Buying a car? There’s hidden costs you should be aware of.
Australia loves cars, and the numbers can speak for themselves. The latest Australian Bureau of Statistics (ABS) census showed over 9 in 10 households in the country reported having at least one vehicle, while more than half reported having two or more.
In fact, 52.7 per cent of the Australian workforce depended solely on their cars for their daily commute, with private cars still the most popular more of transportation to get to work in every state and territory.
But don’t be so fast snapping up that Toyota Hilux or Ford Ranger (or Tesla Y if you’re looking to go eco-friendly) just because the price tag looks like you’re scoring a great deal.
Whether you’re buying a new car at the dealership or purchasing a second-hand vehicle through a private sale, not anticipating the true cost of ownership can be a big financial mistake.
Understanding the complete cost of car ownership can be tricky, since it involves both fixed expenses (those you pay consistently) and variable costs (which rise with increased usage).
And unfortunately, it’s not just first-time buyers that have fallen into this financial pitfall. Beyond the purchase price, there are hidden expenses that catch even the most seasoned car buyers off guard.
So what hidden costs should you look out for? And how can you avoid them? I will answer all these questions and give you everything you need to know about the full costs of buying a car.
What are the hidden costs of buying a car?
1. Vehicle Stamp Duty
In addition to the listing price, stamp duty is another upfront cost you need to account for when buying a car.
Vehicle stamp duty is a state and territory based levy you have to pay to the government when you buy a car, perform a registration transfer into your name, or register a second-hand vehicle.
Remember that the amount you pay depends on the purchase price of the vehicle and the state or territory in which you’re registering the car.
For instance, if you buy a car worth $30,000 in New South Wales, you might pay a different stamp duty amount than if you bought the same car in Victoria.
How much is vehicle stamp duty in each state?
Australian Capital Territory (ACT)
- Stamp duty rates in the nation’s capital are based on environmental performance.
- Rates vary for vehicles valued below $45,000 and $45,000 or more. For example:
- Vehicles valued below $45,000 (Performance Rating A): $0 for every $100 of dutiable value.
- Vehicles valued at $45,000 or more (Performance Rating A): $450, plus $2 for every $100 of dutiable value.
New South Wales (NSW)
- Stamp duty rates are based on the value of the vehicle.
- For vehicles valued up to $44,999: $3 for every $100 of its value.
- For vehicles valued at $45,000 or more: $1,350, plus $5 for every $100 of total value.
Victoria
- Duty rates vary depending on the type of vehicle and its purchase price (including goods and services tax or GST).
- Rates are specified in dollars per $200 of value for different vehicle types and price ranges.
South Australia
- Duty is calculated based on the value of the vehicle and its classification (commercial or non-commercial).
- Rates differ for non-commercial and commercial vehicles and are specified in dollars per $100 or part thereof.
Western Australia
- Rates are based on the vehicle value and size (non-heavy or heavy). According to the government’s website, non-heavy vehicles are classified as those with a gross mass of 4.5 tonnes or less).
- For non-heavy vehicles, rates range from 2.75% to 6.5% of the dutiable value.
Queensland
- Duty rates depend on the type of vehicle and its price.
- Rates are specified for different vehicle types and value ranges, such as hybrid/electric vehicles or vehicles with various cylinder counts.
Tasmania
- Duty is calculated based on the vehicle’s market value.
- Rates are specified for different dutiable value ranges, with a minimum fee for values up to $600.
Northern Territory
- Duty is $3.00 per $100 or part thereof on the dutiable value of the vehicle.
- The dutiable value can be the sale price or market value, depending on the transaction type.
Please note that the specific amount you need to pay can vary based on vehicle value, type, and other factors. It’s essential to verify the most up-to-date rates and regulations for your specific situation and location so you don’t get caught off guard.
2. Registration
While registration will be one of your recurring annual costs as a car owner, make sure to check if there will be any registration fees to pay upfront.
