Buying a car is one of the biggest financial decisions most Australians will make — and one of the most emotionally charged. Showrooms are designed to make you fall in love before you do the maths. Finance deals are presented in weekly repayments so the total cost never quite hits. And "everyone has a car payment" has become so normalised that questioning it feels almost antisocial.
Let's do the maths anyway.
The 10–20% Rule (And Why Australians Ignore It)
The most widely cited guideline for car spending is to keep the total cost of your vehicle — including all running costs — to no more than 10–20% of your gross annual income. That means if you earn $80,000 a year, you're looking at a car worth $8,000–$16,000. If you earn $120,000, maybe $12,000–$24,000.
Most Australians are well above this. The average new car price in Australia sits around $45,000–$55,000. Even on a solid $100,000 salary, that's 45–55% of your gross income tied up in depreciating metal, before you've spent a single dollar on insurance, rego, fuel, or servicing.
"The sticker price is the beginning of the story, not the end. The real question is what the car actually costs you each month, every month."
The Real Cost of Car Ownership in Australia
This is where most people go wrong. They budget for the repayment. They don't budget for everything else. Here's a realistic breakdown of annual running costs for an average Australian passenger car:
Add servicing ($600–$1,200/yr), tyres ($400–$800 every 2–3 years), and the occasional repair, and you're looking at $7,000–$9,000 per year in running costs alone, before a single loan repayment.
On a $45,000 car financed over 5 years at 7% interest, you're paying roughly $890/month in repayments. Combined with running costs, total annual spend can easily reach $20,000. On a $90,000 income, that's over 22% of your gross, closer to 30% of your take-home.
New vs Used: The Depreciation Reality
A new car loses around 15–25% of its value in the first year and up to 50% by year three. That's not a cost you see on a monthly statement — it's a silent wealth drain that only becomes visible when you come to sell.
A 2–3 year old car offers most of the features of a new vehicle for 30–40% less. If the new version costs $45,000, the used equivalent might be $28,000–$32,000. That's not just a lower sticker price. It means a smaller loan, lower repayments, and less money quietly evaporating as depreciation.
- Year 1 ownership of a $45,000 car: ~$8,000–$10,000 in depreciation alone
- Year 1 ownership of a $28,000 used equivalent: ~$3,500–$4,500 in depreciation
- Difference: $4,500–$5,500 — that's real money you keep.
Car Loans and Finance: What Your Dealer Isn't Telling You
Dealer finance is a product sold to you, not a service provided for you. Dealers often earn significant commissions from finance arrangements — which means the interest rate you're offered is rarely the best rate available.
Comparison site rates for car loans in Australia currently sit between 5.5% and 9% for buyers with good credit. Dealer finance often sits at the higher end, or above it. On a $40,000 loan over 5 years, the difference between 6% and 9% is approximately $3,300 in extra interest.
Thinking about a car on finance? Use the Affordly calculator to see exactly what a car purchase means for your weekly budget — including finance costs, running expenses, and what you're giving up by not investing that money instead.
Run the Numbers →The Opportunity Cost Nobody Talks About
Here's the question you'll never see on a dealer's showroom floor: what else could this money do? If you spent $30,000 on a used car instead of $50,000 on a new one, and invested that $20,000 difference at a 7% index fund return, in 10 years that's approximately $39,000. In 20 years, it's $77,000.
That's not an argument for never buying a car. It's an argument for buying the right car — one that does the job you need it to do without quietly eroding your long-term financial position.
So, How Much Should You Spend?
Here's a practical framework for Australian buyers:
- Keep total vehicle cost under 35% of annual take-home pay if you're buying with cash or a short loan.
- Monthly repayment + running costs should not exceed 15–20% of monthly take-home if you're financing.
- Consider a 3-year-old certified used vehicle — you lose almost nothing in features but save dramatically on depreciation and purchase price.
- Get pre-approval from your bank or credit union before setting foot in a dealership. You'll negotiate from a position of strength.
- Run the full numbers, not just the repayment — fuel, insurance, rego, and servicing are non-negotiable costs.
The best car is one you can genuinely afford — one that doesn't force you to sacrifice savings, delay other goals, or stress about the next service bill. That's what fair dinkum financial thinking looks like.
Can you actually afford that car?
Enter the purchase price, your income and expenses into Affordly. Get an honest verdict — not a sales pitch.
Check If I Can Afford It →This article is for general informational purposes only and does not constitute financial advice. All figures are approximate and based on publicly available Australian averages. Consult a licensed financial adviser before making significant financial decisions.