The formula
cost per km = (depreciation + fuel + insurance + servicing + tax + tyres + interest) ÷ total km
Where it comes from
Depreciation never leaves your current account, so nobody notices it, yet it is usually the biggest item of all: a car bought for 25,000 that is worth 8,000 after five years has cost 17,000 just sitting there. Putting it next to fuel and insurance, and dividing everything by the kilometres driven, is the only way to compare two different cars — or to compare owning a car with not owning one.
How to work it out by hand
- Take the purchase price and subtract what it will be worth when you sell: that is depreciation
- Add the fuel for every kilometre of the period
- Add insurance, servicing and road tax for each year
- Add the sets of tyres it will need, and the interest if you finance it
- Divide the total by the kilometres driven
What is worth knowing
If you do not enter a resale value it is estimated with a geometric fall of twenty per cent a year, which is the average for a combustion car: the first year drops more and the curve then flattens. A car that is barely used is enormously expensive per kilometre, because depreciation and insurance run whether it moves or not; that is where car clubs and hourly rentals usually win. Interest is worked out on the average balance, which is half the amount financed: it is the usual approximation when you do not have the amortisation schedule, and the loan calculator gives the exact figure.