New car loans, planned from your budget up

Buying a brand-new car is one of the few times you get to choose every detail: the colour, the trim, the safety pack. The finance deserves the same care. The smartest new-car buyers arrive at the showroom already knowing one number: the repayment they can carry without feeling it every week.

How does a new car loan actually work?

A new car loan is usually a secured loan. The lender pays the dealer, you get the keys, and the lender registers its interest in the car until the loan is repaid. Because the lender can repossess and sell the car if repayments stop, secured loans generally cost less than unsecured ones. That’s the trade-off in a sentence: a lower cost in exchange for the car being on the line.

You repay the loan in regular instalments over a set term, often between one and seven years. Each repayment covers interest and some of the amount you borrowed. Fees can apply at the start (an establishment or application fee), during the loan (monthly account fees) and at the end (early payout fees on some fixed-rate loans).

Some loans include a balloon payment: a lump sum left owing at the end. It makes the regular repayment look smaller, but Moneysmart points out that the total cost of the loan is higher and you may need another loan to pay the lump sum.

How much new car can you comfortably afford?

This is where most buyers go wrong. The question in the showroom is “what repayment would suit you?”, and the honest answer depends on things nobody in the showroom knows: your rent, your groceries, your other debts, and what this particular car will cost to run.

Try it the other way round:

1. Work out your monthly take-home pay.
2. Subtract your regular expenses, including any other loan repayments.
3. Subtract the new car’s running costs: registration, insurance, servicing, tyres, fuel or charging.
4. Keep a buffer for savings and surprises.

What’s left is your comfortable repayment budget. Our car budget planner does the arithmetic for you and shows how much of the price you’d be borrowing after your deposit and trade-in.

Cost	Paid when	Notes
Car price	At purchase	Check whether the quote is drive-away
Stamp duty	At registration	Set by your state; Victoria bases it on the higher of price or market value
Registration and CTP	At purchase, then yearly	CTP is bundled with rego in most states; NSW uses a separate green slip
Comprehensive insurance	Yearly or monthly	Lenders often require it while the car is security
Servicing	Per schedule	Look for capped-price servicing on the model
Fuel or charging	Weekly	Use your real kilometres

What should you compare when you get quotes?

Once you know your number, quotes become much easier to judge. Look at:

• The repayment. Does it sit inside your comfortable budget, with room to spare?
• The total amount payable. Repayments multiplied by the number of payments, plus any balloon and fees. This is the real price of the loan.
• Fees. Application, monthly, missed-payment and early payout fees all change the true cost.
• Flexibility. Can you make extra repayments without a fee? Can you pay it off early?
• Add-ons. Loan protection, gap cover, and tyre and rim insurance are often offered with car finance. Moneysmart warns these add-ons are often not good value, and you don’t need them to get the loan.

When a quote fits your budget and the total looks reasonable next to the car’s price, you’re in a good position. If you’d like to see what’s possible for your situation, you can look at your options before you commit.

Does a deposit or trade-in make a difference?

Yes, in three ways. A deposit or trade-in reduces the amount you borrow, which cuts the total interest you pay. It can make your application stronger, because you’re sharing the risk. And it protects you against owing more than the car is worth in the first couple of years, when new cars tend to lose value fastest.

If you’re trading in a car that still has finance owing, the old loan has to be paid out as part of the deal. Ask the dealer to show the payout figure separately so you can see exactly how much of the new loan is covering the old car.

Is dealer finance a good idea for a new car?

It can be convenient, and sometimes a manufacturer offers a sharp promotional deal on a particular model. The risk is that convenience stops you comparing. A finance offer bundled into a car sale can make it hard to see whether you’re getting a good deal on the car, the loan, or neither. Our guide to dealer finance vs a car loan walks through the questions to ask.

Thinking of going electric? New EVs have different running costs and, in some states, different duty treatment. See electric car loans for what changes.

What do lenders look at for a new car loan?

Lenders are required to make reasonable inquiries about your financial situation and check that the loan isn’t unsuitable for you. In practice they’ll usually look at:

• your income and how stable it is;
• your regular expenses and existing debts;
• your credit report, including repayment history;
• the car itself, which becomes the security; and
• your deposit, if you have one.

Our guide on what lenders check explains each one.

Ready to put your number to work?

You’ve done the hard part if you know your comfortable repayment and the running costs of the car you want. The next step is seeing what’s actually on offer. Start an application with our secure partner, look over your options before you commit to anything, and ask a real person if a quote doesn’t line up with your budget. Please use the same honest income and expense figures you used in the planner, because that’s what leads to a loan you can live with.

See my new car loan options →