Car Expenses: A Comprehensive Guide to Costs and Financing

Accounting 1:

Car Expenses

Owning a car brings freedom, but it also comes with responsibilities. The costs involved with buying a car are more than just the purchase price. A young person needs to know how much they can afford to pay:

• For one-off expenses, such as: purchase price, stamp duty & transfer of registration fee (where applicable).
• For annual and ongoing expenses, including: registration, compulsory car insurance, optional car insurance, loan repayments (if applicable), fuel, parking, car maintenance, & car servicing (for periods not covered by warranty if applicable).

Car Insurance

Car insurance can cover the cost of your car if you damage it, it is stolen, or if anyone is injured. If there is an accident involving your car, you could have to pay for the costs resulting from injuries to yourself/others, damage to your car/other vehicles and damage to any property you hit. There are many different types of insurance available when you buy a car. These are called insurance policies. Some basic car insurance is compulsory when you register your car (Compulsory Third-party Insurance).

• Third-Party Property Covers damage caused by your car to other people’s property, as well as your own legal costs. Does not cover costs of repairs to your own car or replacement of your car if it is stolen.
• Third-Party Property, Fire and Theft Covers damage caused by your car to other people’s property, and limited cover for loss or damage caused to your car due to theft or fire. Does not cover the cost of repairs to your own car or if it is damaged in an accident.
• Comprehensive Gives you the most cover but is also the most expensive type. Covers damage to your car and damage to other people’s property if your car is in an accident, including fire. Also covers theft.

Car Taxes

• Stamp Duty: Car buyers must pay stamp duty whenever they buy a new or used car. The amount changes based on the type of car, but it is roughly around 3% of the total cost.
• Motor Vehicle Tax: This tax is paid for by owners of all registered vehicles. The amount is paid for each year through your car registration fees. The amount differs depending on where you live and the type of car you own.
• Luxury Car Tax: This tax only applies when you purchase a car through a dealership. The tax applies to any car with a purchase price over $64,132 (including stamp duty). The luxury car tax rate is 33%.

Income & Expenses

Income: Money received for work or through investments. Examples: Wages or government benefits (Centrelink), profit from your business, bank interest (from savings or term deposits), share dividends, investment income (property, share markets, cryptocurrency), gifts, or inheritance.

Expense: An outflow of money to another person or business as a payment for a good or a service – e.g., Food, Phone Bill, Rent.

Debt

Debt is something, usually money, owed by one party to another. Debt is used by many individuals and companies to make large purchases that they could not afford under other circumstances. Unless a debt is forgiven by the lender, it must be paid back, typically with added interest. The most common forms of debt are loans, including mortgages, car loans, and personal loans, as well as credit cards.

Secured Debt

Requires a security. This may be property, inventory, or other types of assets. If the loan can’t be met, the lender may rely upon the assets to clear the outstanding balance, interest or fees. The interest rates are usually lower, and the term is usually longer, with high borrowing limits.

Unsecured Debt

Doesn’t require any physical assets as security. Instead, your lender will often look at your creditworthiness, which is indicated by your credit score and credit history. The interest rates are usually higher, and the term is usually shorter, with low borrowing limits.