9. Budgeting and Household expenses
Lesson
In this exercise, we are going to investigate the compulsory costs of purchasing a new car. This will include the actual purchase price (including the cost of a loan), CTP insurance, registration, stamp duty and car dealership charges.
Background and car selection criteria
- Imagine that you are buying a new car. It will mainly be for the purpose of driving to and from your full-time job, but also for general driving around. You estimate your average daily driving distance to be 25 kilometres.
- Assume that you already have \$3000 in savings. You decide to use your savings for the on-road costs (CTP insurance, registration, stamp duty, dealer delivery charges), rather than the actual purchase of the vehicle.
- The purchase price of the car you choose should not exceed \$30000 and should be no older than five years. Aim to choose a car that will minimise your overall costs, including on-road and running expenses.
Follow the steps below:
- Choose a car using the Car Sales website.
Once you have chosen a car, note down the following details:- Make, model and year of the car
- Purchase price (note that prices quoted on the Car Sales website include GST)
- Tare mass (kg) of the car. This is required for calculating registration costs (you will find the tare mass listed in the vehicle's specifications)
- Car loan repayments. Because you are using your savings to cover the on-road costs, you will need to take out a car loan for the full purchase price of the vehicle.
- Use the simple interest model to calculate your monthly car loan repayments if the fixed interest rate is 8.49\% p.a. and the term of the loan is 5 years.
- Enter the details of the loan into an online car loan calculator. Compare the results with those you obtained using the simple interest model.
- Use the results from the online car loan calculator to determine the interest charged and the total cost of your loan. If your monthly loan repayments are more than you can afford, return to step 1 and choose a cheaper car.
- CTP insurance. Get an estimate for the annual cost of Compulsory Third Party (CTP) insurance. In NSW, there are five licensed CTP insurance companies to choose from: GIO, AAMI, Allianz, NRMA and QBE. Remember that the amount you pay will depend on your individual circumstances.
- Using information in the car selection criteria above, work out the average distance your car is expected to travel in one year.
- Use the Roads and Maritime Services (RMS) green slip calculator to calculate your annual CTP insurance premium. The calculator will provide a quote from each of the five insurance companies. See the information panel below for some tips on how to use this calculator. Alternatively, you could contact one or more of the insurance companies directly or use the company's individual online calculators.
- Choose one of the five quotes for your CTP insurance. Write down the annual price and the name of the insurance company you have chosen.
- Stamp duty - Calculate the stamp duty you would be required to pay on your car. For NSW, stamp duty is calculated as follows:
Note: Use the purchase price of your car for value of the vehicle in the table above.Value of vehicle Stamp duty payable Up to \$45000 \$3 for every \$100, or part thereof. Over \$45000 \$1350 plus \$5 for every \$100, or part thereof, over \$45000.
- Vehicle registration - Your annual vehicle registration cost will consist of an annual fee of \$66 and a motor vehicle tax. The motor vehicle tax depends on the tare mass of your vehicle and can be determined from the table below:
Tare mass (kg) Private use Up to 975 \$215 976 to 1154 \$250 1155 to 1504 \$305 1505 to 2504 \$466 2505 to 2794 \$677 2795 to 3054 \$769 - Dealer delivery charge. This is advertised as \$1695 but you negotiate with the car dealership for a 15\% discount. Calculate the amount you pay in dealer delivery charges after the discount.
- Summary of on-road costs. Create a table like the one below with a summary of your on-road costs, and calculate the total.
On-road costs Amount CTP insurance Stamp duty Vehicle registration Dealer delivery charges TOTAL - Are your savings enough? Will your \$3000 in savings be enough to pay for all of the on-road costs listed in your table? If so, how much do you have left over, and if not, how much extra do your need?
- Additional insurance. Now that you have covered all of the compulsory costs, you still need to consider the most important non-compulsory expense - additional insurance that will cover you for damage to other people's cars and property, as well as damage to your own car.
- Get an estimate for the monthly cost of Comprehensive Insurance for your car. You may use an online calculator for this purpose or contact an insurance company for a quote. The CTP insurance companies listed above will generally offer other types of car insurance, like Comprehensive.
- Work out the total amount you will pay each month in car loan repayments and Comprehensive insurance. You may use the loan repayment amount provided by the online car loan calculator.
Using the online 'green slip' calculator
The online green slip calculator is used to provide an estimate for your CTP insurance from different NSW insurance companies.
Before you start you will need the following information:
- The year, make and model of your car (from the Car Sales website)
- The postcode where your vehicle is parked (this could be your own postcode)
- The distance travelled by your vehicle in a year
Tips on using the calculator:
- Click on the red button labelled 'this will only take a few minutes' to get started.
- On the first page are registration details, which you won't have. Instead, choose 'fill out details manually'.
- Enter the current date for the due date of registration. Choose 'motor car' for the type of vehicle.
- Complete each field as required.
- Note that the vehicle is being registered by an 'individual' for 'private' use and you are not entitled to an input tax credit. Also assume that you are registering a new vehicle that has not been registered before.
- No Blue Slip is required.
- Choose 'Comprehensive' when asked whether you have other insurance for the vehicle and choose 'less than 1 year' when asked for how long. You can also choose yes for 'no claim discount'.
- Answer all other questions.
- After submitting your responses you should get both an annual and 6 month price for each of the five insurance companies. Select the annual price for the insurance company of your choice.
Extension
Investigate the factors that affect car insurance premiums.
- Investigate statistics related to vehicle theft, gender/age of drivers in accidents, location statistics for accidents and other factors that may affect insurance premiums. Write down your findings.
- Use your findings and other information you have found online to write a clear summary about each of the factors affecting car insurance premiums.
- Choose one factor, such as 'age of the driver', and vary it to determine how it might affect the cost of CTP or Comprehensive car insurance premiums. You might use an online calculator to help you, trying different driver ages and keeping all other input values the same. Present your findings in a table and write a conclusion.