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Why ‘cost to change’ is a crucial concept for car buyers

October 14, 2022 by

Getting a new car involves all sorts of considerations and calculations, but keeping ‘cost to change’ in mind can help make you the right decisions

The motivations for changing cars vary enormously from person to person, as do the requirements people have when looking for a new vehicle.

But regardless of if you want something faster or need something more practical, and whether you’re after an SUV or a supercar, a key concept to keep at the back of your mind as you begin the car-buying journey is the ‘cost to change’.

What does cost to change mean?

The clue is clearly in the name: cost to change boils down to being how much money you will need to pay to get the new (either brand-new, or new to you) car you want, and move your old one on – assuming you’re not buying your first car or keeping your current one as well.

But beyond that simple explanation, cost to change is as much a mindset as it is a calculation, and applying it to all aspects of the car-buying experience can help you get a better deal.

Cost to change: buying a new car

Setting a budget is one of the first steps to take when looking for a new car; your budget is likely to be either a lump-sum amount (EG “I have £10,000 to spend on a used car”), or monthly, meaning you’re prepared to spend, say, £400 a month on finance repayments.

We’ll assume, for the sake of argument, that you have a car you want to get rid of when purchasing your new one. We’ll also assume that whether you’re paying for a car outright or are taking out a PCP deal, you will be using the same method you used to fund a new vehicle as you did your current one – IE you’re not moving from finance to outright purchase, or vice versa.

Buying outright
This is a fairly simple calculation: the cost to change is the cost of the car you are buying, minus any discount you are able to haggle, minus how much you are able to get for your old car.

Even so, do bear in mind the big picture: dealers will balance out how much they will give you for trading in your car against any discount they are able to offer on the car you are buying.

It’s also worth highlighting that you may well be able to get more money for your old car if you sell it privately before or after you buy the new car, or if you use a car selling service like carwow’s sell my car.

As an example, if the car you are selling is worth £3,000 and the car you are buying is £10,000, the cost to change is clearly £7,000. The dealer may achieve the same result by offering you £2,500 trade-in on your old car, but applying a £500 discount to the car they are selling.

Buying using finance

Around 90% of new-car buyers use PCP finance to fund the vehicle, and the cost-to-change calculations for this are a little more complicated than they are for buying a car outright.

Dealers tend to be able to offer far greater flexibility with finance deals: deposit contributions can shrink the car’s outright purchase price, bringing down monthly repayments as they do so, while you may also find lower interest rates available with some specific choices.

Plus the larger the deposit you can put down, the less money you will be financing, hence the reduced interest you will pay over time.

The cost to change when using finance comes in two stages: the first is the one-off deposit you will pay, and the second is the amount you will be paying each month.

As an example:

Your old car cost £30,000 and was bought using finance. You managed to secure a 0% interest deal and put down a £5,000 deposit, while the optional balloon payment was set at £10,000 – though you’re not paying this, as you are getting a new car instead of buying your old one outright.

That left you borrowing £15,000 to fund your old car, which you paid £417 a month for over 36 months.

When you come to get your new car, though, in this scenario your old one did not depreciate quite as heavily as it was predicted to, and the car is actually worth £12,000 instead of £10,000. This means you paid off more than it depreciated (having paid off £15,000 over the three years), and assuming you stick with the same car brand, you can use the extra £2,000 to fund the deposit on a new car.

The new car you want to buy is £35,000, but as well as having the £2,000 left over from your old deal, the dealer is offering a £2,000 deposit contribution. You’ve also managed to secure another 0% interest deal, and have £5,000 to put down as a deposit contribution. This effectively gives you a £9,000 deposit.

Let’s say this new car is predicted to depreciate far less quickly than your old one and will be worth £17,000 in three years’ time. That, combined with the £9,000 deposit you’ve managed to pull together, means you’re financing £9,000 over three years.

That leaves you with a monthly repayment of just £250, compared to the £417 a month you paid on your old deal. In total, your purchase cost to change will be £14,000 over three years.

