Here's How Much You Should Spend On A Car

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Presented in partnership with People's Choice Credit Union.

For the majority of Australians, owning a car is a necessity. Aside from allowing people to have the freedom to go where they want, whenever they want to, cars also permit individuals to get to work each day, get to the supermarket and down the coast on the weekends. But for many, owning a car is somewhat of a tolerated inconvenience – and this is largely because of the expenses that come with it. Aside from the car payment itself, there are other costs that come with vehicle ownership – things like annual registration, insurance, petrol, and both routine and emergency maintenance must also be accounted for in addition to the monthly payment.

Noting all of this, we teamed up with the guys at People's Choice Credit Union, who offer a handy personal loan calculator tool, to figure out just how much you should spend on a car.

Answering the question largely depends on how much you value an automobile, and the value you place on an automobile is largely dictated on what you require a car for. For instance, if you're a car nut who spends a lot of your time on the road, you're going to want to budget a lot more than someone who doesn't know a Mercedes-Benz from a Mitsubishi and uses their car for a 20 commute to the office a few days a week.

For the purpose of helping you understand how much to spend on a vehicle, we’ve broken this guide up into three sections based on how much you value an automobile.

You're Not Fussed About Cars (10%)

If your situation doesn’t require a high-quality vehicle and you prefer to take a frugal route as it pertains to your car, most financial experts advise allocating about 10 percent of your income toward such purposes. It’s important to note that this isn’t going to get you much of a car. Even for someone who earns $100,000 a year, 10 percent is only $10,000. More than likely, those who allocate this amount are looking at a used model with high mileage.

Additionally, those that opt to allocate 10 percent of their income toward a vehicle also must consider the fact that older, high mileage vehicles are likely to require more maintenance than newer ones.

You Know What You Like (20%)

Placing moderate value, or about 20 percent of your income on a vehicle, is usually the happy medium that consumers reach between investing in a high-quality vehicle and a low-quality car. Even entry-level professionals that invest this sort of amount can typically get a fairly recent model year used car with under 60,000km's on the odometer. For those of your earning a bit more, going the 20 percent route can get a low-km, recent model year used car or even perhaps a brand new compact or mid-size sedan.

As we alluded to in the previous section, it’s also important to consider the total cost of ownership when purchasing a car. Spending more on a better vehicle is likely to minimise what you spend on maintenance costs over the duration of your ownership.

You're A Car Nut (30-40%)

If you're an absolute petrol head or you do a lot of miles over the course of a year, then spending 30-40 percent of your income on a car is within the realms of consideration. Obviously we strongly advise against sacrificing a roof over your head or three meals a day in lieu of a fancy car, but if you have the means and cars mean a lot to you, it's not out of the question to budget this much.

So how much should you spend on a car? Like we mentioned earlier, it depends on a variety of factors, such as your situation, income and personal preference. It’s important to analyse all three of these factors, as well as the projected total cost of ownership of a particular vehicle before making a purchase on anything.

Where does a car fit into your situation?

Check out People's Choice Credit Union's handy loan calculators here.