The cost of buying a car

Published on 2 Sep 2021 | 3 min read by Kylie Hughes

Saving for a car? The ticket price is just the beginning. The costs of buying a car are much higher than you think, especially when you factor in the other on-road costs associated with buying and using a car. On-road costs and running expenses quickly add up. We’ve crunched the numbers on an average used car and discovered that on-road costs and first-year running costs equal around half the car’s value! Here’s what you need to know about the cost of buying a car.

Sara is saving for a car

For our research into the costs of buying a car, we created a fictional case study. Sara is 25 years old, living in Melbourne, and in the market for a 2017 Mazda 2. But can Sara afford it? She’s about to get a crash course in the real cost of buying a car.

A cartoon image of a woman next to a red car. The text says “Saving for a car. It’s not uncommon to underestimate the hidden costs of car ownership. Let’s take a look at how much cash Sara will need to budget. 2017 Mazda 2 $16,9990. Sara, 25 years old”

On-road costs

Before Sara starts driving her new wheels, she’s going to have to spend nearly $3000 on on-road costs. Our calculations include:

A pre-purchase inspection ($200) – an important investment when it comes to buying a second-hand car.
Transfer fee and stamp duty ($755), which will differ depending on the state you live in.
Rego and Compulsory Third Party (CTP) insurance ($835), which also differs by state.
Comprehensive insurance ($1000) – we took the average of AAMI, RACV, and comparethemarket.com quotes.

CTP insurance provides financial protection for the car driver against injuries caused to third parties in an accident. It does not insure the vehicle against damage. To insure the vehicle, Sara is opting for a comprehensive car insurance policy.

As you can see, on-road costs can quickly add up and catch buyers off-guard, as they typically aren’t the first thing that comes to mind when considering the cost of buying a car.

An image with text that says “On-road costs. Pre-purchase mechanical inspection $200. Registration and compulsory third party insurance $835. Transfer fee, stamp duty and set-up costs $755. Comprehensive insurance $1,000. Subtotal 2,790”

Annual running costs

Next, Sara will need to budget around $2,300 for first-year running costs. Using RACV data, we’ve factored in:

Roadside assistance ($114)
Fuel ($1127)
Servicing ($927)
Tyres ($104)

An image with text that says “Annual running costs. Fuel $1,127. Servicing $927. Roadside assist membership $114. Tyres $104. Subtotal $2,272.”

What about a car loan?

If Sara needs a car loan, she’ll also need to budget for the cost of repayments. If she needs to borrow $15,000, the monthly repayment will be about $300 a month or $3546 a year (calculated at 7.15% interest rate over 5 years.)

An image with text that says “Loan repayments. If Sara needs a car loan she’ll also need to factor in loan repayments. 15,000 loan. $296 per month. Based on a $15,000 loan at 7.15% interest over 5 years. Subtotal $3,546 p.a.”

Grand total

For Sara, all of this adds up to a whopping $8,608 in on-road costs and first-year running cost of buying a car Luckily, Sara has MyBudget to help her factor this into her budget affordably. Money for future bills and expenses is set aside from Sara’s pay so there are no surprises!

An image with text that says “$8,608 in additional costs!. Are you saving for a car? Budget at least 50% extra to cover your on-road costs. Nearly half the cost of the car!”

MyBudget can help you save for a car, get a car loan and pay off your car loan quicker.

We have people ask us all the time “How much should I spend on a car” and “What’s the best way to save money for a car?”. The answer to these questions will depend on your individual needs and circumstances.

If you liked this rundown of the cost of buying a car, you’ll love our other money-saving ideas, subscribe to the MyBudget Blog or follow us on Facebook for more!

For further advice on car purchases or to have a one-on-one chat about your next car purchase, call 1300 300 922 to book your free budget consultation or enquire online.

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This article has been prepared for information purposes only, and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.