Want a New Car? Better Make $100,000 (or More) a Year

When it comes to new car buying, there aren't many who can afford to plunk down the cash to buy a new or used car without resorting to some sort of loan. Even as new car prices continue to trend downward for their pandemic-era peak—barring any blowback from the UAW strikes—there is one factor that is keeping Americans' car payments at or above $1,000.

According toMarket Watch,the biggest hurdle in new car affordability is rising interest rates. According to their report, the average percentage rate for a new car loan is 7.4 percent and average monthly loan payments are at an all-time high, with referencetoEdmundssaying it hit $736. However, there is nearly an 18 percent share of car buyers who have reported that their monthly auto payments are at $1,000 per month or higher in Q3 of 2023. The 17.5 percent of the third quarter is up by 0.4 percent versus Q2. Then add in that many families own more than one car and that becomes a huge financial burden. So, according to one report, that means that you need to make at least $100,000 per year to afford any new car payment.

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How do we arrive at that number? If you follow the financial rule that your auto payment should be 10 percent of your income after making a 20 percent down payment and opt for a four-year auto loan, you need to make up to $100,000 per year. That's also exactly what former Ford CEO, Mark Fields, toldCNBCin an interview back in September. And that is more than most U.S. households can afford. When looking at average annual incomes, only 37.5 percent of the U.S. can manage such a financial leap, according to the most recent Census Bureau data. Dark, eh? But the problem with that financial advice is that it's not taking other factors into the cost of vehicle ownership.

Maintenance, repairs, tires, and fuel are other factors in vehicle ownership. According to theAAA, it costs an average of $12,182 per year just to own a vehicle and that's without taking loan payments into the equation. That outlay includes depreciation costs, finance charges (the interest on a loan, but not the payment toward principal), insurance, annual fees, and taxes along with the aforementioned expectancies of automotive ownership.

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If this sounds like we're circling toward the advice "buy a used car instead," well, not so fast. The average APR for used car loans—again, according toEdmunds—is 11.2 percent with an average monthly payment of $567 per month (used-car financing has traditionally been pricier than new-car financing, since the underlying asset—the car—isn't worth as much). On top of that, the maintenance for an older vehicle—even one that's only five years old—can be even more expensive than maintenance for a new car. It's all news that makes you want to take the bus, or, you know, hang on to the car you already own.