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If you’ve just passed your driving test, chances are you’ll be desperate to hit the road in your own car. But while it is easy to picture yourself behind the wheel of a fancy new ride, there are lots of things to consider with your budget being by far the most important. 

Running a first car can be expensive and it is important to understand what you can realistically afford. By setting yourself a budget, you can help you avoid overpaying for a new car and getting yourself into financial trouble.

When choosing a first car, it’s also vital to pick one that suits your needs and budget, particularly when it comes to running costs and insurance. 

To help make choosing your first car a little easier, Nationwide Vehicle Contracts has put together a short guide on how to find the right first car for you including how to budget for your new car and what ownership costs to take into account.

Row of new lease cars

Setting a budget for your new car

With so many great car leasing deals out there, it’s easy to fall into the temptation of leasing a car based solely on the monthly repayments but it’s important you set a realistic budget before you start looking to work how much your new car is going to cost to run. 

Start by sitting down with a calculator to work out:

What is your current income and expenses? The first step is to determine what your current income and expenses are. Remember to base your income on what you actually take home (after taxes) and factor in any other expenses or commitments you may have.

How much can you afford? The next step is to determine how much you can afford to spend on a new car. Alongside the monthly rental, you will also need to consider other running costs, such as fuel, insurance and servicing. 

Don’t forget the initial rental. Finally, don’t forget to factor in the initial rental when setting your budget. The initial rental is an advanced rental of usually equivalent to 3, 6 or 9 monthly rentals and forms part of the hire agreement. Unlike a deposit, the initial rental is non-refundable. It’s also worth bearing in mind that paying a larger initial rental will help to reduce your monthly payments. 

The Money Advice Service has a simple Budget Planner which will help you work out how much you can afford to on your new car.

Considerations for your first car

Once you’ve got your budget in place, the next step is to find the right car for you. Along with style and technology, it’s important to consider running costs such as fuel and insurance.

Running Costs

While the monthly rental is likely to be your first consideration, insurance, servicing and fuel costs all add up so it is important to work out how much a new car will cost you over a year to help you budget. Consider:

Fuel

Fuel is the most obvious running cost for any car, good fuel economy should be at the top of your new car list when searching for your first car.

To calculate 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. 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 – Urban, Extra-Urban and Combined. Urban represents city driving, Extra-Urban represents country roads and motorways, and Combined represents an overall figure.

If you intend to cover 8,000 miles a year (the UK average), then a car that returns 40 MPG will use 200 gallons of fuel annually. There are about 4.55 litres to a UK gallon, so if petrol costs about £1 a litre, a car that returns 40 MPG should cost roughly £910 a year (or £75.83 a month) to fuel.

Nationwide Vehicle Contracts created a handy Fuel Calculator which uses the Distance (Miles), Efficiency (MPG) and Fuel Cost (Pence Per Litre) to calculate how much your journey will cost. You can also calculate your vehicle’s MPG or work out how much fuel you will need for a particular journey by using the same tool.

It’s worth bearing in mind that the official MPG figure provided by the manufacturer is not always real-world representation and other factors, such as traffic or driving in a spirited fashion, will also affect your fuel consumption.

Insurance Group

With car insurance costing an average of £2,232 for a 17-year-old driver according to comparison website Gocompare.com, car insurance is one of the biggest cost considerations for new drivers. It therefore important to check the insurance group number of the car before buying or leasing.

A car's insurance group is based on the risk of the vehicle and is determined by the Association of British Insurers (ABI). Each car is assigned a group number between one (lowest) and 50 (highest). Typically cars in lower groups attract a cheaper premium, while cars in higher insurance groups attract a higher premium, often because they're high-performance models or prestige cars that have expensive repair or replacement costs.

As the cost of car insurance varies enormously and is based on a number of factors, such as the type of car you’re insuring, the profile of the driver and where you live, the best way to determine car’s insurance costs is to check online to compare insurance prices. Many comparison sites offer fast quotes for multiple insurance providers and can help you to find the best rate. Here are a few examples to help you:

You can also read more about insuring a lease vehicle in our handy online guide.

Maintenance and Servicing

In order to keep your new car in the best possible condition, you must service it at regular intervals as advised by the manufacturer. Most new cars need servicing every 12 months or every 12,000 miles to check and replace any parts which wear down over time and use. During a service, the engine oil and filter will be changed and scheduled maintenance will be taken care of.

As service costs depend on the type of car, its servicing schedule and the price of parts, costs vary wildly from vehicle to vehicle. For a lower budget, small cars, service costs tend to be around £150 each time, while high-performance, higher spec vehicles which require specialist skills and parts will be significantly higher.

