The monthly payment is only part of your car’s cost. Here’s how to count the rest, compare PCP deals and check whether you could claim compensation.
You know what the car costs: £350 a month. At least, that is what leaves your bank account for the finance. Insurance, fuel and the deposit tend to live in other mental filing cabinets.
That is a problem when you are trying to build savings before retirement. You may need the car for work, family or simply getting about. The useful question is not whether you should give it up. It is whether you know what you are paying to keep it.
Start with what you spend, not the figure in the dealer’s advert. Add your deposit, finance payments, insurance, vehicle tax, fuel or charging, servicing, tyres, MOTs, repairs, parking and any charges you regularly pay to drive. Spread irregular bills over a year. A £600 repair fund, for example, is £50 a month whether or not the car has the decency to break down on schedule.
Then consider depreciation: the difference between what you paid for a car and what you could sell it for. If a car bought for £25,000 is worth £15,000 three years later, that is £10,000 of value lost, or about £278 a month. Those are illustrative figures, not a prediction for your car. If you use finance payments to measure your cash outgoings, do not add depreciation on top as though it were another direct debit: that would count part of the purchase cost twice.
Vehicle tax is worth checking rather than guessing. For 1 April 2026 to 31 March 2027, the standard annual rate for a car first registered from 1 April 2017 is £200 after its first licence. The first-year rate for a new car varies with emissions. Some cars with a list price above £40,000 also attract a £440 annual expensive-car supplement for five years from the second licence; the threshold is above £50,000 for qualifying zero-emission cars from 1 April 2026. A used car can still be within those five years, so check its original list price and registration date.
Rules about the first MOT differ, too: normally three years after registration in England, Scotland and Wales, but four years for a car in Northern Ireland. That is a budgeting detail, not a reason to ignore servicing.
The price of a car is not its monthly payment. It is what you give up, year after year, to keep driving it.
Personal contract purchase, or PCP, can make a car look affordable because the monthly payments do not clear its full value. You pay a deposit and instalments, then decide whether to make a large final ‘balloon’ payment to own the car. Otherwise you can hand it back, subject to the agreement’s mileage and condition rules, or arrange another deal.
Take a purely illustrative four-year offer: £3,000 down, £350 a month for 48 months and a £10,000 balloon. Handing the car back would mean paying £19,800 before running costs and any end-of-contract charges. Keeping it would mean paying £29,800 in total. Those figures are not the car’s loss in value: if you own it at the end, it still has a resale value. They show why ‘£350 a month’ is a poor basis for comparison.
Ask for the total amount payable, the APR, the balloon payment and the mileage allowance. Check what happens if your circumstances change or you want to leave early. Compare those figures with buying a less expensive car, paying cash while retaining an emergency fund, or using a different form of borrowing. Each has a cost or risk: cash ties up savings; an older car may need more repairs; a lower PCP instalment may leave you without a car you own at the end.
There is also the repeat-deal trap. If you change cars every few years to avoid finding the balloon payment, you may never reach the point where the monthly finance bill disappears. Convenient, certainly. Cheap, not necessarily.
Possibly. The Financial Conduct Authority’s motor finance redress scheme covers certain agreements made between 6 April 2007 and 1 November 2024, including eligible PCP and hire purchase deals. The issue is whether important arrangements between the lender and broker were not properly disclosed. Having had PCP does not, by itself, entitle you to money; personal contract hire, or leasing, is not covered by this scheme.
As at October 2026, the scheme is partly suspended following a legal challenge. The FCA says lenders do not currently need to calculate or pay compensation under the suspended parts. A hearing is scheduled for 16–26 February 2027, so do not build a possible payout into your savings plan. You can still complain directly to your lender for free. If you cannot remember who it was, old bank statements, the dealer or your credit file may help you find it.
There is no need to pay a claims company simply to make the complaint. The FCA warns that fees could take up to 36%, including VAT, of any compensation. Use its current consumer guidance for the steps and timings, which may change as the legal challenge proceeds. Treat an unsolicited promise of a guaranteed payout with the suspicion it deserves.
The biggest saving may come when you next change cars. Work out the annual cost of keeping your current one, then price the alternatives against the same mileage and likely running costs. If you drive less than you used to, check whether you still need the same size of car or two cars in the household. If a car is essential, the aim is a manageable cost, not a heroic plan to walk everywhere in November.
Suppose a different arrangement frees up £150 a month. That is £1,800 a year, £9,000 over five years or £18,000 over ten, before any interest or investment growth. It is not instant financial freedom, but it is money that could strengthen an emergency fund or give you more room in your retirement budget.
An ISA is one possible home for savings: the overall allowance is £20,000 in the 2026–27 tax year, and ISA interest and investment returns are tax-free. From 6 April 2027, the cash ISA limit is due to be £12,000 a year for those under 65, within the £20,000 overall allowance; it remains £20,000 for those aged 65 or over. Investments can fall as well as rise, so the right destination depends on when you need the money. For a significant pension or retirement decision, MoneyHelper or an FCA-regulated financial adviser can help you weigh the trade-offs.
Your car can eat into retirement savings because its real cost includes more than the finance instalment: count the deposit, running bills and what happens at the end of the deal. Compare the full cost of your next car with the alternatives, then decide what any genuine saving should do for you. If you had PCP or hire purchase between 6 April 2007 and 1 November 2024, check the FCA’s free complaints guidance, but do not count on compensation while the scheme faces a legal challenge.
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