10 Cities Where Residents Can Afford the Highest Amount for Their Cars
The median incomes of consumers who are living in the 50 largest cities in America are not generating enough money for them to be able to afford a new car or truck, even among the average-priced ones, according to a Bankrate.com study.
Buoyed by low interest rates, many consumers wind up with car payments out of their price range, because the guide they used to determine how much to spend were the monthly amounts and not the "20/4/10" rule recommended by financial experts. This rule calls for a 20% down payment; financing lasting no longer than four years; and a principal, interest and insurance not to exceed 10% of a person's gross income.
Stretching your payments out for a term longer than 48 months and into six or seven years is not a good strategy because many drivers wind up trapped with continual car payments, potentially paying thousands of dollars of additional interest, said Steve Pounds, a personal finance analyst at Bankrate.com, a North Palm Beach, Fla.-based financial content company.
"When people walk into dealerships, they should not buy more car than they can afford," he said. "Fit the car into your budget. If you understand the costs upfront, you are less likely to miss a car payment in the future."
The average interest rate for a 48-month new car loan is 4.11%, for a 60-month new car loan the rate is 4.14% and the rate for a 36-month used car loan is 4.59%, according to Bankrate's weekly editorial survey of large lenders in large markets.
Since cars tend to have fewer mechanical issues now, drivers should keep them for a longer duration and avoid trading them in every three to four years, said Pounds. Leasing a car or buying a certified pre-owned car could be cheaper options for buyers who cannot afford to spend more than 10% of their gross income on payments and insurance each year.
"Consumers can also hold off on buying a car until they have a larger down payment or their credit score improves to get a better rate on the car loan," he said. "Know what your trade-in value is first and walk into the dealership with a loan from your bank or credit union in hand, because it gives you more bargaining power."
Since car buyers are seeking the most recent safety and technological features, they often believe purchasing a new car is the only option. Instead, consumers can avoid spending too much money by buying a late model car such as a certified pre-owned vehicle or a used car with "some of the top tech features," said Chris Basso, a used car expert for Carfax, the Centreville, Va.-based company which provides vehicle history reports.
"They can easily find these vehicles offered for sale on Carfax.com, in addition to starting their search based on vehicle history," he said. "Details such as no reported accidents, only one owner and available service records are just as important in a used car as the latest technology."
Drivers who want extras such as adaptive cruise control (ACC), which adjusts vehicle speed automatically based on traffic conditions, started becoming widely used in 2013 and is available on one third of the vehicles sold that year, said Basso. Since 2010, the majority of vehicles manufactured have rear view cameras, which will become standard on all vehicles in 2018. Starting in the 2009 model year, Bluetooth connectivity, which syncs your mobile device to the vehicle's audio system, emerged as a common feature for most vehicles.
"Other tech and safety features like blind spot monitoring, navigation, adaptive headlamps and more are widely available on late model cars, too," he said.
Here are the Top 10 cities which ranked the highest for car affordability out of the top 50 largest U.S. cities based on median incomes, according to the U.S. Census Bureau's 2014 "American Community Survey."
The list includes how much consumers should spend for an average-priced new car or light truck. The average price for a new car or truck is $33,865 in 2016, according to Kelley Blue Book.
San Jose, Calif.
The affordable purchase price is $32,856, and the maximum monthly amount is $662 for a vehicle.
The affordable purchase price is $31,970, and the maximum monthly amount is $644 for a car or truck.
The affordable purchase price is $25,660, and the maximum monthly amount is $522 for a vehicle.
The affordable purchase price is $25,237, and the maximum monthly amount is $498 for a car or truck.
The affordable purchase price is $25,033, and the maximum monthly amount is $500 for a vehicle.
The affordable purchase price is $21,655, and the maximum monthly amount is $408 for a car or truck.
The affordable purchase price is $21,484, and the maximum monthly amount is $390 for a vehicle.
The affordable purchase price is $21,083, and the maximum monthly amount is $413 for a car or truck.
The affordable purchase price is $20,901, and the maximum monthly amount is $394 for a vehicle.
The affordable purchase price is $21,484, and the maximum monthly amount is $390 for a car or truck.
The city which has the lowest car affordability is Detroit since the purchase price is $6,174 and the maximum monthly amount is $120. The entire list of cities and their affordability can be found on Bankrate.