The real cost of buying a car

The real cost of buying a car

Buying a car for the first time can be fun, but the harsh reality is that it will probably end up costing you a lot more than you originally thought.

Whether it’s brand new or used, there are additional costs that go well beyond the car’s asking price. It’s a good idea to be prepared for these costs before you start shopping for a car, to ensure you budget for them and to be able to shop around for the best deal.

Stamp duty

We usually hear about stamp duty in relation to buying a home, but it also applies to buying a car – both new and used. Stamp duty taxes are set by state governments and as such vary from state to state.

Stamp duty is payable when you are registering a car or applying to transfer its registration. If you are buying from a dealership, the dealer will collect and pay the tax on your behalf while with private sales, as the buyer you will be responsible for making the payment.

In NSW, the duty is calculated at three percent of the car’s market value up to $45,000 and five percent for any value above $45,000. So for a $50,000 car, you would pay stamp duty at three percent of $45,000 (which comes to $1350) and five percent on the remaining $5000 ($250) to a combined total tax of $1600. For more information visit the RMS website.

Vehicle inspection

If you are buying a second-hand car, a professional inspection will cost a few hundred dollars but could save you thousands later on if it uncovers any potentially expensive mechanical problems. You can also download a checklist from the NSW Fair Trading website, outlining what to look for when buying a used car.

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Compulsory third party insurance

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Before you can jump in your car and set off on your first driving adventure, you will have to wear the cost of compulsory third party (CTP) insurance. CTP covers you against injury and death as a result of an accident. In many states, the cost is included in your registration fees but in Queensland and NSW you can choose your own CTP provider.  Additionally, from July 2016, South Australia will allow residents to select a CTP insurer from four providers including QBE Australia, AAMI, SGIC Insurance, and Allianz Australia Insurance. 

Car insurance

While not compulsory, it’s a good idea to add an extra layer of protection with a more thorough insurance option, such as comprehensive car insurance, third party property damage car insurance or third party fire and theft car insurance. Comprehensive car insurance is the most expensive but protects you against almost all possibilities, no matter who is at fault. The cost will depend on where you live, the condition of your car and even where you park at night.

Financing your car

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If you don’t have the money to pay for your new car upfront you will need to look at taking out a car loan. Like any product or service, you are always entitled to seek out a better deal – so make sure you do your research to find a car loan lender that offers a competitive interest rate, as this could save you thousands. One good place to start is a free car loan calculator, where you can research different repayment scenarios. You might find that a personal loan is a better option for you, so it’s a good idea to check out the rates for these products as well.

Added extras

There’s nothing like the smell of a new car. Keep in mind, however, that when buying a new car you will have to pay for extras such as number plates, registration and dealer delivery charges – unless your chosen vehicle comes with an on-road “no more to pay” price. Do your homework and ask lots of questions on what is included as standard in the final price.

Running costs

From fuel to servicing costs, your car will start costing you money the minute you jump into the driver’s seat. Smaller cars are cheaper to run so it’s worth keeping that in mind when you are shopping for your car. NRMA has calculated the running costs of a comprehensive list of cars in its reviews, so don’t forget to do your homework.

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How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

How much is my car worth?

If you own a car, it may be something that can help you bring down the cost of your next vehicle purchase through its sale. However, before you can do that you’ll want to find out how much your car is worth.

Your car’s worth can depend upon various aspects, including:

  • Age
  • Condition
  • Model and make

A great starting place for aspects of this includes websites that offer online valuations, allowing you to enter your car’s make, model, year, badge and description, with the listed results displaying a price guide based on both selling your car privately and through a dealership.

Both have pros and cons, as cars can be very profitable, something that will no doubt impact any chance you have to make the most of your car’s value upon sale. Dealerships will try to profit on your trade-in by buying it for less than they can sell it for, so you shouldn’t expect the same price selling a car to a dealer that you would necessarily get selling a car privately.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

Does my insurance cover other cars I drive?

If you’re driving someone else’s car, say your friend’s, and you’re involved in an accident, whose insurance is responsible, yours or your friend’s? Does car insurance cover driving other people’s cars?

The short answer is yes. A few car insurance providers offer insurance cover for people to drive someone else’s car. It’s always better to double-check this before you get behind the wheel.

If you’re not covered, you can opt for non-owner car insurance which lets you drive someone else’s car and be protected against liability. However, you will not benefit from other coverage such as damage to the vehicle, replacement rental or medical expenses.

Getting comprehensive insurance driving other cars can be done with temporary insurance. It’s recommended that you do this if you plan to drive someone else’s car, even for a short duration. You can choose between policies that cover you for a fortnight, a month or even a pay-as-you-drive option with temporary insurance.

Alternatively, you can ask the car’s owner to check with their insurer if you can be added to the policy. This will ensure that you are covered fully with comprehensive car insurance driving other cars. Do note that adding you could increase the annual premium for the owner.

Can I buy a car as a student?

Buying a car is a huge financial decision, and shy of marriage and purchasing a house (or perhaps around the world travels), it may be the biggest financial decision you make. But if you’re looking at your empty pockets, don’t despair! Your dream of owning your own car could become a reality, if you look for and compare the right car loans for your circumstances.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What is proof of income?

Before giving you a car loan, lenders will ask for proof of income – documentary evidence that you earn as much as you claim you earn. Lenders will typically want some combination of tax returns, pay slips and bank statements. The reason lenders want proof of income is because they want to be sure you have the means to repay the car loan.

What is CTP insurance?

CTP insurance, also known as compulsory third-party insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your CTP insurance will be used to pay any compensation due to anyone who might be injured or killed. However, CTP insurance doesn’t cover you for vehicle damage or theft.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

Can you get a chattel mortgage with bad credit?

Getting approval for a chattel mortgage with bad credit may be possible, given ‘chattel’ (usually a piece of equipment or car) is put up as security for the loan. That means if you fail to repay the loan, the creditor can recover the loaned amount by repossessing and selling the car or piece of equipment. This differs from unsecured car loans, where the asset is not tied to the loan and cannot be taken if you don’t meet the repayments. 

What is a dealership?

A dealership is a car yard or a place where cars are sold.

How to get a chattel mortgage?

Both businesses and individuals may use a chattel mortgage, provided that the car is being used predominantly for business purposes. 

To apply for a chattel mortgage, you need to first consider your options and choose a suitable lender that meets your requirements. Once you have selected a lender, you can apply for the loan online by filling out a form. If the lender doesn’t offer an online application process, you can either call them or visit their nearest branch. 

After you’ve applied, the lender will ask you to supply documents that confirm your identification, income, job profile, etc. If everything is in order, most lenders will arrange the loan’s settlement, so all you need to do is pick up your car!