If you feel cars are obtaining too expensive, you could be right. A new report shows that the average price of a new vehicle has run out of reach for folks medium-income households in all but one of the 25 largest metro areas from the U.S.
In accordance with Kelley Blue Book, the report by Interest.com shows that Washington, D.C. is the only American metropolitan area in which a family earning the city’s median income can afford the typical price of a new vehicle, that was $32,086 in 2013. That price equates to a monthly payment of $633, assuming the buyers put 20 percent down, financed for 48 months and principal, interest and insurance did not exceed ten percent of the household’s gross income.
Average-earning residents of Washington, D.C., can afford to pay for $32,531, or $641 per month, for a vehicle. The remainder of the nation can afford significantly less. In other words, people are spending far too much money on their cars.
Too many families are spending way too much on new trucks and cars, said Mike Sante, managing editor of Interest.com. Just because you can manage the monthly payment doesn’t mean you must let a $30,000 or $40,000 ride gobble up such a huge share of the paycheck.
After Washington D.C., residents of the San Francisco and Boston metro areas were found to be able to pay more for the new car, based on median income, however it still wasn’t enough to the average vehicle. Here’s just how much Interest.com says the typical-earning car buyer can afford to invest on a new car in seven major metro areas:
– The Big Apple: $21,907 affordable purchase price/$441 maximum monthly payment
– Los Angeles: $20,637 affordable purchase price/$416 maximum payment per month
– Chicago: $21,409 affordable purchase price/$434 maximum monthly payment
– San Francisco: $28,009 affordable purchase price/$563 maximum monthly payment
– Boston: $26,669 affordable purchase price/$520 maximum monthly instalment
– Houston: $20,271 affordable purchase price/$396 maximum monthly payment
– Atlanta: $20,000 affordable purchase price/$393 maximum monthly instalment
The Interest.com numbers are well underneath the average purchase price of a new vehicle, as you can see. This implies that car shoppers are grossly overestimating or simply just aren’t informed about what amount of cash they can really spend on their transportation.
Experts say that, on the whole, you shouldn’t spend more than 20 percent of your take-home pay on your car. To find out how much car you can actually afford, calculate that number and use an auto affordability calculator, such as this one from Interest.com. This will give you a good idea of how much a car will almost certainly cost monthly based on rates of interest, trade-ins, taxes and more. You may then compare the price to your monthly budget.