What can you afford?
Buying a car for the first time is a big deal. Knowing how much
money you can afford to spend will help you decide which car you
How much will you need?
Owning a car gives you freedom, but it comes with a lot of
costs. Choose a car that suits your lifestyle and budget. Get a
feel for the current market value of the car you want by reading
reviews and speaking to family and friends.
Before you buy a car you'll also need to make sure you can cover
one-off expenses such as stamp duty as well as all the ongoing costs. These expenses
will never go away as long as you have the car.
Calculate where your money is going and how much you can afford
to spend on a car.
Once you have an idea about your budget you can now work out the
real cost of buying and running a car and how that compares to your
Become an informed car buyer.
MoneySmart Cars app
A car loan is a legal agreement. When you sign it you are
agreeing to make repayments on the loan until it is fully
Before you sign a car loan you need to think about whether you
can make the repayments over the life of the loan. Consider how
secure your job is and what would happen if you couldn't work or
pay the loan.
If you cannot afford the repayments you could end up in legal
trouble and it could affect your credit rating. So,
always get help and advice before signing a contract.
Talk to someone who has experience and has signed them
Find the hidden details, like what happens if you cannot make
the repayments or if you want to cancel the contract, and what the
terms and conditions mean for you.
Fixed rate personal loans
Car loans are nearly always fixed rate loans; this means the
interest rate is locked in for the term of the loan. A fixed rate
loan has set repayments so you know exactly how much you have to
pay each month or fortnight.
If you make extra payments and pay out the loan early, you may
be charged an early termination fee. Check the contract for this
type of fee if you think you might pay the loan early.
To find out more about secured
loans and unsecured loans,
see car loans.
Find out how much you can borrow and what your repayments will
Personal loan calculator
Loans from car dealerships
Car dealerships may offer you finance when you shop around for a
car. Car dealer finance can sometimes be less flexible and have
higher interest than a personal loan from a bank or credit
Case study: Andy repays more than he expected
Andy took out a $15,000 car loan at 11% interest over 4 years to
buy an almost new, but second-hand car.
Over the 4 years Andy paid:
- Interest charges - $3,609
- Stamp duty - $450
- Transfer of registration costs - $30
- Annual registration costs - $450
- Comprehensive insurance - $1,523 each year
- Petrol - $60 each week
This brought the total cost of his car to over $9,000 per year
over the 4 years (that's almost $800 per month). Andy also paid for
regular car servicing.
All those payments took a big chunk out of Andy's monthly
Needing a guarantor
If a credit provider thinks you may not be able to repay a loan,
they will ask for a guarantee that the loan will be repaid. If a
friend or family member signs a guarantee on your behalf, they are
known as the guarantor of the loan.
A guarantor is the person that agrees to repay a loan if the
borrower can't. The guarantor will also have to pay any fees,
charges and interest.
The guarantor may end up with a bad credit
report if you can't pay back the loan. The loan will be
listed as a default or non-payment on their credit report,
making it hard for them to borrow money for several years.
Think carefully before you ask someone you know to go guarantor
Problems with car expenses
If you don't make your car loan repayments you may be in default
under the loan contract. When this happens, the lender has the
right to take you to court to recover the money you owe.
If you don't have the money, the lender can sell any assets you
listed on the loan documents as security - this probably means your
car. If you default, the lender can take the asset and sell it to
recover their debt.
These webpages explain how to resolve debt issues:
Case study: Tyson falls behind on his loan repayment
Tyson got a $25,000 car loan from a bank to buy a car.
Unfortunately Tyson lost his job and within 5 months couldn't keep
up the loan repayments. He was so embarrassed he didn't tell
anyone, which only made it worse. He threw the warning letters from
his bank in the bin and hoped it would all just go away. When the
phone started ringing - it was the lender - he then tried to sell
his car to pay back the loan, but couldn't get any interested
buyers. He ended up at the doctor's office with symptoms of stress
He finally spoke to his father who convinced him to speak to a
free financial counsellor. The counsellor contacted the bank on
Tyson's behalf and negotiated with the lender to change the terms
of the loan until Tyson could bring his payments up to date.
With the help of the financial counsellor, Tyson also prepared a
personal budget and is now able to pay off his debts.
Last updated: 22 Feb 2017