For drivers who prefer to spread the cost over a longer-term, a servicing or maintenance package is worth considering. A maintenance package is an optional cost and includes all servicing, necessary maintenance of tyres, brakes, the exhaust and the battery of your vehicle, plus any necessary labour costs.

You can read more about Servicing Your Lease Vehicle including is involved in an annual car service, what the recommended service intervals are for your car and whether you have to take it to a main dealership, in our short guide.

Other Costs

Finally, it’s a good idea to think about any other costs which you may need to factor into your budget. If you live or work in London, you’ll need to factor in the London Congestion Charge into your monthly budget. Don’t forget to take any daily parking fees and/or residents’ parking permits into account. These may seem like fine details, but having a comprehensive idea what your car will cost can help you figure in all the factors fully.

Man picking up new lease car from dealership

Best First Cars

When choosing a first car, it’s vital to pick one that suits your budget and circumstances, as well as image and desirability. Fortunately, there are plenty of cars which offer both economy and style. The majority are very compact, too, which means they’re easy to park and nimble in tight spaces – qualities which aren’t only appreciated by less experienced motorists.

To help give you an idea of some of the new cars out there, Nationwide Vehicle Contracts has put together a list of the best cars for new drivers arranged by budget. 

Under £150 a month (inc VAT)

If you’re on a strict monthly budget, the below cars not only offer style and economy but are also available to lease from under £150 inc VAT a month. 

Hyundai i10

With its five year warranty, practical interior space and minimal running costs, it’s no surprise that the i10 has been awarded What Car?’s Best City Car award for the fourth consecutive year. 

The new i10 looks as good as its drives, boasting a refreshed exterior style as well as plenty of kit as standard, including body-coloured door handles and mirrors, air conditioning, cruise control, Bluetooth and DAB radio on mid-spec SE models. 

The i10's efficient engine range also means it’s cheap to run as well as tax and insure. The basic 65bhp 1.0-litre engine returns 60.1 MPG and emits just 108g/km of CO2 while SE Blue versions with Intelligent Stop Go deliver a fuel economy of 65.7 MPG and CO2 below 100g/km. Fixed price service packages start at £349 for three years.  

The Hyundai i10 is also extremely cheap car to insure. Lower spec versions with the 1.0-litre engine are in group two and the 1.2-litre engine are in group six. Premium-spec cars have a group seven insurance rating. 

Vauxhall Corsa

The Vauxhall Corsa is a firm favourite with driving instructors, making it a popular choice with first-time drivers because of its familiarity and cheap running costs.

Available with three or five doors, the latest Corsa was refreshed in 2014 to give it a sportier look, as well as more choice in terms of trims and engine combinations. Most models also offer plenty of kit as standard with the Corsa Design standing out in particular for equipment like air-conditioning, DAB radio, alloy wheels and cruise control.

The Corsa’s up-to-date engine range is cheaper to run than ever before, offering a wide choice of efficient petrol and diesel engines. The most efficient engine is the 94bhp 1.3-litre CDTi diesel, which returns 83.1 MPG and CO2 emissions as low as 90g/km. 

In terms of insurance, many Corsas sit in group three for insurance, although some of the least powerful models sit in group two. Insurance groups are also the same for three and five-door versions. 

Ford Fiesta

The Ford Fiesta has been the UK’s most popular small car since 2014 and is loved by experienced drivers as well as new-timers alike.

Stylish, affordable and fun to drive, the Fiesta not only offers great performance and economy, but also boasts a generous specification with the entry-level Zetec model offering DAB radio, Bluetooth, leather and chrome interior and alloy wheels as standard.

Running costs are low for most models with a wide range of petrol and diesel engines, many of which emit less than 100g/km of CO2 and return more than 65 MPG. The Ford Fiesta is also affordable to service with packages costing around £170. 

Insurance ratings start at group three for the most basic model, although some models fall between 11 and 12. The top-of-the-range sporty Titanium X EcoBoost model peaks at group 16. 

Between £150-£250 inc VAT

If you have a little more money to play with, a monthly budget of £150 to £250 a month (inc VAT) offers you more choice when it comes to style, space and specification. 

SEAT Leon

With heaps of style, great handling and low running costs, the SEAT Leon is one of the best hatchbacks in its class.  

Much of the Leon’s appeal lies in its stylish exterior and impressive standard specification with the popular SE model offering the best blend of value and equipment with essentials like air-conditioning, electric windows, alloy wheels, Bluetooth and cruise control.

