Buying Your First Car: Budget and Finance Guide

Buying your first car is an exciting milestone full of freedom, independence, and responsibility for many Australians. But between purchase price, insurance, and running costs, there’s a lot to consider before you get your first set of keys.

How much should you pay? And how can you calculate what’s affordable for you? Do you need a new car – or would a reliable used car suit your purposes just as well? You may need to weigh up the benefits of buying from a dealer versus a private seller.

There’s a myriad of questions, and plenty to think about in terms of financing from getting pre-approval on a loan to reducing insurance premiums. Our guide breaks it all down so you can hit the road without the stress.

Key takeaways

• Look beyond the purchase price to the total cost of ownership: registration, insurance, fuel, maintenance, and depreciation
• Safety first: look for cars with a 5-star ANCAP safety rating, especially if you’re a new driver
• Budget realistically: aim to keep total car costs within 20% of your income
• From saving up to taking out a loan, you need to understand your finance options

How much should you spend on your first car? 

While browsing for cars can be fun, setting a realistic budget can be a good step in your car buying journey. When setting a budget, you may want to consider:

• Purchase price: this is the price on the window sticker
• On-road costs: stamp duty, registration, and CTP (compulsory third party) insurance
• Comprehensive insurance: this can be more expensive for young or new drivers
• Ongoing costs: fuel, servicing, tolls, parking and cleaning 
• Other unplanned costs: new batteries, new tyres, unexpected damage

First car budgets vary greatly according to make, model, mileage, and whether the car is new or used. If you’re thinking about a new car, Drive.com data indicates that entry-level models start at about $20,000 plus on-road costs.

The 20% rule could be a useful guide. Your overall car costs, including insurance, petrol, servicing, and loan repayments (if applicable), shouldn’t exceed 20% of your monthly income.

For example, if you take home $4,000 a month, keeping all car-related expenses under $800 leaves room for any unexpected costs. Of course, your other personal or household expenses need to be considered and calculated, too. 

What to look for in a first car?

The best first car doesn’t need to be fancy: just safe, reliable, and affordable to run. This is where the fine print comes in. You can check a car’s ANCAP (Australasian New Car Assessment Program) safety rating before you buy. A 5-star ANCAP safety rating means the car has been independently tested for crash protection and safety technology and is the highest standard available. Keep in mind that older vehicles may not have been tested, so it’s worth checking whether your chosen model and year has a rating.

Because the criteria for ANCAP safety ratings are updated every three years, older models with a 5-star ANCAP rating won’t be as safe as newer models with the same rating which have been tested to more stringent, recent standards.

You can read more about safety ratings on the ANCAP website.

Other factors that impact costs are fuel efficiency and insurance. A fuel-efficient car with a more expensive purchase price might end up being a better deal in the long run. Fuel efficiency and insurance can vary greatly by vehicle so be sure to find the details for both before buying your first car.

When it comes to reliability, popular brands can have lower long-term maintenance costs and readily available spare parts, which can keep servicing costs down. It’s always important to do your own research.

Whether you choose an automatic vs manual car comes down to a personal choice. Manual cars are generally cheaper to buy, while automatics may be easier for new drivers, particularly in city traffic. 

New or used car: what’s best for a first car?

It’s a well-known fact that new cars can lose value the moment you drive one out of the car dealership. Depreciation can be the single largest ownership cost with any new car. For most first-time buyers, a quality used car could be the smarter financial choice, but it depends on your own financial situation and your priorities.

Buying second hand may offer a lower purchase price, and a lot of their depreciation may have already happened. Used cars may also attract lower stamp duty and often lower insurance premiums.

However, new cars come with a manufacturer's warranty, the latest safety features, and the peace of mind of knowing the full history of the vehicle. If you plan to keep the car long-term, buying a new car could make sense.

How to check a used car before buying

Whether you're buying from a private seller or a car dealership, if you’re buying a used car, it can be tricky to know the history of the vehicle and get a true indication of how reliable it will be.

Car dealerships can be considered safer than buying from a private seller because they are required to provide a warranty on the vehicle. A used car warranty provided by a licenced motor trader or dealer is different from a new car warranty provided by a car maker; they are usually for a shorter time period and cover less kilometres. For instance, in NSW a statutory warranty for a used car – that is less than 10 years old and has travelled less than 160,000km – from a licensed dealer lasts for three months or 5,000km, whichever occurs first.

