new-car-spend

How much should you spend on a new car?

Learn the effective rule for buying cars in your price range.

The amount you should spend a new car largely comes down to your personal situation and your personal tastes. The only wrong answer is anything over 100% of your income, but we're going to say the right answer is 10-15% of your annual income in most cases and anywhere from 15-30% of your income if you're a car enthusiast or get a lot of use and enjoyment out of your car.

Why 10-15%?

  • For most income brackets there are cars for sale at this price. By following this rule you can be more confident that you've found an affordable option.
  • If you're using a loan to buy a car, sticking to this rule can stop you from wasting money by borrowing more than you need.
  • Between insurance, petrol, maintenance and repairs, the ongoing costs of owning a car add up quickly. This leaves you a buffer to afford these.
  • Sticking to this price range rather than going higher may help you to avoid rental plans and save considerable amounts of money in the long run.
  • Car value can depreciate rapidly. Think of your car as a useful tool, not as an investment.

How to find a car at the right price

By deciding ahead of time that you will not spend more than 15% of your yearly income on a car, you will have a clear price in mind.

Annual incomeHow much you should spend on a car (15%)
$20,000$3,000
$40,000$6,000
$60,000$9,000
$80,000$12,000
$100,000$15,000
$150,000$22,500
$200,000$30,000

Buying a car for under $3,000

  • At any given time, there are thousands of used cars being sold for under $3,000 in Australia. Check eBay, GumTree, the local classifieds, used car dealerships and online auctions.
  • Know what to look for in a used car. By following a checklist and knowing what to be aware of, you can avoid traps and pitfalls.
  • Consider financing rather than renting if it can help you get a more reliable or efficient vehicle, or if you're caught short and urgently need a new car to get to work. Specialised used car loans let you borrow as little as $1,000 with fixed interest rates starting at 5.69% p.a.
  • You may not want comprehensive car insurance for a vehicle under $3,000, even if you're the kind of person who gives your car a name and emotionally bonds with it. Consider sticking to third party property damage only. This is one of the cheapest types of car insurance, but it still offers important protection in the form of $20 million of legal liability cover.

Buying a car for under $15,000:

  • You can find recent-model used cars online for $10,000 or less.
  • Car loans are available for higher amounts, but you'll be awarded with a cheaper rate if you can use your car as security.
  • Vehicle auctions are popular among car dealers. This is where a lot of them go to pick up a bargain for resale at a higher price. Learn about car auction etiquette and you can beat them to the punch, picking up ex-fleet and government vehicles at a fraction of their value.
  • You might be able to save money by opting for a more recent or popular model, even if it costs a little bit more. The availability of spare parts can keep repair, maintenance and car insurance costs down.
  • Comprehensive car insurance may not deliver value for money in this price range. Consider third party property damage insurance for important but inexpensive cover, or third party fire and theft insurance, which covers legal liability as well as theft and fire damage, while still being relatively affordable.

Buying a car for $15,000 or more:

  • Used vehicles can be a good choice for various car types, including those in higher price ranges. Look around and you might find current-model cars in almost pristine condition for half of what they would cost brand new.
  • Vehicles in this price range and above can be loaded with additional features and electronics. If you want to save money, look for the features that deliver value and safety, rather than the luxuries, cosmetic features or conveniences.
  • If you're planning on financing your vehicle, it's usually worth using your car as security when taking out a higher loan amount. Used cars can still be used as security, but you might find that new car loans have a cheaper rate.
  • If you want to get a lot of use out of your car and plan on treating it like your own child, comprehensive car insurance can deliver a high level of protection.
  • If you're choosing a car that's loaded with electronics and advanced systems, remember that comprehensive car insurance will typically be needed to cover them. This is considerably more expensive than third party only car insurance, but also more useful. Compare a number of different policies to find the right cover for your car.

I'll need to borrow money. What are my car financing options?

Before you start comparing car loans, it helps to know what you're working with. This repayment calculator lets you compare loans by how much they will actually cost you all up, in real money. Simply fill in the loan amount, the loan term, the interest rate and the repayment frequency to see how much different loans actually cost, in real terms.

How to find a car loan that works for you

To find the right car loan, try following the guides below. Remember that everyone's financial situation is different and that you should compare all options critically before deciding on one loan. The following are just suggested guides and may not be right for everyone.

You can use this guide for low rate car loans or this one for used car loans as a baseline for new or used car financing.

