You'll find the "28/36 rule" in a lot of budgeting advice. It's a useful starting point, but it comes from US mortgage lending, and Australian car lenders don't use it. Here's what it means, and a more practical way to set your own car budget.
What the 28/36 rule says
- Spend no more than 28% of gross income on housing costs.
- Spend no more than 36% of gross income on all debt repayments combined, including housing, car, cards and personal loans.
So on $80,000 a year (about $6,670 a month gross), total debt repayments would stay under about $2,400 a month.
Why it doesn't quite fit here
- Australian lenders assess affordability by working through your actual income, living expenses and commitments, not a percentage rule. See how borrowing power is calculated.
- It's based on gross income, but you pay bills from after-tax income.
- It ignores running costs, which for a car can be as much as the repayment.
A more practical approach
- Start with take-home pay and subtract rent or mortgage, bills, groceries, existing debts and savings goals.
- Estimate the full cost of the car per month: repayment + fuel + insurance + rego + servicing + tyres + parking or tolls.
- Keep a buffer. If the total car cost leaves you with nothing spare, choose a cheaper car, a bigger deposit or a shorter wish list.
- Stress-test it: could you still manage if your hours dropped or rent went up?
As a rough gut-check, many people find it comfortable when all car costs sit somewhere around 10–15% of take-home pay. Treat it as a guide, not a rule. Your situation decides.
Example
Take-home pay of $5,000 a month. Rent and bills $2,600, groceries and living $900, savings $400. That leaves $1,100. If fuel, insurance and rego come to about $450 a month, a car repayment of up to around $500 leaves a buffer of about $150. That's tight. A cheaper car or a deposit would give more breathing room.
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General information only. Examples are illustrations, not advice. This doesn't take your personal circumstances into account. Finance the Ride is a referral service and doesn't hold an Australian Credit Licence. Last reviewed September 2026.
