How Much Can You Afford to Spend on New Car?
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. CREDIT: New car buyer image via Shutterstock |
A new car costs more than the average, median-income family can afford, new research shows.
The study by Interest.com revealed that households earning the median yearly income can afford an average-priced new car or light truck in just one of the 25 largest metropolitan areas in the U.S. Only in Washington D.C. could such families afford the average price of $30,550.
In determining the maximum amount the average family could pay for a new car, Interest.com calculated 10 percent of the monthly, median gross household income for each metro and subtracted the average monthly insurance premium. The site also considered three key factors, often referred to as the "20/4/10" rule, which are a down payment of at least 20 percent, auto financing lasting no longer than four years and principal, interest and insurance not exceeding 10 percent of a household's gross income.
Based on the research, median-income families in Tampa can least afford the price of a new car.
"What this research indicates, more than anything, is that a lot of Americans are spending too much money on their cars," said Mike Sante, managing editor of Interest.com.
Based on the study, Interest.com calculated the amounts median-income families in each city can afford to pay for a new car or truck:
- Washington, D.C. — Affordable Purchase Price: $31,940; Maximum Monthly Payment: $628
- San Francisco — Affordable Purchase Price: $26,786; Maximum Monthly Payment: $537
- Boston — Affordable Purchase Price: $26,025; Maximum Monthly Payment: $507
- Baltimore — Affordable Purchase Price: $24,079; Maximum Monthly Payment: $468
- Minneapolis — Affordable Purchase Price: $24,042; Maximum Monthly Payment: $470
- Seattle — Affordable Purchase Price: $22,963; Maximum Monthly Payment: $466
- Portland — Affordable Purchase Price: $21,985; Maximum Monthly Payment: $397
- Denver — Affordable Purchase Price: $21,835; Maximum Monthly Payment: $432
- San Diego — Affordable Purchase Price: $21,781; Maximum Monthly Payment: $433
- New York City — Affordable Purchase Price: $21,464; Maximum Monthly Payment: $431
- Philadelphia — Affordable Purchase Price: $21,069; Maximum Monthly Payment: $419
- Chicago — Affordable Purchase Price: $20,616; Maximum Monthly Payment: $417
- Los Angeles — Affordable Purchase Price: $20,385; Maximum Monthly Payment: $410
- Sacramento — Affordable Purchase Price: $19,965; Maximum Monthly Payment: $397
- Dallas — Affordable Purchase Price: $19,959; Maximum Monthly Payment: $389
- Houston — Affordable Purchase Price: $19,811; Maximum Monthly Payment: $386
- Milwaukee — Affordable Purchase Price: $19,297; Maximum Monthly Payment: $373
- Atlanta — Affordable Purchase Price: $19,122; Maximum Monthly Payment: $376
- St. Louis — Affordable Purchase Price: $18,550; Maximum Monthly Payment: $371
- Pittsburgh — Affordable Purchase Price: $17,298; Maximum Monthly Payment: $340
- Phoenix — Affordable Purchase Price: $17,243; Maximum Monthly Payment: $348
- San Antonio — Affordable Purchase Price: $17,137; Maximum Monthly Payment: $334
- Detroit — Affordable Purchase Price: $17,093; Maximum Monthly Payment: $332
- Miami — Affordable Purchase Price: $15,188; Maximum Monthly Payment: $295
- Tampa — Affordable Purchase Price: $14,516; Maximum Monthly Payment: $282
The differences by city were attributed to both the significant variation in median household incomes in different locations and the wide range of tax rates and insurance costs.
Sante said 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," he said. "You're better off driving something more affordable and saving or investing the difference."
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