Report Fraud About Us What We Do

Can't Afford A New Car Consider The Consumer

Consumer News

The Majority of Americans Can’t Afford A New Car

Jumping behind the wheel of one used car to the next can get tiring, and more often than not, consumers are going to at least want to opt for the new car. If this is the case, however, watch out! As a new study shows that (dependant on where you live) there’s a good chance that new car may break your bank account, and most of our fellow Americans can’t afford a new car. found that an average American household in many of the U.S.’ larger cities do not earn enough to afford an average American new car. And trying to force this issue may stretch your budget a bit too thin.

“The main point of this research is to illustrate how Americans are having to overextend themselves to pay for a new car at today’s prices,” said analyst Claes Bell. “Low- and middle-income households are having to stretch loan terms to six or more years and/or spend huge percentages of their paychecks to afford reliable transportation, and it’s very difficult to get off that hamster wheel of debt once you’re on it.”

The “20/4/10” rule

Throughout the study, researchers followed what’s known as the “20/4/10” rule to weigh whether or not consumers across the country could afford a new car.

According to Consumer Affairs, the rule states that a potential buyer should be able to afford a 20% down payment, a four-year loan, and make payments comprising 10% of their household’s income. If someone can’t make those kinds of payments, then the researchers say they can’t truly afford the vehicle.

Using an average vehicle cost of $33,300, they found that only one of the 25 biggest metropolitan areas in the U.S. – Washington D.C. – had an average household income high enough to stick to the 20/4/10 rule. However, Bell points out that these income numbers apply to the entire household.

“So if you’re making payments on two cars, you’re looking at a couple of $350 monthly bills, not a pair of brand-new luxury cars,” he said.

The entire list of cities and incomes can be seen here.

Rising costs

Experts believe that the increasing price of vehicles is what’s making it hard for the typical household to afford a car at even $20,000; 11 of the biggest metropolitan areas have average household incomes that fall below this mark.

“In the past 35 years, the cost of a new car has gone up 35 percent, a used car is up 25 percent, and at the same time, the median household income is only up 3 percent,” said Michelle Krebs, a senior analyst for Autotrader.

The researchers say that consumers should pay special attention to the length of the loan terms when buying a new or used vehicle. Car loans are increasingly being written to last for five years or longer, so a seemingly low monthly payment may not be as good as it first appears.

Interested in posts like these? Stay up to date with our newsletter!

No thoughts on “The Majority of Americans Can’t Afford A New Car” yet. Be the first to speak your mind!

Leave a Reply