It’s Over: The Middle Class Can’t Afford New Cars

New Cars Are Now Only Reserved for the Rich, or Top 10% of Incomes - based on popular affordability rules of cars and the latest data.

According to the automotive group Cox, the average transaction price of a new vehicle in the U.S. last month was $47,244 dollars. And according to LendingTree, the average car payment for a new vehicle hit a RECORD HIGH $738 per month in Quarter 4 of 2023. These days, the ability to buy a new car affordably is now a privilege that seems to be reserved for those seemingly in the top 10%.

According to a popular car buying rule - the 20/4/10 rule - it suggests that you should not get a car loan exceeding 4 YEARS, thats the 4 in 20-4-10.

The 20 by the way, just means that you should always try to put 20% down on the car, and the 10 referred to the idea that your monthly transportation costs should NOT exceed 10% of your gross monthly income.

So how realistic is this rule for the average person earning the average wage? We answer that today.

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Hello 👋 I’m Humphrey, I used to be a financial advisor, worked in gaming/tech, and started my own eCommerce business. I make practical, rational content on investing, personal finance, the news, and much more with a data-backed approach. My goal is to help you with financial literacy and creating wealth.

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⏱️ Timestamps:
0:00 - Start Here
0:44 - How We Got Here
2:32 - Affordability Rule No. 1
5:33 - Salaries & New Car Prices
7:09 - Affordability Rule No. 2
9:29 - What Can You Do Today?
10:40 - Used Cars and Depreciation
11:18 - Luxury Maintenance

[PsCODFan]

I swear 6 year old cars with 100k miles are only like $4k less than a new vehicle nowadays...

[cur]

I drive a 17 year old Toyota with 230, 000 miles. People constantly ask when I'll get a new car. I enjoy no car payments. Plus I work from home so there's really no point to buy a new car to have it sit in the garage most of the time.

[ronmac]

More people need to recognize this folly. A Toyota Camry Hybrid is $29k. Great mpg, great reliability etc but people buy $50 SUVs that they can't afford.

[Borlamach]

My favorite feature on a car is the "paid off" feature

[matwx]

Buy a Toyota or Lexus and keep it till the wheels fall off.

[ShutterSpeedGaming]

I drive a 2003 Toyota Echo with 109K miles on it. Going to drive it until the wheels fall off 😂 no car payment is the best car payment.

[badass]

Everything that requires you to take a loan to purchase is unaffordable.

[vincentortega]

I drive a 2007 Toyota Camry with 217000 miles and still going, doesn't look brand new, but gets me from point A to B reliably, and my maintenance costs are minimal.

[robertmatthews]

An adult bus pass where I live is $40 per month INCLUDING gas and insurance.

[anthonydavis]

I've had several friends and relatives asking me to cosign new vehicles for them because they can't afford it and need my help, it's more like they wanted me to pay for the vehicles because I make six figures. They wanted vehicles that were priced around 70k.

[wnxeyps]

I own four cars, newest is 09', oldest is an 89'. All run and drive. I have no intention on buying a newer car. You can't work on newer cars! I can still do all the maintenance on mine.

[flch]

Just bought a new car cash…but was saving for 10 yrs lol. Just started another 10 yr plan for the next one.

[burntrubber]

I wanted a Tesla until I found out that they record the interior of your vehicle. Not a chance that I'll ever buy an electric vehicle now. Too many privacies have already been invaded.

[JasonA]

My rule is it can't be more than I make in a year, payment can't be more than 500 a month, and I need to put at least 10k down. Also, it needs to be at a low rate. Safe to say, I'm not buying a new car anytime soon.

[consumerdebtchitchat]

Me: 56 year old single teacher, 815 credit score, 62k - 70k gross. Debt free and live on 40% of my income. The other 60% is for aggressive retirement savings.
Last month (March 2024) I decided to buy a new 26k Toyota Corolla hybrid. I put 8K down. It will take me 7 (seven) months to pay off the rest.
My insurance is ridiculous 175/month Florida . And believe me I shopped around.
Gas is awesome: $40 because the hybrid barely uses any gas.

People need to start looking at economy vehicles and get out of these oversized SUVs and trucks. You need to live ridiculously under your means.
I live in 840 sq ft condo I purchased in 2020 that's paid off. The condo now sells for 200k.

You need to think economy everywhere in your budget. That's the new world order 😢😢
.

[x]

I was falling into the “mainstream” thinking of getting a new car. Thanks for saving me from a possible financial derailment.

[elnewbie]

I use the 50/3 rule idk if this existed before I made this rule up or not but basically my rule is if I can't put at least 50% of the car price as down payment and pay the rest on the next 3 years, then I can't afford it.

[mattrealhuman]

Car insurance is such a scam, good drivers subsidizing the baddies

[dohczeppelin]

I have always bought used cars with cash but to be honest, the "buy a lightly used car to get a deal" thing is mostly dead these days. Yes the 3 year old car costs less than the new one, but it will also last you 3 fewer years (do you think car prices will be lower in the 2030's when you need to replace it?) And you get the usual downsides of a used car (limited selection, higher interest rates if financing, hoping the original owner took care of it properly). So many people can't afford new cars at all that supply of used cars is limited (people are hanging onto their older cars longer) and demand is extremely high because thats all people can afford and this has driven up prices.

The depreciation curve on reasonable cars like Hondas and Toyotas is a lot more aligned than it used to be. The typical used car depreciation curve shown in the video is woefully out of date when you look at actual prices. You aren't getting a 3 year Honda Accord for 60% of its original value anymore. I never thought I would say it but, if you can afford the up front expense, buying a new car makes good financial sense in the current market, provided you will keep it for most of its useful life (10-15 years). The payments are high for the first 4 years but then your cost of ownership falls off a cliff for years 5 through 10 and it will still be a perfectly good car in year 10, unlike a used car that was purchased at the same time. With new cars becoming increasingly unaffordable for many, I also expect there to be deals coming for those that can afford them once the sales slump becomes unavoidable for the manufacturers.

[lakemonster]

Never will understand the hype over buying a new car. My 2007 accord with 275k miles and a lawn chair for a passenger seat gets me around just fine! 😅