Details are crucial

The above example assumes all things work in your favour – 0% interest, a chunky slice of ‘equity’ built up over your previous PCP deal, and a generous deposit contribution from the dealer for the new car.

Let’s look at a reverse scenario:

Your old car was worth precisely £15,000 at the end of the deal so you had no equity; the dealer for the new car offers no deposit contribution; the only deal you have on the table brings 6% APR interest. And while the car has the same £35,000 price tag, it depreciates more heavily so is only predicted to be worth £10,000 in three years’ time.

You still have a £5,000 deposit to put down though but this, coupled with the new car’s heavier depreciation, means you need to finance £20,000 over three years. This would leave you with a monthly repayment of £555.56, but the 6% interest rate kicks your monthly repayment up to £675.36.

Your cost to change is, therefore, £5,000 on the day – but your cost to change on a monthly basis is actually £258.36 extra compared to the £417 a month you were paying for your old car.

In total, your cost to change in this scenario is £29,312.96 over three years – more than twice as much as the best-case scenario outlined above, despite the fact both cars have the same sticker price.

Cost to change: tax and insurance

The two costs will be less significant than the ones outlined above, but it’s still worth taking them into consideration.

Be sure to research insurance costs for any new car you’re thinking of buying, and factor this into your budgets. The cost of cover can vary enormously between different cars, and even the same model of car can have significantly different insurance costs depending on what engine and options it is fitted with.

It is quite possible to move from a car that costs £400 a year to insure to one that costs £800, with that difference coming to £1,200 over three years.

Also bear in mind road tax: the first year of this on a new car will be included in the car’s purchase price, and is determined by how much carbon dioxide it emits.

After this first year there is a flat £165 annual road-tax fee, though remember that if the car costs £40,000 or more (options count towards this) it will attract a £355 surcharge that runs for five years, from years two to six of the car’s life. This will add an additional £1,775 to your cost to change if your previous car did not attract this additional levy.

Cost to change: fuel and maintenance

Again, while this area of cost will not be as large as the car purchase price, it can still have a significant bearing on your cost to change.

Let’s say you cover 8,000 miles a year and your old petrol car managed 40mpg on average. Taking petrol at £1.65 a litre, your annual fuel costs will be £1500.21.

If you buy a new, faster car with a larger engine that only manages 30mpg, your annual fuel bill will rise to £2000.31, equating to an extra £1,500 over three years.

Maintenance costs also come into play when considering the cost to change, and it’s well worth weighing up if a new car you are considering has high servicing requirements; the more expensive and higher performance the car is, the greater its maintenance costs tend to be.

Car companies sell service plans that cover scheduled maintenance on a vehicle for a number of years, which will help you balance the bills.

It’s worth factoring in the cost of tyres as well: larger, heavier, higher performance cars need larger, higher-performance, more expensive tyres, which can catch people by surprise. A decent set of tyres for a mainstream car might be £100 a corner, while performance tyres can easily be £250 each.

Cost to change differences

We’ve deliberately chosen opposite ends of the spectrum in our scenarios, and have done this to demonstrate just how much different thinking about the cost to change can have on your outgoings.

Totting up the total costs over three years for the two scenarios above, bearing in mind both cars have a £35,000 list price.

We’ll assume each car needs one set of tyres over the three years, and that one’s service plan was twice the cost of the other’s (this is more than feasible).

Car A Car B Difference
Finance costs £14,000 £29,312.96 £15,312.96
Fuel £4,500.63 £6,000.93 £1,500.30
Insurance £400 £800 £400
Road tax £495 £1,560 £1,065
Maintenance £300 £600 £300
Set of tyres £400 £1,000 £600
Total £20,096 £39,273.89 £19,178.26

So there you have two £35,000 cars, one of which cost you a total of just over £20,000 over three years, and one of which cost you almost double that.

Yes, it would be fair to say that we’ve taken extreme examples in order to illustrate our point, but both are within the realms of possibility, and highlight the importance of thinking about the cost to change in a holistic sense.