Compare a range of car loans

Updated August 22nd, 2019
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Service Fee Monthly Repayment
5.49% (fixed)
5.84%
$2,000
1 to 7 years
$250
$0
Borrow as little as $2,000 at a competitive fixed rate
Finance a new car up to two years old. Competitive 5.99% p.a. rate available to all approved applicants.
6.99% (fixed)
8.1%
$5,000
1 to 7 years
$295
$10
Finance a range of vehicles including cars, motorbikes, boats and caravans.
Apply online to finance a new or used motor vehicle and receive a response in 90 seconds. You will receive a competitive tailored rate of between 6.99% p.a. to p.a.
From 4.99% (fixed)
5.54%
$5,000
3 to 5 years
$400
$0
Optional balloon payment available to reduce your repayments.
A competitive rate car loan suitable for a new cor used car.
From 5.34% (fixed)
6.6%
$7,500
1 to 7 years
$459.20 (for private seller vehicles this fee is $608)
$8.90
Fixed or variable rates starting from 5.34% p.a.
Apply for up to $150,000 and have up to 7 year(s) to repay. You can use cash or trade in a vehicle to use as a deposit.
From 5.69% (fixed)
6.39%
$5,000
1 to 7 years
$499
$0
Benefit from 5-hour pre-approval.
A competitive rate car loan from RACV with no monthly fees.
8.49% (fixed)
9.67%
$10,000
1 to 7 years
$250
$12
Use a new or used car as security.
A flexible loan thats lets you benefit from a car search tool as well as the option to borrow extra for on-road costs.
From 5.71% (fixed)
6.57%
$1,000
1 to 7 years
$100 (from $100 to $500)
$10
You'll receive a fixed rate between 5.71% p.a. and 8.66% p.a. based on your personal credit history
A flexible loan to help you finance a car, motorbike or boat up to five years old.
6.79% (fixed)
7.16%
$5,000
1 to 7 years
$265 ($175 Establishment Fee + $90 Security Administration Fee)
$0
Finance a new or used vehicle up to 7 years old.
Benefit from additional repayments, no ongoing fees and access to a redraw facility with this competitive loan from CUA.
From 7.99% (variable)
8.96%
$10,000
1 to 10 years
$200
$10
Your choice between secured or unsecured.
Apply for a loan up to $75,000 and benefit from loan terms up to 10 years.
6.45% (variable)
6.59%
$10,000
1 to 7 years
$100
$0
Apply for a loan up to $100,000.
Benefit from a flexible, variable rate to finance a car up to 3 years old with SCU.
From 5.69% (fixed)
6.39%
$5,000
1 to 7 years
$499
$0
You'll receive a fixed rate from 5.69% p. a.
Purchase a new car with this loan and benefit from a fixed rate and no monthly fees. Pre-approval available within 5 business hours.
6.69% (fixed)
7.04%
$2,000
1 to 5 years
$250
$0
Secure this loan with a car and use the funds for any purpose.
Competitive 6.89% p.a. rate available to all approved applicants. Loan amounts up to $60,000 available.
From 6.99% (fixed)
7.7%
$5,000
1 to 7 years
$499
$0
You'll receive a fixed rate from 6.99% p.a.
Finance a used car with NRMA and benefit from a fixed rate term and no monthly fees. Pre-approval available within 5 business hours.
From 4.79% (fixed)
5.34%
$10,000
1 to 7 years
$400
$0
You'll receive a fixed rate of 4.79% p.a. with a comparison rate of 5.34% p.a.
Get access to over 20 providers to fund a new or used car.

Compare up to 4 providers

Image: Shutterstock

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Important Information*
Logo for IMB New Car Loan
IMB New Car Loan

You'll receive a fixed rate of 5.49% p.a.
A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one up to two years old.

Logo for Latitude New and Used Car Loan
Latitude New and Used Car Loan

You'll receive a fixed rate of 6.99% p.a.
Apply for a loan from $5,000 to finance a new or used car. Flexible repayments and options to finance a classic car.

Logo for RACV New Car Loans
RACV New Car Loans

You'll receive a fixed rate from 5.69% p.a.
A larger loan of $5,000 or more to help you buy a new or used car. 5-hour pre approval available and no ongoing fees. Note: Product only available to residents of Victoria.

Logo for Stratton Finance New Car Loan
Stratton Finance New Car Loan

You'll receive a fixed or variable rate depending on the lender you are approved with
Apply for up to $150,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.

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