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Study: Most Median-Income Americans Can’t Afford New Car Prices

By    |   Monday, 04 March 2013 08:45 AM

Median-income families in all but one major city cannot afford the average price for new cars, concludes a study by Interest.com.

Its 2013 Car Affordability Study determined how much typical households in the largest 25 cities should spend on a new vehicle.

Median-income car buyers in the Washington, D.C., area could afford $31,940, enough for a luxurious BMW X1 crossover.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

However, in Tampa, Fla., buyers could afford to spend just $14,516, enough for a subcompact Chevrolet Sonic.

A wide variation in incomes as well as tax rates and insurance accounted for the discrepancy, the study showed. Median incomes range from $86,680 in Washington to $43,832 in Tampa. Sales taxes range from 9.8 percent in Seattle to zero in Portland, Ore.

“What this research indicates, more than anything, is that a lot of Americans are spending too much money on their cars,” says Mike Sante, managing editor of Interest.com.

Americans spent over $30,000 on the average new vehicle in 2012. Yet median-income families could only afford that much in the Washington, DC, area.

“Car costs are one of the most controllable parts of a household’s budget. For example, if you live in New York City or San Francisco, you’re probably going to have to pay a lot for housing, but you don’t have to pay a lot for a car,” Sante said. “You’re better off driving something more affordable and saving or investing the difference.”

A popular guideline for vehicle purchasing is the 20/4/10 rule, which states that buyers should put down at least 20 percent, finance it for no more than four years and not let total monthly vehicle expense — including principal, interest and insurance — exceed 10 percent of their gross income.

To determine affordability, Interest.com gathered data from the U.S. Census Bureau and National Association of Insurance Commissioners, and used its auto loan calculator to apply the 20/4/10 rule.

The Car Connection, a car review website, took issue with the 20/4/10 rule, calling it a one-size-fits-all formula. Another rule says your rent or mortgage should not be more than about 30 percent of your monthly income, but residents of cities like New York or San Francisco find that nearly impossible unless they have high-paying jobs, says Car Connection writer Richard Read.

That, he said, shows “that one-size-fits-all formulas like this are at best rough guidelines, and at worst complete rubbish.”

Instead of using a specific formula, car shoppers should understand their expenses, speak to different lenders to learn about loan options and be honest about what they can afford.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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Median-income families in all but one major city cannot afford the average price for new cars, concludes a study by Interest.com.
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2013-45-04
Monday, 04 March 2013 08:45 AM
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