A lender approving you for a loan and a car being affordable are two different things. Approval means someone believes you'll repay them. Affordable means you can run the car, insure it, register it and still absorb the money it quietly loses to depreciation, without your other bills getting squeezed. This guide walks through how to work out the second number, the one that actually matters.
Start with the repayment, not the sticker price
Most people shop by drive-away price. Lenders and your own cash flow work in monthly repayments. So flip the order: decide what you can comfortably pay each month first, then work backwards to a price.
A widely used rule of thumb is to keep all your transport costs, that's finance, fuel, insurance, rego and servicing, under roughly 15 to 20 percent of your take-home pay. It's a guide, not gospel. If you have a big mortgage or young kids, your ceiling is lower. Plug your numbers into the car loan calculator to see what a given price actually costs per month once interest and any balloon are included, then sanity-check that figure against your budget rather than the dealer's.
Watch the balloon
Balloon payments (a large lump owed at the end) shrink your monthly repayment and make an expensive car look affordable. They don't make it cheaper, they defer the cost and you pay interest on the deferred amount the whole time. The calculator shows total interest with and without a balloon so you can see the real trade-off.
The costs the price tag hides
The purchase price is the beginning, not the total. Before you commit, add up the on-road and ownership costs that never appear in the ad:
- Stamp duty and registration, which vary a lot by state, use the drive-away price calculator to build the true on-road figure
- Comprehensive insurance, which can be surprisingly high on newer or higher-powered cars
- Fuel or charging, model-dependent and easy to underestimate on a long commute
- Servicing, tyres and the occasional repair
- Depreciation, the biggest cost of all on most new cars and the one nobody sends you an invoice for
Depreciation is the quiet budget killer. A new car can lose a meaningful chunk of its value in the first few years whether you drive it or not. The running-costs calculator rolls depreciation, running costs and finance into one total-cost-of-ownership number, which is the fairest way to compare two cars that have similar price tags but very different long-term costs.
A simple three-step method
You don't need a spreadsheet. Work through it in order:
- Set your monthly transport budget as a percentage of take-home pay, and be honest about your other commitments
- Subtract your expected running costs (fuel, insurance, rego, servicing) so you know what's genuinely left for finance
- Use what remains as your target repayment, then find the price that produces it
Car Loan Repayment Calculator
Repayments with optional balloon, total interest and total cost.
New, used, or a different finance path?
Once you know your ceiling, the type of car and the way you finance it can stretch or shrink what that budget buys. A slightly older used car sidesteps the steepest depreciation. If you're employed and considering finance, a novated lease can change the maths through pre-tax salary payments and GST savings, though only for some people, and only once the lease fees and the residual value you'll still owe at the end are counted honestly. Run it against a plain loan before deciding rather than taking the salary-packaging quote at face value.
And if you're weighing a specific pair of cars, compare their real running costs rather than assuming the cheaper sticker wins. The car that costs less to buy sometimes costs more to own.
Running Costs (TCO) Calculator
True 5-year cost of ownership: depreciation, fuel/charging, insurance, rego, servicing, finance.
Frequently asked questions
What percentage of my income should I spend on a car?
A common guide is to keep total transport costs, finance plus fuel, insurance, rego and servicing, under roughly 15 to 20 percent of your take-home pay. It's only a starting point, not a hard rule. If you have a large mortgage, dependants or variable income, aim lower and leave headroom for surprises rather than buying to the maximum a lender will approve.
Should I use the loan amount I'm approved for as my budget?
No. An approval is based on the loan repayment alone, not the fuel, insurance, registration or depreciation you'll also carry. Treat the approval as an upper limit you deliberately stay below. Work out an affordable monthly repayment from your own budget first, then find a car that fits it.
Does a balloon payment make a car cheaper?
No. A balloon lowers your monthly repayment by deferring part of the cost to the end of the loan, and you pay interest on that deferred amount the whole time, so the total cost usually rises. Use the car loan calculator to compare the total interest with and without a balloon before deciding.
Is a novated lease cheaper than a car loan?
Sometimes, but not always. A novated lease can save through pre-tax salary payments and GST, and EVs under the FBT threshold can save more again, but there are lease and management fees and a residual value you must pay or refinance at the end. Whether it beats a plain car loan depends on your income, the car and the term, so run both side by side and confirm your own tax position with the ATO or an adviser before committing.
Why does depreciation matter if I'm not selling the car?
Depreciation is real money the car loses whether or not you sell, and it's often the single biggest cost of ownership on a new car. It shows up the day you eventually trade or sell, and it affects how much equity you have if you need to change cars early. Factoring it in with the running-costs calculator gives you a fairer picture than the purchase price alone.
General information only — not financial, tax or legal advice. Figures change; confirm with the ATO, your state revenue office and a licensed adviser, and use the calculators for your own numbers.