How Much To Spend On A Car - A Complete Guide

You can protect yourself from overspending by figuring out what you can afford before you start shopping for a car, whilst also factoring in additional vehicle costs and how you’ll finance it.
Shatabdi Rashed
March 2021

How Much To Spend On A Car - A Complete Guide

Owning a car is a great luxury and often a necessity in Australia for work and leisure due to the vast size of the country. It can allow you to freely explore the open road, head to the grocery store, rock up to work on time or perform your job efficiently. 

Purchasing a car is a considerable investment with many factors to consider and more often that not the first that pops to mind, is ‘how much should I spend on one?’ This varies greatly based on your preference of vehicle, annual income and expenses. But have no fear, we’re here to arm you with helpful knowledge that will allow you to answer that tricky question and proceed confidently with your vehicle search journey with a budget in mind. 

Make a checklist of desired vehicle features

A great first step is making a simple checklist of the features your vehicle must have vs the ones that you can go without. This list will differ a lot based on personal taste or line of work but is a very simple way to define which financial bracket of vehicles your preferences are suited towards. For example cruise control, ABS brakes and 4WD capabilities might be necessities and on the must have list, whilst a sunroof, granite trim or motorized cup holders (these are a real thing!) may end up on the latter list of features you can live without.

Assess income & ongoing expenses

The next step is to figure out the percentage of your annual income you want to put towards your car, which will help you stick to a reasonable budget. Start off by subtracting your essential expenses (groceries, rent, medical bills, pet costs etc) from your salary, you’ll then have a rough idea of your disposable income which can be allocated towards a car. We recommend basing these projections over a year if possible so you can figure out what % of your annual salary can be put towards a vehicle (a simple spreadsheet can assist with this!). 

For example if you have an annual income of $70,000 with $40,000 spent yearly in essential expenses that leaves you with $30,000 of which you can then decide a % of this based on your personal financial preferences to contribute towards a vehicle. 

As a general rule of thumb, you shouldn’t spend more than your annual income amount on a car. Generally, it is advisable to spend between 10-20% of your yearly salary dependent on your vehicle needs, and if you want to buy a luxury vehicle you can consider spending 20-30% of your income.

Used vs new cars

Used cars

On average, used car prices are almost 50% lower than new cars! This might allow you to access more features than if you bought a brand new car, or help you save on interest costs over the life of the loan.

But whilst a used vehicle can be a great way to save some bank, be wary as in the long term they could be detrimental to your wallet with high maintenance costs, expensive insurance and a lower resale value. 

New cars

With a new car purchase you’ll receive the benefits of a full warranty and it’s quite likely you’ll enjoy free post-purchase servicing. Your car will be equipped with the latest technology and you can ensure it will be operating in tip-top shape without the need for maintenance.

However a new car purchase will cost you a considerable amount more than a used vehicle and you’ll need to be confident you can afford this whilst running through the previous income assessment step outlined. 


There is also one important factor to consider with both of these purchase options and that is depreciation. A car with a typical rate of depreciation loses up to 58% of its initial value after three years, 49% in four years and 40% after five years. The long term depreciation rate varies greatly between models and makes, so be sure to do your homework and if this is a strong concern choose one with a slower depreciation rate, so you can maximise its resale value when you're ready to upgrade. 

Additional costs to consider

There are a handful of other important expenses that come with owning a vehicle which you should consider when deciding how much to spend on a car, these include: 

Registration costs

In order for a car to be legally driven in Australia, it must be registered. Registration is an ongoing cost, one that you’ll have to pay every year. This cost will vary depending on the car’s value.


Compulsory Third Party (CTP) insurance must be purchased by law, as it covers personal injuries you may cause to yourself or to other people if you’re involved in a car accident. In Victoria, Tasmania, South Australia and Western Australia, CTP insurance is included in your vehicle registration. In Queensland and New South Wales you must purchase CTP insurance separately from your registration.

You can also purchase ‘third party’ insurance - which covers damage caused to someone else's vehicle or property, if you're liable for it. Or you can buy ‘comprehensive’ car insurance, which can also cover damage to your own vehicle as well as cover for theft, fire and malicious damage.

If you choose to finance your new car with a loan, the majority of lenders require you to organise comprehensive car insurance before it can be settled. We can assist here at Driva and you can get a comprehensive insurance quote here in minutes

Services & repairs

Cars need to be checked regularly in order for them to run properly and to avoid preventable accidents. Generally speaking, your car should be serviced at least once a year including; oil changes, tune-ups, brake checks, exhaust fans and other elements with the average cost of a car service in Australia between $150 to $550.

Roadside assistance

Roadside assistance comes to the rescue of several thousand Aussie motorists who are stranded every year. It can save you from flat tyres, dead batteries, blown gaskets and will even send a locksmith if you lock your keys in the car (we’ve all been there). The cheapest basic assistance plan costs around $69 a year and if you're after a plan with higher benefits and extra features, you can expect to pay up to $360 annually.


It may sound obvious - but cars need petrol or electricity to run. This is an ongoing cost you'll be faced with when you buy a car. How much you spend on petrol will depend on how much you drive it, but also on the car's make and model. Generally, the bigger the car, the more petrol it will go through. On average, a hatchback petrol tank can currently cost around $50 to be filled.

If you choose to go with an electric vehicle (EV) this can prove cost efficient in the long run with the average weekly cost of charging an EV at $11.70 per week. Whereas the weekly average fuel cost of a medium SUV is $28.37.

To borrow or buy outright?

Take your estimate of the financial bracket your desired car falls within, then revisit how much you are willing to spend from each payslip. If you can save the initial figure in a short amount of time (or already have a reasonable lump sum set aside) then buying the car outright is a viable option. If these two figures are fairly mismatched and it will take you a long time to save the desired amount then borrowing money is a better alternative. This will mean you can get on the road sooner, with no need to wait months – or even years – to accrue savings, and without having to compromise on your must-have features.

If you're considering obtaining finance check out our blog ‘6 Benefits Of Buying A Car On Finance,’ for more helpful information. 

Remember that Driva will assess your financial situation (including historical income and expense levels) before sharing your information with your chosen lender. This eliminates lender rejections, protects your credit score, helps Driva meet its responsible lending obligations and means you won’t be taking out a loan you can’t pay for (win win win!)

Summing up

You can protect yourself from overspending by figuring out what you can afford before you start shopping for a car, but you should make sure that you are factoring in additional vehicle costs and how you’ll finance it before making a decision. 
If you have any queries please get in touch with our team of car finance experts here at Driva today on 1300 755 494. Or if you’re ready to obtain finance our smart car finance platform allows you to access your best available rates from our panel of lenders in under 1 minute! Use it now to find a car finance option that suits your needs.