Saving for and financing a car – a quick guide

“I wish I owned that car.”

Almost everyone has made that wish at some point in their lives. The problem is: that dream car is often just beyond our reach.  But it doesn’t have to be.

With some simple savings habits and a basic understanding of financing options, owning your dream car might be closer than you think.  So, how do you move out of the passenger’s seat and into the driver’s seat?


The best time to start saving for a car is yesterday. If you’ve been struggling to save up for that dream car, there are some simple things you can do straight away.

How much are you willing to spend?

While we all dream of owning a Ferrari, that’s usually a bit out of reach.  For first car buyers, the usual advice is to spend around 10% to 15% of your annual income.  This would put you in the market for a reliable second-hand car.  Just beware, the more you plan to spend, the harder it will be to save up for it.  So be realistic.

Be honest about what you want and what you need

Controlling our spending is one of the hardest things to do.  But if you’re serious about saving up for a car, you might need to have a tough conversation with yourself.  Because the more you cut down your spending, the more you can put towards savings.

So, ask yourself questions like: Is that Netflix subscription a need or a want?  Do I really need to go out with mates tonight?  Is the dress that’s on special something I really need?  Every little saving will make a difference.

Open a dedicated account and don’t touch it!

We’ve all got to those few days before payday and wondered whether there’s some extra money available to spend. But if you want to afford that car, set up a separate savings account and make it untouchable!

Decide on an amount that’s manageable and automatically add that into the account every payday.

Consider telling a friend about your savings goal and get them to check in on you every so often to keep you accountable for not touching your car savings account.  Once that money is in that account – stay away from it!  Until it’s time to buy a car, of course.

Don’t forget insurance

The cost of a car doesn’t stop when you pick up the keys.  Although you can drive straight out of that showroom, you don’t want to be left high and dry if someone reverses into you.  If you can’t afford insurance, then you can’t afford a car.

It’s important to be aware of all the ongoing costs of running a car like fuel, car registration, maintenance and of course insurance! has a handy online guide to help you compare insurance costs easily.



So now you have some savings tips, but you don’t want to settle for the $6,000 second-hand Corolla.  Instead, you’re eyeing off that brand-new Mazda 3.  The only problem is, saving up the required $27,000 is going to take a long time.  Lucky for you there are a number of financing options available to help people get into their new car sooner.

Just beware – a car is a depreciating asset, meaning its value decreases over time.  So, if you borrow money to buy a car, it’s probably a good idea to keep your borrowing amount as low as possible.

Car & personal loans

This is the simplest option.  You basically go to a bank and ask them to lend you the money.  And, with interest rates at historic lows, now could be a good time to do this. If you have a good financial history and have a habit of meeting any repayments you may have, you have a good chance of getting a loan at a rate of under 5%. This means you could be in that Mazda 3 for around $500 a month in repayments.

Dealership finance

Some dealers handle all the financing for you as a way to get you to buy their brand of car. They take care of all the paperwork and the application process.  For people not sure of their financial history and worried about getting lost in technical language, a dealer finance can be a good option.  The only downside is that dealers often have preferred arrangements with particular banks, so you may not get as low of an interest rate as you could have if you handled it all yourself.

Novated leases

If you have a full-time job, a novated lease could be a good option because they allow you to make your repayments before tax.  This not only means you can spend money before the government takes it off you, it actually decreases the amount of tax you pay too.

Novated leases usually run for around three years and because they are made from your pre-tax salary, they usually involve an agreement between you, your employer and the vehicle seller.

The only hitch is, at the end of the lease the car goes back to the dealer, so you don’t actually get to keep it.  So, don’t get too attached!


So, what next?

Once you’ve settled on your preferred financing option and are sticking to a savings plan, your dream of owning a car won’t be stuck in park.  Instead, you’ll be on the road before you know it.

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