Buying a car

garage-car-two-men.jpgBuying a new car can be a great feeling. But be careful not to let your excitement get in the way of you getting the best deal - buying a car can be really expensive. As well as the car, you will need to pay for petrol, insurance, registration fees, repairs and roadside assistance.

Here is some information about how to shop around for the right car and the best option to pay for it.

The cost of owning a car

Buying a car comes with lots of extra costs. The costs are different in each state, but here are some examples of the extra costs you might need to pay:

  • Stamp duty - a payment made to the state government when you buy a car
  • Motor vehicle registration - paid annually on all vehicles and if it's due on the vehicle you buy, you must renew it
  • Registration transfer fee - if the car is already registered you must pay to have this transferred to your name
  • Compulsory third party (CTP) insurance - covers injuries you may cause to other people
  • Car insurance - to cover damage to your car, other people's cars and yourself
  • Petrol - will be your biggest single running cost
  • Regular repairs and service - to keep your car running

Before you start looking at cars, think about how much money you want to spend in total. See budgeting and saving for information on how to make a budget. Financial counsellors can also help you do a budget and work out how much you can afford to spend. To find a financial counsellor in your area, see financial counselling.

Work out the real cost of buying and running a car.

MoneySmart Cars app

Video: Buying a car

Animated video about buying a car

Aunty B and Uncle Bob explain how to get the best deal on a car and on your loan. 

This video is part of a series of animations created for the Take a minute with your money campaign

Check the condition and price of the car

Check the condition of a car before you buy it. If you're buying a second-hand car it's helpful to have someone check it out for you, because cars can have problems that can be difficult to spot.

You can get a mechanical inspection done by an independent mechanic that you trust or you can ask someone who knows about cars to come along with you to take a look before you buy it. It might also be helpful to use NSW Fair Trading's vehicle inspection checklist.

Make sure you also check the price of the car against what other sellers are asking for it. There are many websites which provide this information for free. You can find them by doing an internet search for 'car value' for the make and model of the car you are looking at.

If the car you're looking at is being offered well below the market price, you should make sure it doesn't have serious faults and wasn't stolen.

Video: Naomi buys a new car

Buying a car video

Joel reminds his sister Naomi how to avoid traps when she buys a new car. 

This video features Joel and Naomi Wenitong from The Last Kinection. 

Buying a car privately

Ask the seller to show you the following:

  • A current certificate of registration for the car
  • A Safety Inspection Report that is no more than 42 days old
  • Proof that they own the car, e.g. a sales receipt and service records.

If the Safety Inspection Report is marked 'failed - repairs needed', this means the car is not roadworthy. Do not buy the car.

Also check the Australian Government's Personal Property Securities Register (PPSR) to make sure the car won't be repossessed because the owner still owes money on it.

Buying privately means you won't get a warranty. If anything goes wrong, you will have to pay for it.

Buying from a licensed dealer

Buying through a licensed dealer can be more expensive than finding a car privately. Generally, however, buying from a licensed car dealer should give you more protection if things going wrong. A licensed car dealer will give you:

  • a guarantee that the car will not have any money owing on it;
  • a cooling-off period where you might be able to get a refund if you change your mind. Check the rules for cooling off periods in your state, because sometimes the cooling off period is waived when you drive the car away from the caryard; and
  • a warranty period on new and used cars.

Find your local state or territory consumer protection agency for more information about your rights when buying a car.

You might also be offered finance by a car yard. It's important to shop around before you sign up for a loan, to make sure you get the best deal. Find out how to get the best car loan for you.

Read ASIC's media release about action we have taken against a car salesman who issued loans of up to 48% interest to Indigenous consumers, breaching consumer credit laws.

Avoid sales pressure

Don't ever feel pressured into buying a car. Take your time to inspect the car and shop around. If a dealer pressures you into signing a contract, it could be a sign that there's something wrong with the car. Be wary if they use lines like 'There's another buyer interested so it may not be here tomorrow' or 'You won't get a better price anywhere else'.