If it’s a private sale, you’ll also need to arrange for a registration transfer and potentially a registration renewal.
Keep in mind that the amount you pay can also vary based on factors like the type of vehicle, its weight, and the specific state or territory of registration.
To get the ballpark figures, here’s a guide on how each state and territories calculate vehicle registration fees:
NSW registration
Charges an annual registration fee of $70, with additional fees based on the vehicle’s type and weight.
Victoria registration
Combines registration fees with Compulsory Third Party (CTP) insurance, and costs are influenced by your location and the associated risk.
Queensland registration
Bundles registration, CTP, and a Traffic Improvement Fee. Levies are applied based on the number of cylinders in your vehicle.
South Australia registration
Determines costs based on districts, with fees varying depending on the risk level in your area.
Western Australia registration
Calculates registration fees based on a vehicle’s weight, with additional charges for Motor Injury Insurance and administration.
Tasmania registration
Charges based on the number of cylinders, with additional fees for Motor Tax and Motor Accident Insurance.
Australian Capital Territory (ACT) registration
Breaks down fees into multiple components, resulting in an average cost of around $1240 per year for a family car.
Northern Territory registration
Includes registration, insurance, and administration fees, with charges based on the number of cylinders and engine size.
3. Insurance
Insurance costs are also worth noting in your budget, as it is another ongoing annual expense.
At the very least, your new vehicle will require compulsory third-party (CPT) insurance, which protects drivers from the financial impact of causing injury or death as the result of a motor vehicle accident and is usually paid at the same time as your motor vehicle registration.
Many people choose to supplement their CTP insurance with either third-party car insurance or comprehensive car insurance, incurring additional costs.
While the specifics may vary between insurance providers, in general, third-party policies offered by various insurance brands cover damage your vehicle may cause to other cars and property, while comprehensive insurance extends this coverage to include damage to your own car.
According to financial research and ratings firm Canstar, the average cost of comprehensive car insurance ranges from around $800 to over $3,000.
If you are taking out a personal loan for a new car, and using it as a collateral for the debt, remember that you will have to take out comprehensive insurance before you are given the stamp of approval by lenders.
This means you will also have to pass the usual checks done by lenders to assess your financial situation, ensuring the risk of you being unable to make your monthly repayments is low. This includes reviewing your credit history, employment status, income, and other relevant financial details.
Insurance policy prices are influenced by a number of factors, like your location, driving history, the type of coverage you choose, the value of your vehicle and even the colour!
In some cases, some car insurance providers will even factor in the distance you travel in order to crunch the numbers on your car insurance rates.
Here are some key factors an insurance company typically take into account when calculating the cost of your car insurance:
Coverage level
As we’ve mentioned, the extent of coverage you choose affects the cost of your insurance policy.
This means comprehensive policies —which cover a wider range of risks —tend to be more expensive than basic policies like third-party property insurance. Adding optional extras, such as roadside assistance or coverage for theft of personal items up to a limit, also increases the insurance premiums.
Driver’s age and gender
Did you know younger drivers, especially those under 25, generally pay higher premiums? And among this group, males often pay more than females.
As of writing, the typical expense for comprehensive car insurance in Australia stands at $2,184 for females under 25 and $2,437 for males in the same age bracket.
Meanwhile, individuals aged 25-29 years pay an average of $1,733, $1,312 for those between 30 and 49 years old and $1,006 for those aged over 50 years.
Driver’s record
Some insurance providers offer a sweet deal for folks who have a clean record – that means no accidents, no previous insurance claims, and no tickets. This is sometimes referred to as a ‘no-claim bonus’ or ‘good driver discount’, which can help lower your annual cost overall.
Excess
This refers to the amount you pay toward repair costs when making a claim. While choosing a higher excess can lower premiums, it means paying more out of pocket if you need to claim.
Vehicle characteristics
When insurance companies assess your vehicle, they take into account various factors to determine your premium. These factors include the age of your vehicle, its make and model, the security features it has, and any custom modifications. Generally, vehicles that are more prone to accidents, theft, or expensive repairs may lead to higher insurance premiums.
