Regarding the auto industry, we have made several posts. They cover various topics, such as these. Electric Cars Are Booming Worldwide. Testing Self-Driving Cars. And Connected Vehicles Generate BIG Data. Yet, as we look to the future, a big question remains. Given increasing prices, can we really afford our cars?
Looking Ahead: Can We Really Afford Our Cars?
Interestingly, the biggest reason for higher car prices is not the increase in car prices overall. It is our desire to move on to better vehicle features. And they include full-featured vehicles, more expensive SUVs, and higher-priced light pickup trucks. Further, many car buyers are impervious to higher gas prices. Hence the continuing trend toward SUVs and away from sedans.
First, consider these general observations from Financial Samurai:
“If you were to guess what the average new car price is nowadays, what would you guess? I guessed $23,000, since my Honda Fit is sweet and only costs $19,600 new. Given I’m frugal, leaving a 20% upside pricing buffer seemed logical. Too bad I was way off! According to Experian, one of the big three credit scoring agencies, the average car price now tops over $34,000 in 2019!
Now, let’s dig deeper. Bit Rebels reports the following:
“Given most people shop for new cars every five to seven years, you’re going to be in for a bit of a surprise if you’re returning to the market after an absence of half a decade or more. New car prices are higher than they’ve ever been. Interest rates are higher than they were the last time you shopped too. The good news is rates are nowhere near their historical highs; but what “was” is seldom a factor when you’re spending money now.”
Although the average vehicle is now in the mid-$30,000 range, “some 20 percent of borrowers are taking on loans of $50,000 or more. There was a time with the standard new car loan was 36 months. However, as car prices escalated, so did the length of the financing agreements required to make monthly payments affordable. As of January 2019, loan terms are averaging just under 70 months, with some dealers reporting seven-year deals becoming more and more common.”
“The average new car payment in the United States during the first quarter of 2019 was $545.00. Total outstanding car loan debt by Americans was an amazing $1.178 trillion (yes, with a T). This represented a more than 60 percent increase over the same period in 2010.”
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