The Leon also boasts an excellent range of engines with the 1.6-litre TDI standing out for its fuel economy of 78.5 MPG and CO2 emissions of just 102g/km. A number of fixed-price servicing plans are available for £179 for your car's first-year service, then £239 for the second year.

The cheapest car in the SEAT Leon range to insure is the 1.2-litre petrol, which sits in group 13. The most expensive version is the 2.0-litre TDI, which sits in group 26.

Nissan Juke

Since it first went on sale in 2010, the Nissan Juke has been bought by over half a million people, making it one of the most popular compact SUVs in its class. 

The Juke’s unique exterior styling means it hasn’t really aged on the outside, while inside, equipment levels are also decent with the entry-level Visia model boasting alloy wheels, air-conditioning, LED daytime running lights and remote central locking. 

If low running costs are top of your list, the 1.5-litre diesel engine is the best option for you with a combined fuel economy of 70 MPG and CO2 emissions of 104g/km of CO2. Service costs vary from £159 to £269 depending on the type of service required and whether the car is a diesel or a petrol. 

Most Jukes sit in insurance group 12, although the turbocharged petrol Nismo RS is much higher ay group 20. 

Smart ForFour Hatchback

The Smart ForFour remains a popular choice for new drivers thanks to its compact size and wide range of personalisation options. 

Designed to excel on city streets, the ForFour has a tiny turning circle and wheels pushed out to each corner for the maximum interior space. Every ForFour also comes well equipped with climate control, cruise control and Bluetooth connectivity offered as standard.

While the Smart ForFour is relatively pricey to buy, fuel costs remain low whichever model you choose with the range-topping 89bhp engine with automatic gearbox returning 67.3 MPG and the manual 0.9-litre returning 65.7 MPG. 

All Smart ForFours sit in either insurance group two or three depending on spec, making it cheap to insure. 

Between £250-£350 inc VAT

Finally, if your budget can stretch to £250 to £350 a month, more premium models start to come into the mix.  

MINI Hatchback

The MINI is a stylish hatchback with lots of character that’s cheap to run and enjoyable to drive.

The MINI is pretty well equipped with the popular Cooper boasting Bluetooth, front foglights, keyless go, electric windows, alloy wheels and climate control, all as standard.

A range of great small engines means the MINI Hatch is seriously cheap to run. The diesel-powered MINI One D is still the most efficient model in the range, claiming a staggering 83.1 MPG and 89g/km CO2 emissions. There are plenty of great servicing deals too

The only downside is that despite its size, the MINI sits quite high insurance groups. The cheapest is the Cooper D which sits in group 17, while the One, One D and Cooper all fall into group 20. The performance-focused Cooper S is the most expensive to cover in group 28.

Volkswagen Golf

Since the seventies, the Volkswagen Golf has been earning its reputation for strength and quality, making it one of the most desirable compact hatchbacks on the market

The Golf is a handsome-looking car thanks to its unfussy styling, sharp-looking front bumper and LED headlamps. In terms of equipment, the SE model stands out for its DAB radio, Bluetooth, eight-inch touchscreen infotainment system, sat nav, alloy wheels and adaptive cruise control. 

One of the key selling points of the Volkswagen Golf is its impressive fuel efficiency with the 113bhp 1.6-litre TDI diesel engine with dual-clutch DSG automatic gearbox delivering a combined fuel economy of 72.4 MPG and CO2 emissions of 102g/km.

Insurance groups start at 7 for the S, rising to group 19 for the GT. The higher-performance GTD and GTI variants start in groups 26 and 29 respectively, with the range-topping R in group 34.

Audi A3

Finally, if the Golf doesn’t catch your eye, check out the Audi A3 with its well-designed interior and low running costs. 

To make sure the A3 remains at the top of its game, Audi has worked hard to give the A3 a desirable image, standing out against rivals such as the Volkswagen Golf, SEAT Leon and Skoda Octavia. 

Excellent fuel economy and low CO2 emissions are available on most Audi A3 models with the 108bhp 1.6-litre TDI diesel engine delivering 74.3 MPG combined with low CO2 emissions of 99 g/km. Insurance and servicing also won't break the budget.

In terms of insurance groups, the 1.0-litre TFSI SE starts in insurance group 19, with the 1.6-litre TDI SE beginning in insurance group 18. 

Looking to lease your first car with Nationwide Vehicle Contracts? Find out more about How Leasing Works by reading our handy guide or call 0345 811 9595 to speak to one of our experienced sales advisers. 


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