Quick answer
How much car loan you can afford depends on what's left of your take-home pay after bills, not on a flat percentage of your salary. Add up your regular costs, subtract the car's running costs (rego, insurance, fuel, servicing), keep a buffer for surprises, and what remains is your comfortable monthly repayment. A lender's approval figure can be higher than that number.
Key points
- Work from take-home pay and spare cash, not from a headline salary or a one-size-fits-all percentage.
- Running costs come out of the same pay packet as the repayment, so subtract them before you pick a repayment.
- Lenders must avoid lending where a loan would be unsuitable, but their limit isn't the same as your comfort zone.
- A longer term or a balloon payment lowers the repayment but usually raises the total cost.
Most advice on this question hands you a percentage of your salary and stops there. That’s a shortcut, and it breaks the moment your rent, kids or other debts don’t match the average. A sturdier answer comes from your own pay packet: what lands in your account, what leaves it before the car, and what’s left to carry a repayment and keep the car on the road.
What’s the quickest way to work out how much car loan I can afford?
Work backwards in four moves:
- Start with take-home pay, the money that actually arrives each month, not your salary before tax.
- Subtract your regular costs: rent or mortgage, groceries, utilities, phone, insurance, childcare and any debts you already repay.
- Subtract the car’s running costs: rego, CTP, comprehensive insurance, fuel or charging, servicing, tyres, parking and tolls.
- Hold back a buffer for the month something goes wrong.
What’s left is your comfortable repayment. The loan amount follows from it, because it’s the repayment, term and the lender’s pricing that decide how much a given monthly figure can borrow. Our car budget planner does these steps with your numbers, and using it won’t affect your credit score because it’s just arithmetic on your own figures.
Moneysmart makes the same starting point: build a budget so you can compare money coming in with money going out before you borrow.
Why is the flat “10% of income” rule a poor guide?
A percentage treats a single renter on a steady wage the same as a family of four with a mortgage. It also tends to count only the repayment. For two people on the same salary, the real room in the budget can differ by hundreds of dollars a month.
The percentage has a second flaw: it points at salary. Your bank account sees take-home pay, and that’s what the repayment comes out of. If you’re a casual worker or your hours move around, use a quieter month rather than your best one.
What do the running costs add up to?
More than most people expect, and they arrive in lumps. Moneysmart’s guidance on buying and running a car says running costs may be higher than you think, and its own examples add rego, insurance, fuel and servicing on top of the loan repayment. Our full list is in the true cost of running a car guide, but here’s the shape of it:
| Running cost | How to turn it into a monthly figure |
|---|---|
| Rego and CTP | Yearly bill ÷ 12 (in NSW, add the green slip) |
| Comprehensive insurance | Get a real quote for the exact car, ÷ 12 |
| Fuel or charging | Weekly kilometres × consumption × local price × 4.3 |
| Servicing, tyres, repairs | Ask the seller or a mechanic; older cars need more |
| Parking and tolls | Your last three months of statements, averaged |
Get quotes for the actual car before you commit. Insurance in particular can differ a lot between models.
What does a worked example look like?
This is illustrative only: your numbers will differ.
| Line | Per month |
|---|---|
| Take-home pay | $4,600 |
| Regular costs (rent, food, bills, phone, other debts) | $3,300 |
| Spare cash before the car | $1,300 |
| Rego, CTP and comprehensive insurance (yearly bills ÷ 12) | $210 |
| Fuel | $240 |
| Servicing and tyres, set aside | $110 |
| Running costs | $560 |
| Left for repayment and buffer | $740 |
| Buffer you keep untouched | $200 |
| Comfortable repayment | $540 |
Notice how the answer changes. Someone who only looked at the $1,300 of spare cash might aim for a much bigger repayment, then find the running costs eat the difference. At $540 a month, you can still absorb a surprise service bill without missing a payment.
Is the lender’s approval the same as what I can afford?
No, and it helps to understand why. Under responsible lending rules, lenders must make reasonable inquiries, verify your financial situation and decline a loan that would be unsuitable, for instance because you’d struggle to repay it without substantial hardship. ASIC’s RG 209 sets out how it expects lenders to do this. We cover the process in what lenders check before approving a loan.
That protects you from the worst outcomes, but the test is about hardship. It doesn’t mean the loan feels comfortable, leaves room for a holiday, or still works if your hours drop. Your own number sits below the lender’s ceiling, and you’re allowed to borrow less than you’re offered.
How do the term and a balloon change the numbers?
