Short answer: Work out the full cost of running the car, not just the repayment, and make sure it fits alongside your regular saving and an emergency buffer. It is often better to borrow a little more, or choose a cheaper car, than to empty your savings for a deposit and have nothing left when something goes wrong.
Start with the real monthly cost
The repayment is only part of the cost. A realistic car budget includes:
- Loan repayment, plus any monthly account fee
- Comprehensive insurance, which most lenders require on a secured loan
- Registration and CTP. These vary by state, so check your transport authority
- Fuel or charging, tolls and parking
- Servicing, tyres and repairs. Older cars need more
Add these up per month and compare the total with your take-home pay. Moneysmart's budget planner is a free way to see where your money currently goes.
Decide how much savings to keep
A common approach is to keep enough to cover about three months of essential expenses before putting money towards a deposit. Your own buffer depends on how secure your income is. Casual and self-employed workers usually need more. A deposit reduces what you borrow and the interest you pay, but a deposit that leaves you with nothing can backfire if the car needs tyres in the first month or your hours are cut.
Loan term: lower repayments versus total cost
| Example only: $25,000 at 9% p.a. | Monthly repayment | Total interest |
|---|---|---|
| 4 years | about $622 | about $4,860 |
| 6 years | about $451 | about $7,450 |
A longer term frees up about $170 a month, which you could keep saving, but costs roughly $2,600 more in interest. If you choose the longer term, check whether the loan allows extra repayments without a fee, so you can pay it down faster when you're ahead.
Be careful with balloon payments
A balloon or residual lowers regular repayments by leaving a lump sum to pay at the end. You pay interest on that amount the whole time, and you will need to pay it, refinance it or sell the car when it falls due. It can suit some people, but it isn't free savings.
A simple plan
- Set a monthly car budget, including running costs, before you look at cars.
- Keep your emergency buffer untouched. Use only savings above it for a deposit.
- Choose a car that fits the budget, not the other way around.
- Set up an automatic transfer so you keep saving something every pay, even if it's small.
- Compare comparison rates and total repayable, not just the weekly figure.
Want to know what a sensible loan looks like for your budget? Tell us about your situation in about 60 seconds and a licensed broker will call you. No credit check to enquire.
Related guides
- How much should you spend on a car loan?
- How to calculate the true cost of a car loan
- Balloon payments: what you need to know
General information only. This isn't financial advice. Finance the Ride is a referral service and doesn't hold an Australian Credit Licence. Last reviewed September 2026.
