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%)

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

Rates last updated November 25th, 2017
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Monthly Repayment Product Description
IMB Secured Personal Loan
From 7.39% (fixed)
1 to 5 years
All approved applicants can access this competitive rate and use the loan to finance a range of purposes. Loan amounts up to $60,000 available.
Beyond Bank Low Rate Car Loan
From 5.69% (fixed)
1 to 7 years
A great rate for cars under 2 years old.
Bank Australia Car Loan
From 6.45% (fixed)
7 years
A competitive rate and the ability to offset your car’s carbon emissions for the loan term.
RACV Personal Loan
From 7.49% (fixed)
1 to 7 years
You could use this personal loan offer from RACV to help finance a renovation, holiday or project.
Latitude Personal Loan (Secured)
From 12.99% (fixed)
2 to 7 years
$250 (Loans under $4000 - $140)
Can be used for whatever purpose: renovating, buying a car, booking a holiday. Funds can be in your account in as little as 24 hours.
bcu Secured Freedom Loan
From 9.08% (variable)
1 to 5 years
A competitive, secured personal loan that you can use for a variety of purposes.
Stratton Finance New Car Loan
From 5.49% (fixed)
1 to 7 years
Benefit from a car broker with over 25 years experience
From 5.16% (fixed)
1 to 7 years
AutoCarLoans can match you with a lender from its panel with rates starting from 5.16% p.a. Suitable for vehicles up to 2 years old.
Freedom Finance Car Loan
From 5.1% (fixed)
1 to 5 years
If you meet all the requirements you could get access to a range of lenders to finance a new or used car up to 4 years.
NRMA Used Car Loan
From 6.99% (fixed)
1 to 7 years
Purchase a used car with an NRMA with a fixed rate term and no monthly fees. NRMA Members could save 1% on loan rates
St.George Secured Personal Loan - Fixed Rate
From 8.49% (fixed)
1 to 5 years
Get behind the wheel of your perfect car with a competitive interest rate from St.George. Get an application response within 60 seconds.
Bank of Melbourne Secured Car Loan
From 8.49% (fixed)
1 to 5 years
A low rate personal loan from Bank of Melbourne with variable or fixed option.
BankSA Fixed Rate Car Loan
From 8.49% (fixed)
1 to 5 years
Apply for a fixed rate car loan from multi-award winning BankSA.
Westpac Car Loan
From 8.49% (fixed)
1 to 7 years
$0 (On new loan applications before 31st January 2018.)
Apply for a Westpac car loan and enjoy a great interest rate when you purchase a new or used vehicle.

Compare up to 4 providers

Image: Shutterstock

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IMB New Car Loan

Borrow up to $75,000 for a new car up to two years old. Competitive 5.99% p.a. rate available to all approved applicants.

Beyond Bank Low Rate Car Loan "Special Offer"

A great rate for cars under 2 years old.

RACV New Car Loans

Enjoy this fixed rate new car loan offer from RACV. No ongoing fees.

Latitude Personal Loan (Secured)

Can be used for whatever purpose: renovating, buying a car, booking a holiday. Funds can be in your account in as little as 24 hours.

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