We know dream cars can be tempting, but here’s how to avoid going broke attaining it.
We’ve all seen those articles penned by argumentative baby boomers decrying millennials as the generation of the lazy and the entitled. Thing is, times have changed and life has gotten fairly expensive, especially when it comes to buying the things essential to adult life. That’s why the most recent reports indicate that the price of new vehicles is simply too high for Americans. The study, conducted by bankwise.com, took into account the average price of a new car and then applied a guideline known as the 20/4/10 rule.
The three numbers stand for three key factors that consumers should use to determine how much they can afford to spend on a new car. These refer to a down payment of at least 20%, a financing program that lasts no more than four years (48 months), and a combined insurance and interest cost that is no more than 10% of a household’s gross income. Unsettlingly, consumers aren't adhering to the rule. Currently, the average cost of a new car or light truck for 2016 in the US is $33,865 by Kelly Blue Book’s count. By that measure, even San Jose, California, the city ranked highest for car affordability, falls short by about $1,000. Buyers there can average an affordable car purchase of $32,856 with a monthly payment of $662.
Meanwhile, Detroit, Michigan lies at the bottom of the list with the average affordable car resting at a low $6,174 with an average monthly payment of $120. What this data means is that Americans are spending too much money on cars. It’s a hard pill to swallow in a nation where the car is a cultural symbol for freedom and the rest of the world sees Route 88 as a significant American token. This doesn’t mean that buying a more expensive car is impossible, it just means that Americans are breaking one of the three factors in the 20/4/10 rule, usually by extending the time frame of the loan. Just remember, if you want to own a car that makes gobs of horsepower, it’s possible to do so while being a responsible consumer.