Hi all,
I was in the market recently to buy a car to replace my ageing car. However, it is hard to decide how much I should spend on a "new" car. By new, I mean could be "brand new" or just "new to me". I see some people spending upwards of 100k on a new car, but I have no idea how much they make, they could be raking in millions for all I know. So I am curious, when you bought your last car, how much did you spend relative to your annual income? Percentage wise.
Thanks.
Always under 10% of household annual income. Cash only (although I did once finance one car, a mistake).
Ok, looks like I overspent then.. I spent closer to 20%. Yea, cash only, no point financing a depreciating asset.
I don't think 20% is a lot if you bought a reliable car that you know you will have for a while. I think your job plays a part in the type of car you require as well.
i think 5-7%, sometime Toyota run 0% interest for new camery, i think it is not too bad.
Yep I aim for ~10-15% cash and get second hand but only a year or two old and still under warranty. That way you get all the benefits of a brand new car with a fraction of the expense. Obviously I get full mechanical inspections prior to purchase.
For some reason there are always people out there who are happy to cop the ~30% depreciation of driving a brand new car out of the dealership only to have to sell it a year or two later.
Actually it is fairly subjective. If the intent is buying a car as a purely utilitarian "appliance", then obviously the focus would be on minimising the cost to the maximum extent.
However, if the intention is to indulge a bit (as long as it is not blatantly going way beyond your means) it can be a fair bit higher.
For some reason there are always people out there who are happy to cop the ~30% depreciation of driving a brand new car out of the dealership only to have to sell it a year or two later.
Perhaps the intent there is to support a rather expensive hobby. :) I'm sure you splurge on certain big ticket items… everyone does.
If I really loved cars, I'd be doing the same. My hobbies are (thankfully) substantially cheaper. :)
Edit:
I was really lucky. I was looking at the dealer used, which the dealership accidentally totalled during a demo. So they gave me a brand new (exact same specs) for the price of the original dealer used.
Missed the later part of OP's post.
Total household income slightly north of 200k (no kids). Bought a dealer used A3 (after the events that transpired, turned out to be brand new) for approx 34k. Intention is to keep it for 5 years and buy a second car thereafter (likely second hand; <1k km tho, dealer used or something with little wear).
I can see the benefits of buying a second hand vehicle.
I applied more of what I want to spend and looked to see what new vehicles i liked in that price range.
At the time i purchased my new vehicle there were prior year used models and dealer used models already advertised more than brand new at sale.
So i went with brand new. I do plan to keep the vehicle for a long time.
10% for most recent purchase of 2nd hand car 18 months ago
1983 - first car $7400 - Income at the time $21000
2005 - Current car $4500 - Income at the time $42000
A brand new Mitsubishi Sigma in 1984 was $9500, so $7400 was pretty flash for a first car!
I spent 40% of my annual income on my current car but I'm a sports car owner plus drive with a lot of mechanical sympathy so my cars last 10 years+.
Ultimately, for the budget conscious you should calculate it based on how much your household is willing to spend per year on transport.
Australians own their vehicles for 5 years on "average". The longer you decide to keep the car the more years you can spread the costs over.
In my case a car that's valued 40% of annual income works out to be 4% spread over 10 years out of my total household income.
I suppose. My 10% of annual income vehicle is coming up to it's 8th year, so looking at it that way I spend 1.25% of annual income on car depreciation. About the same on rego, service and repairs, and same ballpark for fuel. I guess total automotive transport costs are around 4% of income.
My first car I bought for $7,300 in 2008 and it's still going strong, my income was probably about $15,000 back then
this thread is giving me a better insight to what some people can earn.
If you know the price they paid for the current vehicle extrapolate it out to get roughly their earnings (cough members who have posted what they are driving).
Besides i don't think % of income is that great in this scenario, yes it counts but if you're on the bottom pay scale expect to pay more.
Middle to high income earners are at an advantage. 20% to someone earning $100k can get you i30, corolla etc. 20% to someone earning $50k can get you something second hand. There's a fixed cost for 'new' or 'feel' like new vehicles in there somewhere with a increasing return relative to your income.
