The average cost of a new car in America is now over $32,000. The average American household income is about $51,000. That means the day has finally come that the average American family can’t afford the average American new car.
That, friends, is a problem.
Why are cars getting so expensive? I remember shopping for new cars just 10 years ago and looking in the mid-$20,000 range for a decent family hauler. A car over $32K was simply excessive. In our modern times, though, excessive has become the new normal, and nothing good can come of that.
There’s a simple solution, of course, if you want to buck the system and tell the makers of new cars that you’ve had enough.
For $32K there are all sorts of high-tech, reliable and good-looking new sedans, crossovers, coupes and convertibles that you could own. There are also all kinds of high-tech, reliable and good-looking used sedans, crossovers, coupes and convertibles available for way cheaper than $32K.
Consumer Reports says, as a general rule, families shouldn’t spend more than 36 percent of their monthly income on debt payments. For a family making $51,000 per year, that’s about $1,600 per month. Take out a mortgage and credit-card payments, and $300 per month is a reasonable car payment.
For that amount, a buyer should look at cars in the $17,000 range, based on no down payment and a 60-month term. That’s a far cry from a $32,000 new car. Obviously the best way to get the most out of that $17,000 is to buy a used car. Instead of getting something like a new 2014 Subaru Legacy, check out a 2008-2010 model that better fits the budget.
Living beyond our means is a huge problem in this country, and I’m as guilty as anyone. Knowing what you can afford is a very different thing than knowing what you should spend. That’s a lesson driven home by the sad fact that average new car prices outweigh average incomes by so much.
I’m all for buying new if the numbers make sense, but don’t be shy about checking the used listings to find the perfect car to fit an average budget.
How much did you spend on your last new car?