Why the Average American Can No Longer Afford a New Car
Here’s a surprising statistic: The average price of a new vehicle in the U.S. is $32,086.
Here’s another one: The average U.S. household can’t afford it.
That’s the conclusion of a new report from Interest.com, a consumer-finance site owned by Bankrate. The report looked at median household incomes across the U.S. and concluded that new cars are out of reach for many Americans — or should be.
It sounds a little crazy, but for those of us concerned about the economy — which should be all of us — it’s worth a closer look.
The median household can’t afford the average new car
Here’s what the report actually says.
The analysts at Interest.com took a look at the median household income in the 25 largest U.S. metropolitan areas. They then applied a common rule of thumb for determining how much someone can comfortably afford to spend on a car.
Their conclusion? Only in Washington, D.C., can median-income households afford to buy a new car.
Washington had the highest median household income of the 25 areas they reviewed. (San Francisco and Boston were next, if you’re keeping track.) According to their calculations, that income is just enough to support a $641 monthly payment, which they translate to a purchase price of $32,531 — just above the average cost of a new vehicle.
But clearly, lots of people in the U.S. buy new cars regularly — or at least occasionally.
So how did these folks determine what we can “afford”?
A rule of thumb that says too many people are spending too much on their cars
Interest.com’s analysts applied what they call the “20/4/10” rule to determine how much a household can afford to spend on a new vehicle.
That rule works like this: A down payment of at least 20%, financing lasting no more than four years, and total cost — principal, interest, and insurance — adding up to no more than 10% of a household’s gross income.
Follow that rule, and it’s hard to disagree with Interest.com managing editor Mike Sante, who says that most Americans are spending far more than they can truly afford on new cars and trucks.
Are people really overspending on their cars?
It’s easy to get carried away when you’re buying a new car or truck. A fun test drive, that new-car smell, and the sales folks are so good at getting you to spend just a little more.
People are spending more, too. Auto loans with terms running for six or even seven years are becoming more and more common. A longer-term loan can get the monthly payment on a big-ticket vehicle down to something you can “afford”, but… do you really want to be making payments on a six-year-old car?
What do you think? Are people spending too much money on new cars nowadays? Or is this report making overly conservative assumptions? Scroll down to leave a comment and let me know.
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Honda gave the entire Civic lineup an extensive refreshing for 2013 because a 2012 redesign of the model fell flat with consumers and auto reviewers.
As a result, this year’s Civic Si feature a better-looking exterior, a higher-quality interior and upscale features such as Bluetooth and a rearview camera as standard equipment.
The 140-horsepower Si — which 6.7% of Edmunds readers picked as 2013’s best college-grad car — also comes standard with improved suspension, better steering and additional soundproofing for a smoother, quieter ride.
Fourth-best car for grads: Hyundai Genesis Coupe
Base price: $24,250
The sporty Hyundai Genesis Coupe boasts rear-wheel drive, a turbocharged engine and other performance features you’d normally only expect on higher-priced vehicles.
“The Genesis Coupe is budget-friendly car that still manages to be sharp looking,” DiPietro says. “It’s a good choice for recent grads who are looking for a performance coupe.”
Hyundai has refreshed the model for 2013 with better suspension, improved steering and a standard, 274-horsepower four-cylinder turbocharged engine. The Genesis Coupe, which 6.8% of Edmunds readers picked as 2013’s best college-grad car, also comes standard with Hyundai’s industry-leading 10-year/100,000-mile powertrain warranty.
Available options include a 348-horsepower V-6 engine and an eight-speed automatic transmission.
Third-best car for grads: Kia Optima
Base price: $21,350
“The Optima is one of those models where you seem to get a lot more car than you paid for in terms of styling, quality and refined performance,” DiPietro says. “It has this upscale vibe about it that belies its price tag.” http://www.mainstreet.com/node/28601?page=2 for more !