The article quote mentions an average monthly payment of >$700, so they appear to be specifically referring to new cars, rather than used cars that are new to purchaser. However, there doesn’t appear to be any methodology to saying new cars are out of reach beyond concluding that some people can’t afford a >$700/month payment for a new car. The same logic could be applied to the average >$500/month payment for a used car. Some people also cannot afford >$500/month for a used car, so used cars may be out of reach.
While the metric above shows some general trends, actual affordability obviously depends on the specific vehicle. There are wide range of possible vehicle options for both new and used, with a wide range of prices. One could get a reliable car for $15k or $100k. It’s also important to consider cost to operate a vehicle not just cost for the initial purchase – fuel, maintenance/repair, depreciation, insurance, registration, … Depending on vehicle, this may be the primary determinant of what makes the vehicle affordable/unaffordable, rather than initial purchase price.
Every car I’ve ever owned has been a used car. When looking at the numbers, I’ve always arrived at the same conclusion that depreciation is especially steep soon after purchasing, making used cars a better value. However, my most recent car purchase in late 2024 was the first time that the numbers were close enough for me to seriously consider buying new. There was a time during COVID supply chain disruption and limited supply during which lightly used vehicles were often similarly priced to new, occasionally more expensive.
The affordability articles in the OP cover many essentials: housing, groceries, electric bills, medical bills, etc. The issue isn’t just about buying brand-new cars! Americans are struggling to afford many other basic necessities.
I’ve had two new cars when length of time it would last was important and many many used cars over the past 40+ years. My first new car was an inexpensive Hyundai sedan that lasted 10 years. I was 45 at the time so had had used cars for many years prior. My current forester, purchased new after my used CR-V was totaled, will hopefully last 15 or more. I have always drawn out the car loans - used or new - until they are affordable. My current car will finally be paid off this summer after 7 years. But dragging it out that long meant my payments stayed under $350/month and meant there was essentially no chance I would have to buy another car until my kid was out of college (it was purchased the summer before her sophomore year of high school, pre-pandemic, when I was driving 25,000 miles per year. I knew I needed something that would last at least seven years and didn’t realize that the world would change and I’d have less than 80,000 miles on it 7 years later. The only way at the time it seemed I could guarantee the car would still be driving 150,000 miles later was to buy new). I have to say both times I loved having a new car with very few mechanical worries those first years. And while I don’t care a lot it was nice to pick a style and color. I got a good deal on the CR-V I bought used in between the two new cars - shopped around for quite awhile - but there was always something off about that car. I never liked it and while I’d like to avoid ever having someone slam into me again it was a relief to have it gone. I’m pretty sure major repairs were in its near future. And it’s not like I didn’t need to finance new or used - I just drag the loans out as much as I need to. There’s nothing magic about 3 or 5 year for the loan term - in my experience they’ll let you take it out as long as you need (no one blinked when I said I needed a 7 year term). The amounts are small enough the extra interest is negligible. I guess if I hadn’t had some money from the insurance payout I would have done an 8 year term. I’ll be happy to have the loan paid off but most months the $335 loan payment wasn’t a particular burden. But while I’m far from a profligate spender I’m not as afraid of debt as some.
I was shocked by the lack of product on the shelves yesterday at the grocery store, especially staples on sale (butter, milk, flour, etc). It felt like people are panic buying. IMO, consumer behavior is an excellent indicator of consumer confidence.
There are needs, and there are wants. Americans have always aspired to more than simply meeting their basic needs to survive. Instead of just scraping by to afford rent to have a roof over your head, the American Dream has been about owning a home. For some, “wants” might mean buying a new car; for others, taking a European vacation, or paying for their kids college education. Wanting more than the bare minimum isn’t unreasonable and it’s part of the aspiration that has long defined American life. The problem is that this isn’t a strong economy, and affordability has become a serious issue. Every time I walk out of the grocery store, I wonder how young, early career or low wage earners are making it. I think that’s the point of the article.
Sounds like you have some wants for your new vehicle that you are not willing to compromise on — 3 rows, SUV for higher seat position, towing capacity. If you were really concerned about only the sticker price you could make do with a small vehicle that could put 3 kids across the backseat and had better gas mileage. Sometimes you want what you want though. And for some people that’s a new car.
I have had new cars and used cars. But haven’t had a car payment in — gosh, I honestly don’t remember. We paid cash for our last new car in 2017. Got insurance money after our previous (used) car was totaled in a wreck. We wanted another EV but wanted a better one with more range so we needed to buy new. Have driven that same car since 2017 and I’m sure the gas savings alone have been substantial and made up for any hit for buying new. EVs are so much cheaper to run (depending on your home charging set up and electricity rates) and also have so much less maintenance. We were fortunate that we had that insurance money and also fortunate that no one was hurt badly in the wreck and we didn’t have medical bills.
