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How to Set a Budget for Your Dream Car

Mar 22, 2022 | Finance Tips

If you’ve been blinded by the glistening bonnet of your dream car at a dealership, then you’d be only human in seeing yourself going overboard with how much you spend. 

Buying your dream car should not mean spending more money than you could possibly afford. Thankfully, there are many ways that you can limit yourself to not overspend when buying a car.

We are here to help get you on the road faster through our tried and tested methods when budgeting for your dream car.


How to budget for a car


1. Write up a budget

The very first step in budgeting for a new car, is budgeting for yourself. Spend some time in writing up a budget that covers:

  • your income,
  • your regular bills such as rent/mortgage, utilities, internet and phone,
  • any memberships,
  • groceries,
  • fuel,
  • insurances,
  • existing personal loans or credit card repayments,
  • car registration,
  • personal expenditure such as subscription services and entertainment.

Understanding what capacity you have to either save or put towards a car loan could help to give you a great indication of what your next car may be. It should also help you become better at managing your money and could even help improve your credit score or bank account conduct before applying for a loan.


2. Look at the full cost of the car

The most sensible car owners do their research before they decide on which new vehicle is to be theirs. The purchase price of your car is not where the spending ends. RACV estimates that the average cost of running a light car is around $770 per month (averaged over five years), with bigger four-wheel drives costing over $1,800 a month!

You should consider:

Petrol prices are seemingly only going upwards. A larger engine typically means more fuel. Of course, it pays to check whether you’re looking at a petrol or diesel engine. Hybrid options can be great for reducing the cost of fuel if a fully electric vehicle is out of your price bracket.

Registration costs
Paying your yearly registration and Compulsory Third Party insurance (depending on which state or territory of Australia you live in) should absolutely be factored into your budget. You can search for vehicle registration calculators in your local state or territory online, for a better idea.

Stamp Duty
Stamp duty is a tax that’s levied by state governments and needs to be paid when you purchase a motor vehicle. Stamp duty even applies when you’re transferring ownership of a car, such as when you buy one second-hand.

Different rates of stamp duty apply depending on which state or territory you live in.

Routine Maintenance
Older vehicles will usually bring with them less certainty over the cost of servicing and are more likely to be out of factory warranty, than newer model cars. New cars bought through a dealer often come with fixed price servicing, which can be a great option in predicting your servicing costs over the life of your car. However, most car companies these days provide servicing interval cost estimates online.

If your dream wheels come with a V8 engine, supercharger or turbo, or has a diesel engine, you could be up for more maintenance each year. This also applies to things like new tyres, batteries, lights and other parts. The more parts there are, the more there are to replace or repair!

Loan Repayments
Financing your dream car with a Finance One Vehicle Loan may be a way for you to afford your vehicle if you don’t have enough money in your savings account.

If you get approved for a car loan, your loan repayments should absolutely be considered in your budget, including any fees and interest charges. Accessing a lower interest rate where possible can give you more wiggle room in your budget to borrow more.

Check how much your repayments might be, if you were to get approved for a loan with Finance One, using our car loan repayment calculator.

Car Insurance
Whether you choose a new or used car, car insurance should always be on your agenda, unless you want to risk losing your pride and joy! Researching the cost of car insurance could help you narrow down which model will be the right car for you.


3. Start saving!

Using a personal budget and factoring in all of the car’s running costs should give you a pretty good idea of what you can afford and what models you’d like to aim for. Saving enough money for your dream car can be made easier when you save money from each pay into a separate account. Having a savings account purely for car savings can keep you more motivated and on track.

4 . Consider if a car loan is the right option for you

There’s a lot to think about when tossing up whether to buy a car outright or through finance. If you’re on a low income and don’t see that you could sufficiently save enough to buy a vehicle outright, Finance One helps everyday Australians access affordable loans who would otherwise struggle to get approved with mainstream lenders.

Using a down payment or balloon payment can help reduce the minimum monthly repayments of vehicle finance, which in turn helps keep the overspending at bay. It may also help get your loan approved!

Apply for a car loan

Frequently asked questions about saving for a car

We’re happy to answer some commonly asked questions about saving for a new ride.


Should I buy a new or used car?

You should weigh up the pros and cons as to whether a new car or a used car is best for you. New cars generally come with factory warranties and often have fixed priced servicing, however, can drop in value by as much as 30% after just a couple of years of owning them. This is called depreciation and is worth considering if you ever want to sell.

Used cars, on the other hand, often come with a much lower price tag but could have expired warranties and be more costly to maintain.

At Finance One, we may be able to help with finance whether you’re buying from either a dealer or a private seller.

Are car loans bad?

There can be many benefits to borrowing money for a car, such as better cash flow, getting a car sooner than saving, being able to enjoy a better lifestyle or making transportation safer for you and your family, as well as having the opportunity to and helping to promote a healthy credit file and boost your credit score. We can work with you to assess your full credit profile, and your ability to meet repayments if you were to be approved for a loan.

If a car loan is going to put you under financial stress, then you may need to look at other options.

Is comprehensive insurance worth it?

One of the ongoing costs of car ownership is paying for car insurance. Comprehensive insurance provides you with much better cover than other automobile insurances and can be one of the only ways to replace your car if you have an accident.

Your premiums will be calculated based on your age, driving record, the car’s make and model, and whether you use it for other purposes than just personal travel. There are numerous car insurance companies on the market, so it does pay to shop around for the best deal.

Good to know: If you access a secured car loan, many lenders will require comprehensive insurance as a condition to lending you money. 


Finding your dream car on a budget can be easy with a Finance One Loan. Contact us today to find out how we may be able to help!

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.

Finance One means “Fin One Pty Ltd – ABN: 80 139 719 903 – ACL: 387528”

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Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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