We all know the economy is struggling; the stock market may be up but many Americans are still toughing it out, so it’s no surprise that a lot of people are unable to afford new vehicles.
Reportedly the average price of a new car or truck sold in the U.S. last year was just about $32,000. This figure shouldn’t be all that surprising; new vehicles are expensive. What’s a bit shocking though is that median-income families in just one American city can actually afford to pay that much for a new ride.
Only in Washington D.C. can middle-income folks handle the average purchase price of a new vehicle. At the opposite end of the spectrum residents of Tampa, Florida can only afford to spend about $14,200 on a new car or truck. Of course things like taxes and insurance factor into these prices as well, but the overall conclusion is that most Americans are spending far more than they should.
SEE ALSO: Shop for a New Car or Truck
The delta in median-family income is substantial and quite surprising. Families in D.C. bring in about $88,233 per year but the less fortunate folks of Tampa have to make do with about half that much ($44,402). This data comes from the 2014 Car Affordability Study. Not surprisingly the report also indicates that many Americans aren’t saving enough.
How can you avoid the pitfalls of a new-vehicle purchase? Well, experts recommend a 20/4/10 approach. Smart shoppers will aim to make a down payment of at least 20 percent of the purchase price of a vehicle; easing the sting that figure also includes the value of a trade-in, if applicable. Additionally they’ll finance the car for no more than four years (long-term interest rates can cost you thousands). And finally savvy buyers do not allow the monthly payment for a vehicle (including principal, interest and insurance) to exceed 10 percent of their gross income. These are smart suggestions we could all benefit from.
Of course another way to cut the cost of driving is to pick up a used vehicle. Many manufacturers have certified pre-owned programs that offer quality second-hand models with generous warranties. Going this route can save you thousands.