Two features make a repayment look smaller without making the car cheaper:
- A longer term spreads the same debt over more months. The monthly figure falls, but you’re paying for longer, so the total cost usually rises. You may also owe more than the car is worth for longer, which matters if it’s written off or you want to sell.
- A balloon payment (also called a residual) leaves a lump sum due at the end. Moneysmart notes that the lump sum is repaid with interest, so the total cost is generally higher, and you need a plan for the final amount.
Moneysmart’s personal loan calculator can also work out car loan repayments, and shows how extra repayments might save money. Use it to test a shorter term against your budget number. Our guides on new car loans and used car loans go into how each type works.
Which extras quietly lift the repayment?
Check the paperwork for fees and add-ons before you accept a figure:
- Fees. Moneysmart lists establishment fees, broker or dealership fees and monthly service or missed-payment fees. It notes that an ASIC review of over 350,000 car loans from eight providers found big differences in the fees consumers paid.
- Add-ons. Dealer finance can include loan protection, gap cover or tyre and rim insurance. Moneysmart says these may not be good value, so ask for each one to be priced separately and decide on its merits.
- Drive-away price. Stamp duty and on-road costs belong in the amount you borrow, so compare drive-away prices, not sticker prices.
If you’re weighing a dealer’s offer against arranging your own, see dealer finance or your own car loan.
How do you keep the number honest in a thin month?
A budget that only works in a good month isn’t a budget. Three habits help:
- Test the repayment against your worst recent month, not your average. If a quiet month of work or an unusually big bill would sink it, trim the figure.
- Keep the running-costs money separate. Moving the yearly rego, insurance and service money into its own savings account each pay day stops those bills landing on your everyday account all at once.
- Check your bank statements, not your memory. Three months of statements usually reveal subscriptions, takeaway and small purchases that a mental list misses. Lenders look at the same statements, so a budget built from them matches what they’ll see.
Doing this before you shop also changes how a dealer conversation feels. You aren’t asking what the salesperson can get you into; you’re telling them the repayment and drive-away price you’ve already decided on.
What if the number I get is smaller than the car I want?
That’s useful information, and better to find out now than after you’ve signed. You have a few honest options:
- Look at a cheaper or older car, remembering that older cars may bring higher servicing costs.
- Save a bigger deposit, which reduces what you borrow.
- Pay down other debts first, because every repayment you free up becomes room in the budget.
- Wait a few months and build the buffer.
- Check whether a car loan or a personal loan suits better with our car or personal loan quiz.
Stretching the term to make the car fit is the option most likely to cost you later.
Ready to put your number to work?
Once you’ve run your own figures, start your application and see your options before you commit to anything. The questions about income, spending and debts are the same ones you’ve just worked through, so you’ll already have most of the answers.
Know your number, then see what’s on offer
You’ve done the hard part: you know what the car can cost you each month once everything’s counted. The next step is seeing what’s actually available at that repayment. Open the car budget planner if you haven’t yet, then start your application with our secure application partner. You can look at your options before you commit to anything, and a real person can help if you’re stuck on a question or a document. Please answer every question accurately, especially income, expenses and existing debts, because honest figures lead to options you can actually live with.
Frequently asked questions
How much can I borrow for a car loan?
It depends on your income, your expenses, your existing debts and your credit history, and the lender's own assessment. Treat the lender's maximum as a ceiling, not a target, and set your own repayment first from your spare cash.
What percentage of my income should go on a car?
There's no official percentage. Rules of thumb ignore your rent, kids, debts and the car's running costs. A better test is whether the repayment plus running costs still leaves a buffer after your regular bills.
How much car loan can I get on a $60,000 salary?
There's no single figure, because the answer turns on your take-home pay, your bills, any other debts, the loan term and the lender's assessment. Put your own numbers into the car budget planner to find a repayment that fits.
Do lenders count running costs when working out what I can afford?
Lenders look at your expenses, and transport costs are part of that. It's still worth listing the running costs yourself, because they're easy to underestimate.
Is a longer loan term a good way to lower the repayment?
It lowers the regular repayment but usually means you pay more overall, and the car may be worth less than you owe for longer. Check the total cost, not only the monthly figure.
Are balloon payments a way to afford a pricier car?
Moneysmart explains that a balloon leaves a lump sum due at the end, and that lump sum still carries interest, so the total cost is generally higher. Be sure you know how you'll cover it.
What if the lender approves more than I can comfortably repay?
You don't have to borrow the maximum. Choose the amount that fits your budget, and tell the lender or application partner if your circumstances change before you sign.