So, it’s important to do a few key checks to save you from unforeseen expenses down the track. Here’s how:

• Request a REVs check or access the Personal Property Securities Register (PPSR check) to get information about the car’s history. This can cover any records of accidents or repairs and confirm there’s no outstanding money owing on the car.
• Request a full service history and logbook records to see if the car has been well maintained.
• Take the car for a test drive and pay attention to handling, braking, acceleration, gear shift quality, and any unusual noises.
• Ask a mechanic to complete a pre-purchase inspection from a private seller or find a certified pre-owned vehicle that has been thoroughly inspected and may come with a warranty period at a dealership.

You may also want to look for cars with lower odometer readings (closer to 100,000km) to reduce the risk of continued wear and tear issues.

Explore the Westpac car buying guide

How to finance your first car

Before you start choosing cars and taking test drives, it’s important to understand your finance options.

If you have enough savings, buying a car outright means you avoid interest charges and have no monthly repayments. However, it can take longer to reach your savings goals and may leave you with less cash buffer. Borrowing money using a car loan could get you on the road sooner but also means you’ll pay more overall once interest is included.

Depending on your personal circumstances, you might choose to finance the total cost of the car, or a portion of it, if you’d like to contribute some of your savings towards it.

When it comes to car loans, secured car loans use the vehicle as security for the loan. Unsecured personal loans don’t require the car as collateral but usually come with higher interest rates.

If you are taking out a secured loan for a car, you will need to make sure it’s covered by comprehensive car insurance (as well as Compulsory Third Party insurance) before the loan is finalised. Comprehensive insurance helps cover loss or damage if the car is in an accident, if it’s written off or stolen.

Westpac offers car loans for a new or second-hand car, which is used to secure the loan (credit criteria, fees, charges, terms and conditions apply).

It’s also possible to get pre-approval for a loan before you start car shopping, so you know your maximum price.

Westpac’s Borrowing Power Calculator can help you see how much you could afford, while our Car Loan Repayment Calculator can show you how much your monthly repayments would be.

Explore Westpac Car Loans

Insurance for first car buyers

There are three main types of car insurance:

• Compulsory Third Party (CTP). This is required by law to cover other people if you’re responsible for an accident.
• Third party property and third party property, fire and theft. Third party property insurance covers damage to other people’s cars or property caused by your car. Third party property, fire and theft also covers your car if it’s stolen or damaged by fire.
• Comprehensive insurance: covers damage to your own car as well as third party damage. 

Tips to reduce your car insurance premium:

• Choosing an entry-level car could reduce your theft risk. (No Lamborghinis here!)
• Opting for a higher excess can bring down your annual premium
• Building a clean driving record over time
• Compare quotes from multiple insurers before you commit and don’t be afraid to negotiate 

Frequently asked questions

How much should I save for my first car?

As a general guide, aim to have enough saved to cover the purchase price plus on-road costs (stamp duty, registration, and CTP). It's also worth keeping a buffer for any repairs or unexpected costs after purchase. If you’re using a car loan to finance the car, a deposit may reduce your loan amount and secure a better interest rate.

What is the best first car in Australia?

There's no single answer but browsing on car guides or private sales websites can show you popular options. It’s important to look for solid safety ratings, good reliability, parts availability, and manageable running costs. It's also important to consider how a car might fit into your life, such as whether you'll be driving frequently and if you'll be doing more long trips or city driving.

Can I get a car loan with no credit history?

It depends on the lender. You’ll need to answer questions about your financial situation, including your income, assets, debts, and expenses. You may also need to provide proof of these, as well as your credit score.

You can apply for a car loan with Westpac over the phone, in a branch or online.

Should I buy my first car outright or on finance?

This comes down to your personal circumstance and choice. If you have enough savings and can cover the purchase without leaving yourself short, you’ll save on interest charges and won’t have any monthly repayments. However, if buying outright would drain your emergency fund, financing the cost (or part of it) could make sense. The key is to keep loan repayments manageable within your monthly budget, so your car purchase doesn’t put pressure on other financial commitments.

To sum up

Buying your first car can be a big decision, so it’s important to get it right and to be prepared. Budget carefully for running costs, insurance, and do your due diligence before you buy. A little preparation now can go a long way. Road trips await!