The last several cars we’ve bought used. Bought two used cars for our kids and H has been through 3 used cars. He’s the king of finding bargains. Only once did he pay over $10k for a used car and that was during COVID when the used car market went crazy. Had a few other new and used vehicles over the years. Sometimes new makes sense for us but often used works out better.
We also bought a “used” house built in 1973 rather than a new build.
Fortunately for us, sticker price now is not one of our big criteria. Of course, in the past it had to be a huge factor.
A 2 row vehicle is not an option unless we decide we can tell DD, or occassionally my mom, they can’t join us on our outings. (I guess we could tell them to follow in the obnoxious diesel truck but that’s not gonna happen.)And, definitely, anyone who wants AND can actually afford a new car should absolutely get a new car.
The point of my comments were that new cars, whatever the model, are a luxury since a 6 month old car, and even a 5 year old car will do the same job as the new car. For that reason, imo, the ability to afford a new car should not be used as a criteria for calculating whether one can afford to live in the US. (In fact, if a few PNW folks could buy a new 2026 Hybrid Palisade Calligraphy and then put it up for sale in 6 months, I would appreciate that. )
It’s crazy the mindset that is very subtly injected into our culture which influences expectations that we should be able to afford, and have, a new car and if we can’t then our financial situation is bad.
I keep thinking if the data wonks are using new car prices to calculate affordability then they should also use new build homes in the same calculation. Of course that would make no sense because folks can live very well in a used home. Same is true if all you can afford is a used car.
On a $40,000 vehicle financed at 5% for 4 years, one would pay $4200 in interest. Financed over 7 years, the interest paid is $7500.
If one invested the extra $3200 during that 3 year period for 30 years at a 7% return, they would have a balance of just under $26,000, $23000 of which would likely not be subject to income tax.
If that same amount was invested at a return of 10% (a little under the lifetime average return of the S and P), the accumulated savings is $51000, $48000 of which would likely not be taxable.
Imagine the accumulated savings when several vehicle purchases are involved. Analyzed that way, the extra interest does not seem negligible at all.
Auto loan rates can be and often are far more than 5%. Stats from the linked source article for the $700/month payment are below. According to the article, the average monthly payments remains fairly constant across all credit scores, in spite of the widely varying interest rates. People with lower credit scores and higher interest rates tend to buy relatively lower sticker price cars, in some case with longer term, leading to a similar monthly payment.
I’ve always purchased cars in full, without a loan, even when buying my first car as a grad student with no income beyond a relatively lower pay part-time job. I’ve never had a scenario where it was financially desirable to do so. I also don’t naturally favor taking on loans to buy something, but I would be open to do so, with favorable enough terms. For example, in my most recent car purchase, I said I’d be willing to concede on our negotiated price, if the dealer could offer me a promotional auto loan rate, below federal funds rate. However, the seller did not agree to do so. Instead we negotiated a discounted sticker price, without loan.
Not financing was never an option for me unless someone was going to sell me a reliable $5000 car that lasted several years. Even in 2019 that wasn’t happening. I live in a rural area with virtually no public transportation, no uber, etc., and which has real winter, so having no vehicle or a sub-standard vehicle even short-term is not an option. So looking at total interest paid is not really relevant. What I said was negligible was the difference in interest on a 5 year loan vs a 7 year loan. It’s actually less negligible than I remember - about $1200 - but it took the monthly payment down about $130/month which was a meaningful amount at that time in my life (I could not go over $350/month). Over the life of the loan that’s about $14/month in additional payments ($1200/84). The forester cost in the mid-20’s then not $40,000. Had I bought a used car for say $15k in 2019 I would have saved $1774 in interest (the loan is at 4.75%) and $119 a month in principal. I would, however, inevitably be looking for another car now 7 years later - and I’m not sure $12,000 - even assuming I saved every cent of it- would buy me anything near as nice as my 2019 Forester with 75,000 miles on it. Though I suppose if I’d been diligent about investing it as you suggest I’d have maybe double that? - so I suppose I could basically buy my current car with a warranty. I’m not really arguing with you that used cars can be a nice option or a sensible option - I’ve probably owned 10 used cars compared to 2 new cars in my life - but having a new car is really nice from a longevity view and from absence of stress at least the first few years - and sometimes really makes sense.
It is really nice. And people who both want and can afford the luxury of a new vehicle without taking a hit to their retirement savings, type of home they can afford, or college savings fund, should absolutely buy a new car. If one of those financial security markers would be affected, then one can’t afford the luxury of a new car. (Again, even in the unlikely event a major repair issue does come up it would be covered under warranty if the car is less than 5 years old-and in some cases less than 8 or 10 years old). If there is no warranty, the cost of a major repair still will not make having purchased a new car more cost effective.