Location
Your location matters. If you’re planning to buy a car but live in an area with high crime rates or increased risk of weather events such as floods or you are in a bushfire prone area, you might be hit with higher premiums.
But did you know that one way to lower costs is to secure overnight parking in covered spaces such as locked garages?
When it comes to finding convenient and secure parking options, you might want to consider using services like Parkhound.
Parkhound connects you with available parking spaces, including those in secure garages, making it easier to keep your insurance premiums in check while also getting the peace of mind that your car is safe.
Driving habits
When you’re getting insurance, you may need to estimate how many kilometres you’ll drive over a specific period of time. More mileage on your vehicle often means a higher accident risk and more wear and tear, which can impact your premiums.
If you use your vehicle for both personal and commercial purposes, your insurer might adjust your rates or apply specific terms. For infrequent or short-distance driving over a period of time, consider pay-as-you-drive insurance coverage.
The car insurance provider
Just like with any financial product, it’s a smart move to explore your options because the insurance premiums you receive can differ significantly. Take the time to do your due diligence by comparing the rates available from different providers.
Additionally, always make sure to carefully read the product disclosure statement so that you can understand exactly what is covered in your policy. This way, you can make an informed decision that best suits your needs.
4. Fuel costs
Fuel costs are an ongoing and obvious expense you must account for as a car owner. And amid the current cost of living challenges, it has become an additional, sometimes overlooked, financial burden to keep an eye on.
The current national average retail price for unleaded 91 stands at $2.06 per liter, marking the highest level since July 2022.
Take note that the cost of fuel also varies between cities and regions. For instance, fuel may be more expensive in remote or rural areas compared to major cities such as Sydney, Melbourne and Brisbane.
Additionally, the type of fuel your car uses and its fuel efficiency will also impact your ongoing fuel costs.
Before buying a car, it could be worth your time (and dime) comparing the fuel efficiency of different models in order to drive a fuel-efficient and environmentally fuel vehicle.
It’s a good idea to familiarise yourself with eco-friendly driving techniques that can help you get more out of each tank of gas. This includes driving at a consistent pace, ensuring your tyres are properly inflated, and regularly clearing out your trunk. Safe driving not only reduces fuel consumption but also helps you avoid fines, ultimately saving you money.
Additionally, consider scouting for the most economical fuel options in your vicinity. If you’re working on a tight budget, you can also consider having a reserved monthly parking spot, so you won’t have to drive around in circles just to secure a spot everyday.
In some parts of Australia, if you own a high-emission vehicle that pollutes more, you might have to pay extra fees. For example, the Australian Capital Territory (ACT) had introduced a form of environmental impact fees for high-emission vehicles.
Furthermore, there’s a broader push across the country to encourage the adoption of electric vehicles (EVs). In recent years, governments are providing incentives such as rebates and reduced registration fees for EV owners.
These initiatives are not only aimed at reducing emissions but also at supporting the transition to cleaner and more sustainable transportation options. So, it’s a good time for car buyers to explore electric vehicles and the associated benefits, both for the environment and their wallets.
And to make things even more convenient for EV owners, services like Parkhound offer parking spaces equipped with EV charging stations. This means you can charge your electric vehicle hassle-free while you park, eliminating any concerns about finding charging spots and ensuring your EV is ready to roll when you are.
5. Maintenance and repair costs
One hidden cost most aspiring car owners overlook is the cost of maintaining and repairing their vehicle.
This is often the case for people who are buying a brand new car, who think their maintenance costs and repair won’t be a primary concern after a few years or so.
The cost of maintenance and repairs for your car can fluctuate based on factors such as the make and model of your vehicle, your driving habits, and local labour rates. For instance, servicing a luxury car may be more expensive than a standard sedan, and repair costs can vary by location.
