Is dealer finance a good idea?

Dealer finance is typically more expensive than bank or credit union loans. Interest rates on dealership-arranged finance can run 2–4% higher than comparison rates available directly from lenders, according to ASIC MoneySmart guidance on car finance. On a $35,000 loan over five years, the difference between a 6.5% bank rate and a 9.5% dealer rate is approximately $2,800 in extra interest. Dealers often earn a commission on finance arrangements — which creates an incentive to offer finance regardless of whether it is the cheapest option for you. Getting pre-approval from your own bank or credit union before visiting a dealership gives you a firm comparison point and significantly strengthens your negotiating position on both the car price and any finance terms the dealer proposes.

How Much Should I Spend on a Car in Australia?

Q: How much should I spend on a car in Australia?

A common guideline puts total vehicle cost at under 35% of annual take-home pay for cash purchases. For financed purchases, monthly repayment plus running costs at 15–20% of monthly take-home is a widely cited reference range. On an $80,000 gross salary, the 10–20% benchmark corresponds to a car worth roughly $8,000–$16,000 all-up including ongoing costs. On a $120,000 salary, that range rises to $12,000–$24,000. These figures include all annual running costs — fuel, insurance, registration, and servicing — not just the sticker price or monthly repayment. Many buyers focus solely on the repayment and undercount running costs by $6,000–$8,000 per year. The result is a car that technically fits the monthly budget but pushes total financial exposure well beyond what the income can sustainably support.

Q: What is the real cost of car ownership in Australia?

Annual running costs alone — fuel (~$2,800), comprehensive insurance (~$1,900), registration (~$1,200), and servicing and repairs — total $7,000–$9,000 per year before any loan repayments, according to NRMA's Cost of Motoring data (Q1 2026). Add depreciation — which averages 15–25% of vehicle value in year one for new cars — and finance repayments, and total annual cost of ownership typically reaches $13,000–$18,000 for a mid-range new car. For a financed $40,000 car at 7% over five years, monthly repayments of around $790 add $9,480 per year on top of running costs. Most Australians dramatically underestimate this figure when they evaluate whether they can afford a car. The full cost of car ownership, not just the repayment, is the right number to compare against income.

Q: Should I buy a new or used car in Australia?

New cars lose 15–25% of their value in year one and up to 50% by year three, according to RACV depreciation data. A 2–3 year old car that originally cost $45,000 may be available for $28,000–$32,000, offering similar features and remaining manufacturer warranty coverage for significantly less capital outlay. For most buyers on a budget, the depreciation curve makes a lightly used car the better financial decision — you absorb none of the sharpest depreciation losses and still get a relatively new vehicle. New cars can make sense when manufacturer finance incentives, government rebates (particularly for EVs), or business tax treatment shift the economics meaningfully. Otherwise, the value case for used is difficult to argue against, particularly for buyers funding the purchase with a loan.

Key Takeaways

→ A common benchmark is to keep total car cost (including running costs) to 10–20% of gross annual income (your income before tax).
→ Running costs add $7,000–$9,000 per year on top of repayments — fuel, insurance, rego, and servicing.
→ New cars lose 15–25% in year one; a 2–3 year old car costs 30–40% less for near-identical features.
→ Dealer finance rates are typically 2–4% higher than bank pre-approvals — comparing rates before visiting a dealership can make a material difference.

A common guideline for Australian car buyers is to keep your total vehicle cost — including running expenses — to no more than 10–20% of your gross annual income. On an $80,000 salary, that means a car worth $8,000–$16,000 all-up. On $120,000, perhaps $12,000–$24,000. Most Australians spend significantly more than this, and the finance industry is built to keep it that way.

Buying a car is one of the biggest financial decisions most Australians will make, and one of the most emotional. 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.

What Is the 10–20% Rule for Car Spending?

The most widely cited guideline for car spending puts the total cost of a vehicle (including all running costs) at no more than 10–20% of gross annual income (before tax). On an $80,000 salary, that corresponds to a car worth $8,000–$16,000 all-up. On $120,000, roughly $12,000–$24,000.

Most Australians are well above this. According to FCAI VFACTS data, 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."

What Is 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:

$2,800 Average annual fuel cost (15,000km/yr)

$1,900 Comprehensive insurance (national average)

$1,200 Registration, CTP (Compulsory Third Party insurance — a legal requirement in every state) & roadside assist

Running cost estimates based on NRMA Cost of Motoring and Insurance Council of Australia data.

What It Actually Costs to Run a Car in Australia

Fuel

$2,400–$3,200

Insurance

$1,500–$2,500

Rego & CTP

$800–$1,500

Servicing

$600–$1,200

Tyres

$300–$600

Total annual running costs

Before any loan repayments

$5,600–$9,000

Sources: NRMA; RACV; ATO. Figures are approximate ranges for an average Australian passenger car. Vary by vehicle type, usage, and state.

Add servicing ($600–$1,200/yr), tyres ($400–$800 every 2–3 years), and the occasional repair, and you'll spend around $7,000–$9,000 per year in running costs alone, before a single loan repayment.

$7,000–$9,000

estimated annual running costs for an average Australian car — before a single loan repayment

NRMA Cost of Motoring · RACV · ATO

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.

Should I Buy a New or Used Car in Australia?

A new car loses around 15–25% of its value in the first year and up to 50% by year three (RACV data). You won't see this on a monthly statement. It's a hidden cost that only shows up when you try 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.

Is Dealer Finance Worth It in Australia?

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.

According to Canstar, as at Q1 2026, car loan rates in Australia 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.

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What Is the Opportunity Cost of Buying a Car?

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% annual return (roughly in line with long-term index fund data — funds that track the whole share market rather than picking individual stocks; see the Vanguard Index Chart) — 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. If the psychology of why we tend to overspend on cars interests you, the piece on the monthly payment trap explains why most Australians systematically underestimate what they're actually paying.

What Are the Standard Benchmarks for Car Spending in Australia?

These are the thresholds most commonly cited in personal finance literature and used as reference points by financial planners:

Total vehicle cost under 35% of annual take-home pay — a commonly cited ceiling for cash purchases or short-term loans.
Monthly repayment + running costs at 15–20% of monthly take-home — a widely referenced upper range for financed purchases.
A 2–3 year old certified used vehicle typically offers near-identical features at 30–40% less than the new price, with most of the first-year depreciation already absorbed.
Comparing pre-approval rates from a bank or credit union before visiting a dealership often results in more competitive financing terms.
The full cost picture — fuel, insurance, rego, and servicing — tends to add $7,000–$9,000 annually on top of any repayment figure.

A car that fits within these benchmarks generally leaves room for savings and other financial goals without the pressure of overextending.

See what a car purchase looks like against your numbers

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Sources

FCAI VFACTS — Average new vehicle sales and pricing data, Q1 2026
NRMA Cost of Motoring Report — Annual fuel, maintenance, and running cost estimates
Insurance Council of Australia — Comprehensive motor insurance pricing benchmarks
RACV — New vehicle depreciation rates by year of ownership
Canstar — Car loan interest rate comparison data, Q1 2026
Vanguard Index Chart — Long-term investment return data (30-year historical averages)

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.