There are all kinds of research sources and reports available that help used car buyers identify the most reliable vehicles to purchase.
However, car breakdowns can have costs beyond the repair costs. Such costs may vary based on one’s situation.
The other thing about buying used cars is that the risk level varies depending on one’s car knowledge. A professional auto mechanic probably has low risk buying a used car due to being able to evaluate what may or may not need repair before buying. A less knowledgeable person may be depending on luck to avoid a lemon.
For most of the cars we have purchased, we had them inspected by a mechanic prior to purchase. This is one way to make sure you are purchasing a reliable used vehicle.
The discussion about used vs. new cars seems to be getting away from many of the affordability issues that families whom I know face. Amongst the people that I know, affording rent, health care, and child care are the big expenses that cause the most stress.
I have owned both new and used cars. I’ve only bought used when I’ve known the original seller and paid very little because the person was basically getting rid of their old car. I hear the posters talking about saving money, but buying a car has always felt like cognitive overload to me. Each time, I’ve found the whole process stressful, overwhelming, time consuming, and full of way too many choices. Trying to buy a used car (unless being sold by a friend) does not seem any easier or quicker even if it is cheaper. The best experiences have actually been buying used cars from friends and family simply because the choice was limited to whatever car the person was selling. No thought involved on my part at all –though buying that way has also resulted in owning cars where the maintenance costs have been relatively high since they were driven into the ground before the person was ready to get rid of it.
I know some people love cars in general or at least love finding the best deal for the car that they want, but for me worrying about price, trims, warranties, car maintenance/repair costs just adds to the stress. I’ve liked life best when I’ve lived places with public transport and did not have to own a car at all. I don’t know, life is already too hard and involves too many decisions. I think owning a car (and deciding which car to buy) makes it even harder.
EXACTLY! And those necessity expenses should be the sole focus of statistics and reports meant to influence public policy.
ETA, for clarification: I am aware that whether or not Americans can afford new appliances and vacations is important to our economy. But those are discretionary purchases-as is a new car- none of which should be used to calculate or describe affordability as they distract from the crisis too many folks are facing.
There are countless types of used cars, which make it difficult to generalize. For example, I bought an 8th gen (2018+) Camry with 60k miles, during Nov 2024. Cost was ~1/2 the price of a comparable new Camry.
I purchased the Camry from a dealership. I do not consider the purchase any more challenging or more stressful than buying a new car. I did spend a good amount of time researching different combinations of car makes and models before deciding on what would likely be a good match, and took some test drives as well before making my purchase. However, I would have gone through a similar procedure with a new car.
No issues were found in inspections of the Camry I purchased, and it came with a 6 month bumper to bumper warranty. I have not had any maintenance/repair expense during the 1.5 years since then, beyond oil changes. By some measures I had more confidence that I was getting a reliable vehicle when purchasing lightly used like this than new, as the repair history is well known for my year of Camry, including CR surveys of thousands of owners. The new 9th gen Camrys (2025+) have less extensive repair history, particularly repair history after several years of driving the new engines.
However, a used car could also be buying a 2012 Ford Focus (Powershift lawsuit/repairs) with extensive accident history, from a sketchy guy you found on Craigslist.
Right, I wasn’t really trying to say that buying a used car is inherently harder than buying a new one. But it doesn’t seem any easier either unfortunately. For me, cars are a different kind of stress than other expensive items in my monthly budget (like rent, child care, and health care).
I was trying to say that for the above items, my stress is around the actual cost of the item while my main stress around car ownership is not even about the initial price of the car though of course that matters. All I really want is something that runs and requires little to no maintenance. I’ve never had the money to buy an expensive car, but frankly if I did have that kind of money and somebody could guarantee me that once bought, I wouldn’t really have to think about the car or its maintenance again for another twenty years, I would pay the extra cost in a heartbeat without a second thought. But from what I gather, I can’t even be guaranteed that spending extra money for a new or expensive car will save later headaches. Most other purchases I make feel more transparent, but I’ve never owned a house –probably deciding to buy a house is similarly stressful and opaque. But at least then you have a home to love and enjoy. Maybe I just don’t get why some people love cars….
I don’t know if other people are seeing this but I have received several offers/advertisements recently for 0% down, 0% interest and 0 payments for first 90 days (2025 and 2026 car models).
We aren’t in the market for a new vehicle, we buy new and drive for 10-15 years (at least).
But, I thought it was very indicative of where the economy is that car dealers are clearly trying to get rid of inventory and are offering below market interest rates to do so.
)