Choosing the right car is a really big financial decision, and walking away for a day or two to think it over will be worth the wait.

Extra insurance offered by car dealers

If you are getting a loan from a car dealer you may also be offered add-on insurance products like loan protection, gap cover or tyre and rim insurance. Think twice before you take up these offers, and don't feel pressured to sign up to them.

These products:

  • can add a lot to what you owe,
  • might not be good value for money
  • will only pay out on a claim in some circumstances.

Find out more about add-on insurance.

Paying for the car

Getting a car loan

If you haven't got the money upfront for your car, you will probably have to organise a loan.

When you get a loan, you borrow an amount of money and agree to repay it within a certain period of time (called 'the term'). You will also have to pay other fees, charges and interest. Interest is additional money you pay to the lender in return for borrowing the money. The quicker you pay off a loan the less interest you will pay. Before you get a loan, you will need to do your budget and work out how much you can afford to borrow. Our personal loan calculator can help you with this.

See car loans for more information and listen to our audio segments on buying a car.

Always shop around for the best deal on your loan. You can do this by using a comparison website or by talking to a few different lenders (like banks, building societies and credit unions). Here are some suggested questions to ask:

  • How long will I have to pay back the money? The term of the loan is usually between 12 months and 5 years.
  • What is the interest rate? Interest rates can be between 0 - 48%, but remember the lower the better.
  • What are the other fees and charges?  Examples might include an establishment fee for setting up the loan, or late payment fees.
  • What are the terms and conditions? Don't feel pressured to sign anything and if you don't understand. You can ask to take the loan documents away to talk with someone who can help you.

Get a receipt

  • Pay with a bank cheque - Never pay with cash, and ask for a receipt from the seller
  • Keep good records - Make sure you understand the details in the contract you are signing and keep a copy of all documents for your records.

Case study: Johnny is buying a car

Johnny has a great new job, but he really needs a car to get to work. He's done a budget and worked out he can afford to repay about $350 per month. Johnny talks to a few different lenders and decides the best loan for him is through his bank. The bank provides 'in principle approval' to lend Johnny $16,000, this way he knows how much he can spend before he goes looking for a car. After finding his dream car, Johnny makes monthly repayments to the bank over the next 5 years. The interest rate for the loan was 10% so over the 5 years, Johnny will have paid the bank a total of $21,600, which includes about $6,000 in interest.

Alert icon

MoneySmart does not lend money

ASIC's MoneySmart website does not lend money or arrange loans but is happy to answer questions you might have about borrowing money. You can call our Indigenous Help Line on 1300 365 957 or email us at

Get car insurance

Arrange insurance for your car before you drive away. You must have compulsory third party insurance, which covers death and injury to people if you are involved in an accident.

Other types of car insurance to think about include:

  • Third party property insurance - Covers damage to other people's property (e.g. their car or home) and your own legal costs
  • Third party, fire and theft insurance - Covers damage to other people's property, and provides limited cover for damage to your own car caused by theft or fire
  • Comprehensive insurance - Covers damage to your own car and other people's property if your car is in an accident (including fire) as well as theft

Why you should get third party property insurance

Third party property insurance may seem like an optional extra, but if you damage another person's car you will have to pay to fix it. Even if the other person has insurance that will cover their car, their insurer will charge you the repair costs if it's your fault. The average vehicle repair cost is around $3,000.

No claim bonus

No claim bonus schemes are meant to reward safe drivers or those who don't claim on their insurance but a no claim bonus does not always reduce the cost of your premium. Don't just stick with your current insurer for a no claim bonus, as you could get a better deal elsewhere. Find out more about what a no claim bonus really gives you.

See car insurance for more information and listen to our audio segments on insurance.

Buying a car is a big commitment, so don't feel pressured into signing anything. Always take some time to think over your decision away from the dealer. Be prepared by knowing how much you can afford, where you are going to get the money and who will check the condition of the car.

Related links

Aboriginal and Torres Strait Islander people are advised that this website may contain images and voices of deceased people.

Last updated: 08 May 2019