Thanks to rising interest rates, dealer markups, and a messed up supply chain, the cost of buying a car is through the roof. But have you ever considered what you might need to earn before signing up for a mammoth loan to finance a new car? Well, according to a new report, it’s actually more than the majority of Americans make right now.
According to a report from Market Watch, you shouldn’t be spending more than ten percent of your annual income on each monthly car payment. But with the average cost of a car rising seemingly every month, what does that actually mean for anyone in the market for a new motor?
Well, according to the site, buying something average like a Toyota Crown Limited or a two-door Wrangler Rubicon (which both retail around the $48k mark) would require you to earn more than $96,000 for you to be able to comfortably afford the monthly payments. Market Watch breaks it down like this:
[Greg] McBride, the Bankrate analyst, walked MarketWatch through a hypothetical car-buying scenario for an average-priced new car that cost $48,000. Taking into account the trade-in value of your existing vehicle, let’s say you knock some money off the sticker price and finance a $40,000 purchase price at 7.5% for five years. That’s an $801 monthly payment — which means you would need to make $96,100 a year if you wanted that payment to be 10% of your income.
In fact, the company goes so far as to quote a Ford exec who said, “You have to make over $100,000 just to afford a new car” earlier this year.
So just who is buying new cars in America at a rate that means sales across the States keep rising? Well, if we base it just on the number of people who can mathematically afford a new car, it’s not that many people.
According to the latest earnings statistics, just 18 percent of individuals in America actually earn $100,000 or more, which means there’s 82 percent of people below this line right now. In contrast, the average salary in the U.S. is $59,428, which means that most of us should be spending much less than $600 per month on our cars.
Things get a little better when you look at combined household incomes, with 34.4% of U.S. households making more than $100k each year. But as the average new car payments currently sit around the $750 dollar mark, there are clearly still a lot of people paying more than they can afford in order to stay out on the road.