Electric cars are more expensive than traditional combustion engine cars, and if you’re making the switch you may be tempted to go all-in and spend a big chunk of savings on a beautiful new car, or to pay a large amount on a monthly basis and have very little left over at the end of each month. This isn’t advisable. Make sure you don’t overstretch yourself.
However, once you buy your new hybrid or electric car, then running costs will be considerably lower, so it does make sense to take into account the savings you’ll make on fuel, and potentially factor that in to the upfront or monthly payments (for example, if you’ll save £50 a month on petrol, then you’ll be able to pay an extra £50 a month).
A rule of thumb
To begin, here is a rule of thumb for how much to spend on a new car, as a guide to get us started.
How much you spend on a car (and hence your budget) depends on how important the car is to you: how much you’ll use it, and how much it matters to you as a use of your disposable income.
If you would like a relatively cheap and affordable hybrid or electric car that’s good enough to get to and from work, or to the shops, then you should budget about 10-15% of your annual income. This would leave you with plenty of income spare for other expenses or for saving money.
If you would like a mid-level choice, that’s more comfortable, for work and weekends, and perhaps has a little more range, then budget about 20-25% of your income. This will give you better options for your car choice, and still leave the majority of your income available for other expenses or saving.
If you’re a car person, and you view a car not just as a means of getting about, but as an important lifestyle item – your pride and joy, and the thing that you want to spend money on – then budget up to 50% of your annual income.
With these in mind, the best general prompt would be to suggest around 20-25% of your income. If you are happy to do less, then great, but in reality, most people tend to want something a little bigger and better, but within their means. And this remains a safe choice.
Spending 50% of your annual income on new hybrid or electric car is a lot. However, if you have enough for accommodation, living expenses, and plenty of money left over for buffer room and the unexpected – and getting ‘that car’ is your top goal – then this is a good heuristic.
You also have to factor in your savings. You may not have much, or be able to touch these (or want to), or you may have a healthy pot that you can dip into. If you do, then the same sorts of rules of thumb can be used as a draft guide.
However, this will very much depend on whether you’ll need to use your savings on anything else over the next few years, such as a house purchase, buying things for the house, repairs, a wedding, holidays, the cost of having children (nursery fees etc.), or anything else.
You have to decide how much you can comfortably spend upfront, and/or monthly, rather than what you think you have spare or can squeeze to, even if running costs are low. It’s always better to err on the side of caution.
Cost savings of electric
Firstly, the UK government offers a plug-in car grant, which is currently £2,500 off any electric vehicle (EVs and plug-in hybrids) under £35,000. This is likely to reduce over time as EV uptake becomes more mainstream, but for now it helps to incentivise the switch.
In terms of running costs, if we compare an all-electric BMWi3 (£29,570) with a petrol BMW 318i (£29,600), the electric i3 costs 3.7p per mile, while the petrol 318i costs 14.2p per mile. So it’s clear that there are massive savings on fuel costs when compared directly.
However, in terms of Total Cost of Ownership (TCO) the figures become slightly more balanced, but the i3 still comes out cheaper. The i3 requires a home charger (£354), but doesn’t incur any tax payment, has slightly higher insurance (£1,089) and a roughly equivalent cost for servicing and tyres (£565) over three years of ownership, covering an average of 12,000 miles per year.
While the 318i owned over the same period and mileage incurs tax (£445) but has slightly lower insurance (£824) and just slightly higher costs for servicing and tyres (£615).
The i3 has a loss of value of £16,707 over the three years, while the 318i has a loss of value of £15,066, which is lower, but roughly equivalent.
With all costs factored in the electric model costs 67p per mile, while the petrol model of roughly the same upfront cost, costs 74p per mile.
In the UK, the average mileage per year is around 10,000 miles. Therefore, the cost saving of the i3 of 7p per mile (with all other costs factored in), per year, would be £700, and over 3 years would be £2100. And indeed, this would be higher for 12,000 miles per year or beyond.
Generally, a like-for-like electric model versus a petrol equivalent model will cost a few thousand pounds more, due to the higher cost of the battery. But as the scale of production increases, costs for electric are coming down, and as long as you drive an average or above average distance, then the higher cost will be offset by fuel savings.
Be realistic about your needs
A Tesla with a range of 300 miles plus is amazing, but it’s very expensive. The average electric car has a range of 250 miles, and many drivers won’t do more than 200 a month, so chances are you don’t need to go for the highest range and most expensive models. A short range car is ideal for most people’s driving distances, and the lower entry price makes them much more accessible.
Cost savings of hybrid
The total cost of a hybrid depends on the type of hybrid you pick, the amount you charge it, and how many miles you do. However, if you buy a plug-in hybrid and keep it well charged, and only use it for local commutes within the battery range, and therefore almost exclusively use the battery, then the cost saving can be roughly equal to a full-electric.
However, in reality plug-in hybrids (PHEVs) are there are the best of the both, for local electric driving, and an engine for longer motorway trips. And in most cases PHEV drivers will do a combination of electric and engine driving. In which case you’ll just be paying for the occasional top-up for those longer drives, and overall there will still be considerable savings on fuel, which warrant the higher upfront or monthly cost.
The only time when a plug-in hybrid won’t save you money in running costs is if you do a majority of motorway driving, and thus mainly use the engine, in which case plug-ins are less efficient, and you should look at a full-electric (EV) instead.
For standard self-charging or full hybrids (HEVs) they are fuelled primarily with a tank of petrol, but the electric motor means you’ll get better fuel economy than a standard petrol equivalent. So again, the extra upfront cost (which is a smaller premium than for a PHEV) is offset by reduced running costs, and lower tax, and no charge point costs are needed, and indeed in the long run, they will save you money (hence why the Toyota Prius became so popular for taxi drivers).
Even mild hybrids, which are basically petrol or diesel vehicles with additional EV tech (which use braking to charge a battery, to power the car electrics, but not to drive the car) offer improved fuel economy and emissions. So if you’re looking to reduce fuel costs and produce fewer emissions (but still not ready for full-electric, or the excess entry price puts you off) then hybrids are the way to go.
Finance and leasing
Most new cars are bought through finance, such as Personal Contract Purchase (PCP), and electric cars are no different. In fact, because of their higher entry prices finance and lease deals are becoming even more popular.
These are great ways to manage the cost of a new car, and to get a better can than you might if you bought outright, and it allows you to be clear on how much you will spend per month, which makes it easier to budget. Plus, you need no, or only a low deposit outlay. Just remember you will still need to add charging costs and insurance etc. to the total cost of ownership.
Conclusion
How much to spend on a hybrid of electric depends on your monthly earnings, your savings, and how much you will use your car. You shouldn’t overstretch yourself, but if you can afford the slightly higher upfront or monthly cost for a hybrid or electric, as long as you keep it well charged and are doing a reasonable number of miles per year, then the overall cost will be at least the same as a petrol or diesel, but most likely it will be cheaper. And if you use it a lot, then the savings will really add up.
So paying a little extra for a hybrid or electric, if you can, will equal itself out in lower running costs, and could save you money in the long run.
Get a quote for any make and model
We’re here to help you make the switch to electric. Have a look at your savings and monthly earnings and decide how you can budget. Then explore our site or the car finder tool to find out more about the mild hybrids, full hybrids, PHEVs, and full-electric cars that appeal to you. You’ll be able to find out information on every make and model, along with the target price we have established for each one (the purchase price you should be able to negotiate with the dealership) as well as monthly price.
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