What to consider before downsizing your car in an EV era

How will you use your smaller car or SUV? 

Downsizing your vehicle doesn’t mean you have to commit to the smallest model on the market. 

There are small cars that are roomier than you might think, including affordable EVs such as the BYD Dolphin. In 2026, the Kia Picanto and MG3 remain among Australia’s most affordable small cars to buy, while newer entrants such as the BYD Atto 1 and BYD Atto 2 are broadening the options for budget-conscious drivers. Together, these models show that low purchase and running costs don’t necessarily mean giving up practicality or cabin space.

Bear in mind that if boot space is important to you, sedans tend to have more than hatchbacks.

Likewise, if you want to downsize your car but still expect to regularly drive long distances such as road trips or in challenging terrain (such as up steep hills or gravel roads), look for a smaller vehicle that has the engine performance and ground clearance required for such use. In the current Australian market, that includes the Kia Seltos, Hyundai Kona, Subaru Crosstrek and Toyota Yaris Cross, while the MG ZS can also work as a budget-friendly option.

Will you buy a new or used smaller car or SUV?

You might think that downsizing to a second-hand car will save you even more money. However, you risk the vehicle costing more to maintain due to wear and tear (without the assurance of a manufacturer’s warranty as well). Consider having the vehicle inspected prior to purchase to help provide peace of mind.

One of the benefits of downsizing to a smaller vehicle is your budget goes a lot further than with a larger car. New cars also tend to cost less to run and service – a big incentive when downsizing – and you can tailor the vehicle to exactly what your household needs. However, depending on what you want, you may need to wait longer for a new vehicle than for used.

If you aren't selling your previous car, consider whether you want to opt for a car loan versus a novated car lease to purchase your new smaller vehicle.

More: Best car loan options in Australia: compare your choices

How different driving needs can affect your decision

Does your everyday driving still justify a big SUV?

It can help to be honest about whether you're choosing a car for everyday use or for a handful of exceptional weekends each year. If you only occasionally need extra seats or more boot space for a holiday or long-distance trip, it may make more sense to drive a smaller vehicle most of the time and hire a larger one when you need it.

Can downsizing your car save you money?

A smaller car can cost less to buy upfront, but the savings may continue well after you drive it home. In many cases, downsizing from a large SUV or high-powered vehicle to a small hatch, compact SUV, hybrid or electric vehicle can reduce the day-to-day costs that add up over time.

Fuel or charging is one of the most obvious examples. A lighter, more efficient petrol or hybrid vehicle may use less fuel on the commute, school run or weekend errands, while a smaller EV may cost less to charge than regularly filling a larger petrol or diesel vehicle. Tyres can also be cheaper to replace on smaller cars, although it is worth noting that EV tyres are generally more expensive than traditional tyres across both small cars and big SUVs. Depending on the make and model, you may also spend less on servicing, parts and general maintenance over time.

Resale value is worth factoring in too. Small, trusted and affordable cars may hold their value better than luxury or fuel-hungry vehicles, particularly when buyers are looking for cars that are reliable and inexpensive to run. Depreciation still varies by make, model, age, condition and market demand, but choosing a car that suits your everyday needs rather than your occasional needs can help keep total ownership costs more manageable.

Before making the switch, it can help to compare the whole cost of ownership rather than the purchase price alone. RACV Car Match can provide a look at the estimated running costs of different vehicles, helping you compare options side by side and make a more informed decision before you buy.

More: Best and simple ways to save money owning your car

Do you want to transition to an electric car or SUV?

Electric vehicles (EVs) can sometimes cost less to run, can be charged with renewable solar energy, and often include high-tech features as well.

For some buyers, the main tax benefit in 2026 is the federal Fringe Benefits Tax (FBT) exemption available on eligible battery-electric and hydrogen fuel-cell vehicles through a novated lease or salary-packaging arrangement. To qualify, the vehicle must have first been held and used on or after 1 July 2022 and be priced below the fuel-efficient luxury car tax threshold. Plug-in hybrid vehicles generally no longer qualify unless they were already covered by an eligible arrangement before 1 April 2025.

State-based EV rebates have also narrowed, so buyers should check what still applies in their jurisdiction. In Victoria, for example, the former cash rebate has ended, but battery-electric vehicles under the relevant value threshold may still attract stamp-duty and registration concessions.

Green loans for electric vehicles, plug-in hybrids (PHEV) and hybrids often come with incentives, such as lower interest rates. 

The cheapest EVs for sale in Australia in 2026 now start well below $35,000, and include a mix of compact hatchbacks and small SUVs:

• BYD Atto 1 compact hatch, from $23,990 plus on-road costs
• MG4 EV Urban hatchback, from $31,990 drive-away
• GAC Aion UT hatchback, from $30,990 drive-away as a launch offer
• BYD Dolphin hatchback, from $29,990 plus on-road costs
• BYD Atto 2 small SUV, from $31,990 plus on-road costs

If you want to buy a used car, you have more options with an internal combustion engine (ICE) or hybrid vehicle. The pre-owned EV market is tight and largely dominated by Tesla vehicles such as the Model 3 sedan or Model Y medium SUV.

More: The cheapest electric cars you can buy in Australia

Questions to ask before you downsize       

• How often do you genuinely need the extra seats, cargo room or towing capacity?
• Are most of your trips short suburban or inner-city drives?
• Would a smaller petrol car, hybrid or EV suit the way you drive now?
• Would downsizing free up money for other household priorities?

What will you do with your current car or SUV?

Whether it’s a trusty sedan, mid-size SUV, or family people mover, that vehicle is probably associated with many fond memories, and it may be hard to know if it's the right time to downsize. Thinking about your lifestyle now and in the foreseeable future can help you determine whether you sell or keep your existing vehicle.

For example, if you still see yourself doing lots of towing or camping, keeping your family SUV might be a good idea for those occasions, with a smaller vehicle for everyday use – so long as you’ve got the finances to cover the running costs for both vehicles. 

Downsizing also needs to account for who else regularly uses or travels in the car. If you sometimes carry grandchildren, adult children or older parents, check that the smaller vehicle still has enough rear-seat space, suitable child restraint points and room for prams, school bags, mobility aids or luggage. A compact SUV may be a good compromise.

If you’re thinking about selling your car online, you’ll need to take plenty of photos, work on your sales pitch and consider a vehicle inspection report, which can make your car stand out and be seen as a safe and more reliable option than other vehicles.

More: How to get the best sale price for your car

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