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How much should you spend on a car?
Let’s be honest – a car is a big purchase, and since you’ll probably have it for a while, you want to be sure you make the right decision. So how much is too much to spend on a car?
Start with your income
Figure out the percentage of your income you want to put towards your car. This may help you stick to a reasonable budget.
Once you’ve subtracted your essential expenses – that’s the non-negotiable stuff like your utility bills and groceries – you’ll have a rough idea of how much of each pay packet you have left over.
For example, if you really like cars, and having something high-end is a priority of yours, you might decide to spend 35% of your annual income. Or, if you’re looking for a reliable but basic ‘A to B’ option, then an achievable 10-15% of your yearly salary might do you for a reliable, used sedan that’s done under 100,000 kms.
Set your expectations
Not everyone will have the same wants or needs when they’re car shopping. Identify which features are must-haves, and which you could do without if you needed to. Safety features like airbags might be in the first column, while the latest audio system might be in the latter.
Have a hunt around online for cars that tick your must-have boxes. You should get a sense pretty quickly of how much you’ll need to get a car that ticks them all.
Borrow or buy outright?
If you’ve found your perfect car, will you pay outright, with a loan or through dealership finance?
Take your estimate of how much you need for the right car. Then go back to how much you have left over from each pay packet. If the second figure means you’ll have the first figure saved in a pretty short period – or you’ve been a savvy saver and you’ve already got it set aside – you might as well buy the car outright. If it’s going to take a little longer, you might consider a loan. This will mean you can get behind the wheel of your new car without having to wait months – or even years – to save up, and without having to compromise on your must-have features.
Of course, a loan will probably wind up costing you more in total than an outright purchase. If that’s not the right option for you, you may have to revisit your features list, or figure out whether you can squeeze a little more out of your pay packet.
Remember the additional costs
Keep in mind the additional costs such as ongoing maintenance, registration, and car insurance. That last one is a biggie – driving without insurance can leave you exposed to huge out-of-pocket costs if the unexpected occurs.
The good news is, AAMI offers three levels of car insurance cover!
Other tips before you buy
If you’re going through dealer finance, it’s important to know the terms of your interest repayments. Dealers earn their keep through interest. So, better to pay your car finance off quickly, than over a number of years. Or better, buy it outright!
Use some leverage. A convenient way of getting rid of your car is doing a trade in. This can help out with the costs of a new one. Plus, you don’t have to worry about the formalities such as getting the safety certificate and worry about all the paperwork.
Bring in a friend when you make the trip to the dealership. At some point, you’ll want to take the car for a test-drive. And if you want to buy it, you may want to negotiate or sign contracts in person. The right person could help you negotiate a fair price or even just be a sounding board when shopping around for the right set of wheels.
- When do you pay excess on car insurance
- How to save money on home and contents insurance
- What happens to my insurance if I sell my car?
Insurance is issued by AAI Limited ABN 48 005 297 807 AFSL 230859 (AAI) trading as AAMI. Read the relevant Product Disclosure Statement before buying this insurance.
This advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.