In a nation the size of Australia, owning, or at least having access to a car, is essential. If you don’t, especially for those who live in rural areas, it can be incredibly difficult to get around.
That goes some way towards explaining why there are over 20 million registered vehicles in the country (according to the ABS). And why 90% of Australian households have at least one at their disposal. However, it also follows that for a sizeable number of Aussies, buying a car is something they will eventually have to do. For many, that will be in this coming year.
If you intend to procure a vehicle in the next few months, the cost of doing so will be influenced by several economic factors. These include:
- Interest rates
- Inflation
- Rising vehicle prices
- Greater focus on cash flow planning
For the large majority of people who aren’t cash buyers, taking out a car loan is the main way they will be able to cover the purchase. But, given these financial influences, is it an advisable thing to be doing in 2026?
This post will attempt to answer that question.
What Economic Conditions Will Affect Car Loans in 2026?
Economic conditions have always had a huge influence on car loans, and in 2026, they will carry on influencing how Australians approach such a major purchase as buying a new vehicle.
As mentioned, inflation is likely to remain a major concern for thousands of Aussie households currently struggling to manage everyday expenses. Indeed, car loan interest rates will continue to reflect wider lending trends across the country’s financial ecosystem.
At the same time, the price of vehicles, especially new ones, has increased notably in recent years. Primarily, this is due to factors such as supply chain pressures, technology upgrades, and regulatory standards. On the plus side, financing allows buyers to spread this cost over a specific period and keep their savings intact for other financial priorities.
It is also worth remembering that inflation affects purchasing power. Therefore, holding cash while paying fixed repayments can provide you with a welcome sense of predictability in your household budget.
Financing a Car vs Paying Cash
Many people think that it is better to purchase a car outright if you have funds to do so. While this idea makes a lot of sense, you might want to consider whether financing a car will actually be a better option.
If you use your personal savings to purchase a vehicle outright, you, of course, will fully own it in a much quicker timeframe, without having to make interest payments. However, on the flip side, it reduces your liquidity and potentially limits your financial flexibility. In short, financing a vehicle allows households to maintain access to their capital while making repayments that are predictable and affordable.
For this reason, many buyers are increasingly exploring affordable car loan options like Azora and specialised car loan lenders. This type of lending is well-suited to those who want to retain a good financial buffer, keep funds intact for emergencies, and still have money left for investments or to fund their lifestyle.
Understanding Vehicle Depreciation and the True Cost of Ownership
When you buy a car, the purchase price is only part of the story. It is important to recognise that most vehicles begin to lose value as soon as they leave the dealership. In many cases, that drop can be quicker than you might expect.
Depreciation reflects how a car’s value changes over time due to several factors. This includes the age of the vehicle, the amount of mileage it has done, and what general wear and tear it has experienced.
On top of that, there are ongoing ownership costs that should also be considered. Most prominent among them are:
- Servicing
- Registration
- Insurance
- Fuel
- Repairs
If you look at the full picture, it can help to explain why the “true cost” of a car often goes beyond what’s paid upfront. Subsequently, the more you understand these costs, the easier it becomes to choose a vehicle that not only fits your budget now, but also remains sustainable in the years ahead.
Fixed vs Variable Car Loan Rates: What to Consider in 2026
There is always a risk involved in taking out any loan. So, if you are considering doing so with a car loan, it is vital to decide between a fixed or variable loan rate.
Generally speaking, fixed rates offer known repayments, which can be beneficial to households that want an element of certainty in their budget. This is especially the case when they are managing multiple financial commitments.
That said, variable rates may appeal to borrowers who are comfortable with rate movements and want a bit more flexibility. As a result, it is advisable to take the time to select a loan structure that falls in line with how comfortable you are with risk and gives you the best chance of achieving the financial goals you have set for yourself.
Are There Tax or Financial Planning Advantages to Car Loans?
If you were to take out a car loan, there may well be tax advantages to doing so. Your accountant is best qualified to advise on them. However, individuals using a car for work or business purposes may well benefit from tax deductions that are related to operating costs and depreciation.
Here is more information about deductions that can be applied for motor vehicles from the ATO.
When a Car Loan Makes Financial Sense (And When It Doesn’t)
Taking out a car loan makes the most sense when you can comfortably afford to make the repayments and live within your means.
As mentioned, there are always risks associated with taking out a loan. However, if you have a stable income, decent personal savings for an emergency fund, and favourable loan terms, it might be a good idea to commit to one.
By contrast, if your income is quite low or unpredictable or you have a high existing level of debt, then it might not be the most savvy move for you.
To help you decide either way, you may want to read our post on smart tax tips for better financial planning.