If you choose to buy a used car, make sure you are aware of the maintenance and repairs done to the vehicle so you can properly maintain it.
It’s also advisable to do regular checks, including your car’s engine oil, brake pads, windscreen wipers and battery to avoid small issues from snowballing into bigger (and more expensive) repairs.
6. Dealership fees
Dealership fees can include various charges, such as documentation fees, delivery fees, and vehicle preparation fees. For instance, a dealership may charge a $500 documentation fee when you purchase a car.
7. Extended warranties
The cost of extended warranties can vary based on what you’re getting and for how long.
So, picture this: you’re eyeing a mid-range sedan, and you’re thinking of going for a five-year extended warranty. It might set you back an extra $1,000, but it’s like having some extra peace of mind for your ride.
8. Accessories
The cost of accessories can vary widely based on the type and quantity of items you choose. For instance, adding a set of premium floor mats, roof rails, and a navigation system to your car could cost an extra $2,000 or more.
9. Parking fees
Parking costs, especially in the Central Business District (CBD) areas, can be surprisingly expensive and often gets overlooked as a hidden cost for car owners.
In 2022, the average daily off-street parking fee in Australia jumped to $34.42, a 1.74% increase from 2019. This makes Australia the priciest place to park in the world. These rising costs add to the financial burden of car ownership, piling up alongside other ongoing costs.
To lower parking costs, consider using services like Parkhound. As parking expenses continue to rise, innovative solutions like Parkhound can provide some much-needed relief for urban car owners looking to save on their parking expenses.
10. Toll costs
In cities like Sydney and Melbourne, toll roads are common, and the costs can quickly add up. Car owners need to budget for toll expenses because these fees vary based on factors like vehicle type, time of day, and frequency of use.
Additionally, there are additional costs associated with electronic tags and account fees, making it essential for car owners to factor toll expenses into their budgets to avoid unexpected financial burdens.
Tips for avoiding hidden costs when buying a car
Now that you’re aware of the unexpected costs that can come with owning a car, here are some tips on how to avoid getting caught off guard by them:
1. Do your homework
Before heading out to buy a car, dig into the details. Look up reviews, talk to friends who own similar models, and find out if there are any common issues with the car you’re eyeing. This will help you make a smart choice and avoid nasty and expensive surprises later.
2. Ask plenty of questions
Don’t be shy about asking questions. Grill the seller or dealer about the car’s history, quirks, and why they’re selling it. The more you know, the better prepared you’ll be for any unexpected costs.
3. Get it in writing
When you’re hammering out the deal, make sure everything you agree on is down on paper. That means the final price, any promises they make, and all the fees and taxes. Having it in writing protects you from any curveballs.
4. Check that history
Before you say yes, get a vehicle history report. It can reveal if the car’s been in any accidents, had title issues, or if the odometer has been tampered with. It’s like a detective’s tool for hidden problems.
5. Give it a thorough once-over
Don’t just kick the tires; have a trusted mechanic give the car a once-over. They might spot issues you’d never notice during a test drive. If they find anything, use it as a bargaining chip.
6. Hunt for the best car loan
If you’re borrowing money for your ride, shop around for the best loan rates. A little extra effort can save you a bundle in interest.
7. Beware of extras
Dealerships might toss in add-ons like extended warranties or fancy coatings. Think twice about these extras, as they can pump up the cost. Only get what you really need, and haggle on the price.
8. Read every line
Before you put pen to paper, read the fine print. Scrutinise contracts and agreements, looking for hidden charges, penalties, or any terms that might sneak up on you later.
9. Know your rights
As a consumer, you have rights. Familiarise yourself with them. Understand the warranty, return policies, and lemon laws in your area. Knowledge is your best ally.
10. Stay alert for scams
Unfortunately, scams exist in the car-buying world. With that said, be cautious of deals that seem too good to be true, sellers who rush you, or requests for unusual payment methods. If something feels off, trust your instincts and investigate further. Your wallet will thank you.
