What car can you afford?

How long is a piece of string? No, but really, it’s probably obvious to you how much you can afford to spend on a car, so keep your blinkers on and start with some realistic car research. We’re not saying that drooling over your fantasy car isn't allowed, just be realistic. And there’s more to your research then you first anticipated.

You may be able to work out your affordability at first glance, but to truly understand how much of your salary you should be dedicating to a car loan is done by taking a fine-tooth comb through your finances.

How much do I really have available to spend? 

Have you ever tallied up all the little expenses you make to paint the bigger picture of what your finances look like? You know, up close. You’ll be surprised to know what the cups of takeaway espressos, $10 bargain launches and occasional Thursday/Friday vino amount to. And that’s just scratching the surface. 

What you need to do is print out 2 - 3 months worth of bank and credit card statements and make an honest observation. From hair and beauty, petrol, rent, mortgage, school fees, dinner parties and more, you will soon be able to properly garner how much you spend on the little stuff to assess how much you can afford on the big stuff. Try Mozo’s budgeting calculator to help with the number crunching. 

But can you make some adjustments? You may not feel like cutting back on coffee right now, but maybe you can start introducing more caffeine enriched and certainly more affordable teas, like green tea? Alternating your coffees with tea could save you $160 per month! And that’s just making an adjustment on one thing. Imagine if you brought in your lunch to work every second day, dyed your own hair at home every second month or did your own facials every now and then. Before you know it your affordability to buy the car you want or even go on a sneaky holiday has shot right up. But that’s your call. 

I want to buy an Aston Martin Or what about Lamborghini, Ferrari, Maserati? 

Haha. Just kidding. Unless you have money to burn or stuff the pillow you sleep on with a plethora of hundred dollar bills, then these high-end luxury cars are silly options. But it’s fun to fantasise. 

But what we can look at are more realistic options for various salaries, from low, middle to higher than mid range. We’ll look at brands, costs and typical monthly car loan repayments on theses types of cars. 

Fixed and secured rates for 5 years

2015 Model Cost Lender & Rate Monthly Repayment
Toyota Camry $28,990 ANZ 7.20% p.a. $577
Subaru Liberty $35,490 CBA 8.49% p.a. $728
BMW X1 $49,500 Dealer finance 7.36% p.a. $812

It may be a very small snapshot of a the types of cars available, alongside a variety of lenders and rates that are offered for a fixed and secured rates, but what does this table show us? Probably for the first time in a long time, a semi luxury car, and a european one at that, comes out better than the rest in terms of value for money. 

BMW outweighs the Subaru and Toyota with better torque and technology to name a few of the features. This very same vehicle only 3 years ago was on market for $72,000, whereas the cost of the other two cars have moved up or down very little. Not only is the cost of the BMW X1 by exceptionally better positioned than the Toyota Camry and Subaru Liberty, the dealer finance comes on top too, well, at least coming up at a reasonable and competitive rate. 

Often, buyers forget to consider annual service costs for their vehicle. If they're incredibly costly, you can take your car in for a service at an alternative mechanic, as long as they're registered and reputable, and record the service in the log book that comes with your car. Bottom line is, do your research and compare as many cars, lenders and rates ast you can, making sure you keep your budget in mind and realistically placed.   

Want a lending hand? (Get it?!) Use Mozo’s intelligent car loan repayment comparison calculator to get you started. 

The forgotten costs of car ownership 

We sometimes get so hyped up on the cost of the car, how much we can actually afford, securing a decent rate and shuffling paperwork. But when we’re considering our budget and car affordability, it’s pretty common practice to look at the whole picture. 

The ‘forgotten costs’ are quickly recalled like stepping on a bindi. It’s a thorn on the side but a necessary evil. Without them we can’t really get our new car on the road. But we can compare them the way we compare car loan interest rates and car prices alike. Here’s a quick overview of some of the things you need to include when you work out your budget: 

On-road costs: this is where you pay the stamp duty on your car (plus luxury car tax if you’re that way inclined). Stamp duty is calculated on the price of the car, so the less your car costs, the less your stamp duty, vica versa. Sometimes these on-road costs include CTP insurance as a package deal. Ask before you leave with your car so that you're absolutely certain that you’re absolutely covered. 

Want to read about on-road costs in more detail? Mozo’s got you covered with our tell all costs of buying a car guide.  

Application fees: some dealers will add an application cost into the price of your car, even when they say the application cost is ‘free’, others will charge anywhere from $250 and above. But will this be the contending factor on the car you choose in the end? Or will you accept any application fee that comes with your car? Ask around at different dealers first so that you have a figure to compare. 

Car insurance: got your CTP? Great! Now, for an additional insurance that’s not compulsory, but you should really consider getting it. You may be an experienced driver of twenty years or even a P plater, but one thing you you’ve got to keep in mind is that accidents can happen, no matter who you are or how many years' experience driving you’ve had. 

So before driving away with your new set of wheels, make a quick phone call or purchase insurance online to secure your policy asap. If you’ve got your rego paper and pink slip sorted, you’ll be driving off in no time. 

Just by spending a little time comparing different companies and their prices, you could save hundreds of dollars a year. Use Mozo’s car insurance comparison tool to see where you stand. 

Late fees: can you afford to keep paying penalty fees? This could be anywhere between a few dollars up to about $50 each time you miss a payment. Arrange an automatic payment to avoid this unnecessary cost asap. 

If your income tends to go in your account late from time to time, ask your lender to change the due date or arrange an overdraft to sit in your account to cover your car repayment while you’re waiting for your pay to go in. But don’t spend it on other stuff! You don’t want to spiral deeper into debt. It’s to save you from being charged hefty late fees, not to mention keeping your all-important credit history intact. 

Top tips for paying off a loan 

This is where you cozy on in and listen to what we have to say, because not everyone is willing to let you in on how you can come out on top! Just by following one or two of these tips could have you saving hundreds, if not thousands in the long run. Could even be enough for your next holiday...so come in close and have a listen: 

  • Extra cash - work bonus? Tax refund? Well you know where they could go?! Yep, you guessed it, toward you car loan. A chunky amount will make all the difference to what you owe in the long run, shaving months off your loan and interest which equals $$ in your pocket. So if you’re saving for a holiday and want to your tax return to go towards it, hold off from going on your trip if you can, because the money you save on interest could mean you’ll be debt free to buy more pina coladas while away. 
  • Round-up your repayment amount - sure it’s a bit obvious and one that most people ignore, but just by rounding up your repayment by $20 - $50 each month could shave many months to a year. Think of the interest you’ll be saving. 
  • Pay regular increments - ok, so this may be dependant on how you get paid from work, if you get paid weekly or fortnightly instead of monthly, arrange to repay your car loan when you get paid from work. This way the amount you pay will seem smaller and you may be tempted even to transfer a little more toward your loan, paying it off faster.