Driving can be expensive, not only do you have to fork out for the cost of the car itself but you’ve also got the cost of fuel, general upkeep, servicing, MOTs, any breakdowns, insurance and the dreaded car tax.
The average cost to run a car in the UK is around £3,500 per year and, following recent changes to the tax disc, you may be able to save some money each year.
Tax Disc Changes
As many of you are probably aware from yesterday, 1 October 2014, the paper tax disc is no more. However, although you won’t have a physical tax disc to display, you will still, of course, have to buy the tax.
Along with the removal of the disc from the car, the DVLA has introduced a new way to make payments for the car tax. Instead of just having the option to buy it in either six or 12-month blocks, you now have the option to pay for it monthly by direct debit.
Recent DVLA figures have shown that 27% of drivers manage the cost of the tax by paying over six months. However, by paying this way, it actually costs you 10% more or £17.50 a year, based on the average cost of vehicle tax at £175.
If you choose to spread the cost monthly by direct debit, the surcharge will reduce to just 5% and will save drivers who pay every six months a total of almost £80 million per year.
However, on top of this, 5.4 million drivers currently pay for the tax using a credit card meaning they are charged an additional £2.50 surcharge. But, to make it worse on the pocket, 12% of these drivers do not pay their credit card bill off in full each month, meaning they have to pay interest too.
According to money.co.uk, based on the average cost of vehicle tax at £175 and a credit card with an 18.9% interest rate, it would take 57 months to pay the tax off when making minimum repayments and it will add an additional £73.65 in interest!
With the new system, you can still make the payments as normal at the post office or online but, if you continue to pay for six months’ worth of tax, without using the direct debit option, you will still incur the 10% surcharge. Continuing to pay annually can be done at no extra cost.
With a direct debit, not only can you spread the costs monthly, but you can also void a 10% surcharge and can avoid putting the cost on a credit card, saving you even more money!
If you want to start using the direct debit option, you can do so from now online and from 5 October in the post office. Go to www.gov.uk/tax-disc for more information about renewing.
If you do choose to pay by direct debit, you need to be aware that the payment will come out of your bank account monthly – and forever. If you change your car or don’t have one any more, you must remember to tell the DVLA otherwise they will continue to take the direct debit. You do obviously have the option to cancel the direct debit yourself with the bank but, just remember to tell the DVLA too.
Will you start paying by direct debit to spread the costs? Have you taken your disc out yet?
Ricky Willis is the original Skint Dad. A money-making enthusiast, father, and husband to Naomi. He is always looking for unique ways to earn a little extra.