often better financially to sell privately, but more hassle, especially if you haven't done it before. If you do go down this route, get support from someone experienced, as there are many scams and fraudsters out there in this field! 

Don’t Forget to Consider the Other Costs Too

Assessing whether or not you can afford to buy a new car goes further than just finding out how much the car sells for. Car finance takes into account the sale price of your car and then spreads that sum out into monthly repayments + interest rate. However, your car finance agreement will unfortunately not help you pay for all the peripheral costs tied to owning a car. In fact, it costs an average of £3,406.80 a year to run your car in the UK. These costs include: 

  • Car insurance (this will be especially high if you’re a young driver) - £1,100 a year or more
  • Vehicle tax, most commonly known as “road tax” - £140 per year depending on the car model/age/fuel type
  • MOT - £50 per year
  • Regular car service - £150 +  per visit, just for the service, and that’s not even considering any repairs or replacements that may be needed
  • Fuel - around £1,460 per year, though the number is highly dependent on how much you drive (and how much the prices go up!)
  • Parking
  • Registration fee (for new cars)
  • Delivery fee once you’ve purchased the car from the dealership
  • Car depreciation

The Cost of Your Finance Agreement

Now that we’ve gone over the costs pertaining to your car, let’s talk about how much it costs to take out car finance in itself. 

Your Car Finance Interest Rate

The interest rate is best compared by looking at the annual percentage rate (also called APR) that is set by your lender. This will include all fees etc. and is calculated in the same way for each lender. The interest rate your are offered depends hugely on your credit score and the length of your loan, but if you shop around, you might be able to find a pretty low-interest rate or even a 0% APR. One good way to do so is to estimate your interest rates by asking to be pre-approved by different lenders. This won’t affect your credit score, as they will only do a soft credit search, and it will allow you to get a set of decisions in principle that will detail what sort of deals you could get. Research is really the only way to get the best rates on car finance. Also bear in mind that newer cars tend to attract lower interest rates compared to older cars. 

VAT - Included or Not? 

When you buy a new car, VAT will usually be included in the sale price, so there’s no need to factor it in. However, do check whether it really is included in the price advertised, because you could get a nasty surprise when you realise you have to add on another whopping 20% to the sale price… It’s always best to ask your car dealership to check whether the VAT is included in the sale price. If you are a business registered for VAT, you’ll be able to offset this. Some disabled drivers are also not obligated to pay VAT if their vehicle has been adapted to their disability. Good to know!

The Term of Your Loan

A loan term is a word that is used to describe how long your loan is set out to be. This also means how long you will have to pay off your loan. Car finance agreements usually have loan terms that are between 1 and 5 years, though longer loans are getting increasingly popular. 

However, long loan terms aren’t necessarily better. Though it does sound attractive to have very low monthly repayment amounts because they are stretched out over a long period of time, don’t forget that the longer the loan, the higher the interest rate and the total interest rate paid back. That’s because lenders consider it riskier to lend you money over a longer period of time. It does make sense that they would prefer to get their money back sooner rather than later. 

That’s why our advice would be to not go for the longest loan term possible. It’s best to play around with different loan term options on our calculator to see what suits you best in terms of monthly repayments, always balancing your decision with the interest rate amounts. 


If you feel slightly overwhelmed by now - it’s okay, we totally get it. It can seem so daunting to have to make all of these decisions and find the best option. However, it really is a matter of planning and research, so as long as you don’t make any hasty decisions, you’ll be absolutely fine. By shopping around for the best loan deal, you’ll be able to find what works for you. 

We have a very regularly updated blog, and loads of other resources like our car finance calculator which we mentioned earlier. Feel free to browse through all of these - they are here to help! We also have a car finance app that will help you find a car finance deal in a few easy steps once you’re ready. Click here to see how it works! 😊

We’d love to hear your thoughts on this article!