I don't think most people in this thread would buy a new car, unless there is not much price difference between a new one and a used one. Cars can range from about $2000 upwards, so I guess if you can really stick to 10% or 20% if you really wanted to.
I ended up buying a newish 2nd hand car.
10%, but it's a Corolla and my previous one lasted me over ten years.
Unless cars are what you love most in life, there's no reason not to just buy the cheapest (lowest total cost of ownership) car that will suit your needs.
They are money pits. Insurance, rego, servicing, petrol, etc will cost thousands per year whichever car you own.
And in my opinion, most Australians spend about 2-5 times what they should on cars, making themselves miserable with debt and gaining nothing over a sensible car. Especially when financing them, yikes. Pretty stupid.
Their main mistake is looking at what other people are driving and basing is off that.
Don't fall for it.
i really never got why people get loans to buy cars, it's the dumbest thing ever just to show off.
Not sure why you're being downvoted. Guess people who made poor decisions don't like to have it pointed out to them?
Car loans are really only justifiable if you need a basic car but can't afford the upfront cost.
Didn't downvote, but I think the sweeping statement is a bit off the bat.
Putting the money for the car into a higher performing investment instrument is sometimes more preferable than fronting cash outright. Especially when a loan rate is outdone by the investment returns. :)
^^ Just an example.
probably, but using a loan to buy a depreciating asset should be a finance 101 no-no
probably, but using a loan to buy a depreciating asset should be a finance 101 no-no
I don't know mate. IMHO, only if you're looking at it as an asset. If you're looking at it from the POV of a "purchase" (e.g. a $15k holiday) that will subsidise your next purchase to an extent, then it may make sense.
There is also the aspect of leasing that makes things a bit more grey, since that confers taxation benefits.
:biggrin:
Anything that gives more than the 5-6% of a typical car loan. :)
An investment that gives anything under 10-15%, is sub-optimal TBH.
one reason why a lot of people are willing to pay extra for new is knowing what they are getting mechanically wise.
Last thing you want to do is purchase a vehicle and have to continually pay to repair it.
I'd definitely consider used if it still had a warranty though.
14%
5%
I drive a 2003 model BA falcon ute and earn 85k p.a. and have only had 3 2nd hand cars in my 45 years. So not a car mad person but Ask yourself this though, in what car would you like to have a major accident in? Probably not some shitbox.That'll be my motivation for a better car in the not too distant future. Oh and some tech would be nice.
Decide what you want and if you can afford to purchase, do it. We purchased two brand new cars 12k and 24k four years ago and so far have only paid $30 for a leak in a tyre. Each to their own. Combined we earn 110k
Discretionary income (income less tax and normal expenses) is probably more relevant than total income, FWIW. A couple with dual incomes and no kids will have a different level of discretionary income than a single person with no kids or a couple with three kids etc etc etc even if their total disposable income (income less tax) is the same. When I was single I had two sports cars, but now…. not so much.
So, the correct answer to your question is probably - it depends.
You can get a decent new small car for under the $20k mark now, and a decent medium sized car for around the $30k mark. If I was young and single again, then I'd probably get the Toyota 86 or Subaru equivalent as they are amazing value…. but only if you ever need to have at most one passenger as the rear seats are not for people who have (or wish to keep their) legs.
My car now is an 11 year old Commodore. Bought it when it was 2 years old so it still had 1 year of warranty left, bought it outright and cost me nearly half what it would if I'd bought it new. Kept it serviced so has been pretty reliable, but might replace it next year. Around now is a good time to get a new car as the dealers are trying to shift last years cars (eg 2015 models) at decent discounts with their EOFY sales. Many have low or 0% interest deals as well, although they only run for about 3 years after which you will have to either finance or pay out the balance… plus also sometimes those interest free deals aren't available with the cars on sale. I'd also consider, if you have a home loan and a reasonable amount of equity, seeing if you can get cash out from that so end up paying under 4% interest rather than the standard lease arrangements that can be much much more.
Anyhow, I'd still do what I did and get the demo/1 or 2 year old car, reduce the depreciation impact and leave more disposable income to pay off the mortgage faster - or, to heck with it, check out a new McLaren.
4%
5%