More People Than Ever Before Are Paying Over $1000 Monthly for New Cars
Written by
Josephine Nesbit
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
The share of new car owners spending $1,000 or more on monthly payments hit a new record. According to the automotive website Edmunds, the share increased to 17.9% in Q4 2023, up from 17.5% in Q3 and 15.7% in Q4 2022. Recent figures were also more heavily influenced by luxury sales compared to previous quarters.
Monthly payments and down payments on new vehicles hit record highs as well. Monthly payments increased to $739, up from the previous record last quarter of $736 and from Q4 2022 of $717, per Edmunds. Down payments also crossed $7,000 for the first time.
“On the surface, car financing appears to be following the harsh trend line of the past few years, with average monthly payments and down payments reaching all-time highs for new vehicles,” said Jessica Caldwell, Edmunds’ Head of Insights. However, Caldwell noted that incentives are slowly returning as inventory improves, such as low APRs with longer loan terms.
Ivan Drury, Edmunds’ director of insights, said they’re seeing more reasonable term lengths with APRs below 4%, but finding them requires some work.
Considering the average cost of a new car is around $48,000, according to Cox Automotive, the parent of Kelley Blue Book, very few Americans can actually afford a new car without it hurting them financially.
A common guideline on how much to spend when buying a car is the 20/4/10 rule, where you put down 20% of the purchase price for a down payment, take out a four-year loan and spend no more than 10% of your monthly take-home pay on the vehicle.
According to a MarketWatch report, even if you purchase a $48,000 vehicle and trade in your old car to knock the price down to $40,000 at 7.5% for five years, that’s still an $801 monthly payment. To afford that each month, you’d need to make $96,100 per year if you want that payment to be 10% of your income.
But how are people still purchasing new cars?
Cox Automotive chief economist Jonathan Smoke said earlier this year that in some cases, people overspend and put off other expenses to get the car they want. Car buyers also take out longer loans to make their monthly payments more affordable. The average loan term in Q2 2023 for a new car was 68.4 months, per Edmunds.
Auto loans and auto loan delinquency have also increased, Carl Tannenbaum, chief economist at the financial services firm Northern Trust, explained to MarketWatch. “There’s been a bit of a stress and a spiral where cars get more expensive, some households have to take on ever-longer and ever-larger loans, and it does get harder for them to handle them.”
More From GOBankingRates
