Can You Really Afford That Car? Your Step-by-Step Affordability Check

Buying a car is exciting… but for many, it’s also one of the largest and often unexpected expenses of the year. On Financial Awareness Day, let's take a real look at what car ownership costs beyond just the monthly payment, and help you figure out if you're truly ready for it.

👉 Why affordability matters

👉 What total cost of ownership really means

👉 What's the average UK salary in 2025?

👉 Quick rules of thumb before you shop

👉 Monthly car repayments by salary

👉 PCP and balloon payments explained

👉 Real-world example

👉 Step-by-step affordability checklist

👉 Why Marsh Finance presents affordability this way

👉 A simple affordability stress test

👉 Buy with confidence, not just excitement

Why Affordability Matters

Car ownership can quietly consume a significant portion of your income once running costs, depreciation, and finance interest are taken into account.

Owning a car typically costs UK drivers £3,350 annually for running expenses alone: fuel, insurance, maintenance, road tax and more.

Add depreciation and loan interest and that can more than double, especially if you’re financing the car.

A study shows that 2 in 5 drivers spend nearly 20% of their monthly income just on their vehicle. That’s a big slice of your take-home pay that could be going to savings, holidays, or peace of mind.

What “Total Cost of Ownership” Really Means

The true cost of a car includes every expense you pay over time, not just the price on the windscreen or monthly payment.

The cost of a car isn’t just the sale price, there are plenty of costs that appear during a cars lifetime.

• This is most common with new cars, and is the drop in value of a car as it ages. The value of your car at the end of your agreement will be significantly less than at the start; this is depreciation. Different cars depreciate more than others, so it's important to research the depreciation of a brand before picking it.
• Petrol/diesel tends to cost around £1,400 a year. 
• Car Insurance. You will likely pay around £561 a year on insurance. This will likely come down as you become a more experienced driver, providing you avoid collisions and damages.
• Maintenance And Repairs. An issue can arise at any time. You will need around £300 a year set aside for repairs, with this amount increasing the older the car you own.
• Road Tax. Road tax is around £140, and must be paid if you want to drive on public roads.

What’s The Average UK Salary In 2025?

To be real about car affordability, it's helpful to know what people are generally earning. According to the Office for National Statistics, as of early 2025, the average weekly earnings in Great Britain, including bonuses, are around £722, while regular pay (excluding bonuses) stands at about £671.

Multiply that out, and it means:

• Average Gross Weekly Pay: £722
• Average Gross Annual Pay: £37,544 (based on 52 weeks)

Quick Rules Of Thumb Before You Shop

Keeping car payments under 10% of take-home pay and total car costs under 20% helps avoid becoming financially stretched.

• Car payment should be under 10% of your net monthly income
• All car costs combined (finance, insurance, fuel, servicing, tax, depreciation) should stay under 20%
• You don’t hear about the second 10%, but it’s often the one that derails budgets

Monthly Car Repayments By Salary

A good rule of thumb for affordability is to keep your monthly car finance payment under 10% of your take-home pay. When you include all car costs (insurance, fuel, tax, maintenance), try to stay under 20%. This helps you enjoy your car without eating into savings or struggling with unexpected bills.

Here’s what that might look like in real life for different salaries in the UK:

Figures based on UK 2025 average tax rates. “Take-home pay” is after tax and National Insurance.

It’s easy to be tempted by cars that push you to 15% or even 20% of your take-home pay just for the finance payment, but that leaves little room for insurance hikes, fuel price spikes, or unexpected repairs.

By sticking to the 10% rule, you give yourself breathing space and avoid being “car poor” — where most of your disposable income vanishes into your vehicle.

Understanding average earnings helps benchmark whether a typical car budget aligns with real-world income levels.

PCP and Balloon Payments Explained

Balloon payments can make cars look affordable monthly while pushing real costs to the end of the agreement.

A balloon payment is a large final sum that must be paid at the end of the agreement if you want to keep the car. Balloon payments exist in PCP agreements, and can make finance cheaper month by month. This is a popular option for customers, but there are a couple of risks that must be factored in before you sign.

The value of the car could fall. Your balloon payment is based on a future guaranteed value, set at the start of your agreement. If you approach your balloon payment and it is worth more than your car, meaning it has lost value quicker than anticipated, you will find yourself in negative equity. This means you’re paying more in finance than the car is worth.

Failure to make the balloon payment. If you’ve entered the agreement because of lower monthly payments but want to keep the car, the final balloon payment could catch you out financially. Make sure you budget for the balloon payment, even if you intend to return the car.

Real-World Example

If you earn £30,000 a year, your take-home pay is roughly £2,050 a month. Following the 10% rule, your car finance payment should be no more than £205 a month. That might sound low, but it’s realistic, especially if you buy used or extend your loan term slightly (without overpaying interest).

Total Cost Snapshot: What Are You Committing To?

Let’s break down typical yearly costs for a financed car in the UK:

Owning a financed car often costs more than double the advertised monthly payment.

Step-by-Step Affordability Checklist

1. Know Your Monthly Income

Determine your take-home pay (after tax). If it’s £2,000/month, aim for a car budget under £200/month or £400/month all-in.

2. Estimate Monthly Recurring Costs

Breakdown:

• Fuel
• Insurance
• Servicing & MOT
• Road Tax / VED (from £150/year, higher for big CO₂ cars)

Check out our blog on the True Cost of Car Ownership

3. Add Depreciation

Cars lose 15–20% of their value in the first year, then around 10–15% annually. That’s a real cost, think of it as “money evaporating” that you’ll never recoup.

4. Factor in Finance Interest

If you’re budgeting by monthly instalments, check if you’re also saving for final balloon payments or extra interest on long-term loans.

5. Review Hidden/Extra Expenses

• Congestion fees, parking, cleaning, accessories
• Repairs, new tyres, breakdown cover
• Contingency fund… unexpected events happen

6. Total Your Monthly and Annual Outgoings

If the total exceeds 20% of your net income, pause and reconsider.

Why Marsh Finance Presents Affordability This Way

We don’t just care whether you get approved for finance, we’re here so you can stay approved throughout the loan without ending up “car broke.” We look at how much you can honestly afford, based on your income, budget, and cost of living, not just your credit score.

If you need help modelling your numbers or want to explore cars that truly fit your budget, check out our guides on:

• How your credit score affects your car finance application
  
• Understanding the full cost of car ownership

A Simple Affordability Stress Test

Before committing to a car, it helps to test whether the payments will feel comfortable in real life, not just on paper.

For two to three months, set aside the full amount you expect to spend on your car each month, including the finance payment, insurance, fuel, and any other regular costs. Treat this money as untouchable, just as if it were already leaving your account.

If saving this amount causes stress, forces you to rely on credit, or means cutting back on essentials, the car is likely too expensive, even if you have been approved for finance. If you can save it comfortably and still manage day-to-day spending, the budget is more likely to be sustainable.

This simple test highlights the difference between being able to make a payment and being able to live with it, helping you choose a car that fits your finances both now and in the months ahead.

Buy With Confidence, Not Just Excitement

A new car may be thrilling, but being financially prepared gives you the freedom to enjoy it without regret.

Want to find out your exact car finance budget? Apply online today without impacting your credit score!