Do most Americans have car debt?
Auto loan debt is the second-largest category behind mortgages. Overall, Americans owe $1.607 trillion in auto loan debt, according to the Federal Reserve Bank of New York, accounting for 9.2% of American consumer debt.
The Consumer Financial Protection Bureau revealed in 2022 that auto loan debt had reached $1.5 trillion in the U.S., with over 100 million Americans having car debt.
You probably need to make $100,000 to afford a new car
Based on this criterion, 60 percent of households and 82 percent of individuals in the U.S. are currently unable to afford a new car. One contributing factor to this affordability challenge is the preference of Americans for pricier crossovers, pickups, and SUVs.
In a recent survey, CDK Global asked approximately 1,000 new car buyers how they financed their purchase. Nearly three out of 10, 29%, paid in cash.
The latest data from Fitch Ratings shows that 6.1% of subprime borrowers were at least 60 days past due on their car payments -- the highest percentage since 1994.
Around 23% of Americans are debt free, according to the most recent data available from the Federal Reserve. That figure factors in every type of debt, from credit card balances and student loans to mortgages, car loans and more.
The average monthly car payment is $738 for new cars and $532 for used. Several factors determine your payment.
That means that more than 60 percent of American households currently cannot afford to buy a new car, based on Census data. For individuals, the numbers are even worse, with 82 percent of people below the $100,000 line.
National Car Ownership Statistics at a Glance
91.7% of households had at least one vehicle in 2022. Only 8.3% of households did not have a vehicle.
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.
What is considered a high car payment?
According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.
The average new car, as of spring 2023 was $48,000, according to Kelly Blue Book. That has sent the average car payment to a record high of $725. But that's chump change for some shoppers because a separate report from Edmunds.com says one in 10 buyers is now paying $1,000 a month.
The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.
A growing number of Americans are falling behind on their car payments, an ominous sign for the U.S. economy as high auto prices and stubborn inflation strain household budgets.
| Average Auto Loan Balance by State | ||
|---|---|---|
| State | 2022 | 2023 |
| California | $23,268 | $24,925 |
| Colorado | $23,228 | $24,322 |
| Connecticut | $18,491 | $19,480 |
Most families have two cars, so it's not unusual to need two car loans. But having two loans can put a strain on your budget. Before you apply for a second loan, make sure you can afford the monthly payment. Lenders only approve you if your income and debt can handle the added expense.
Men have 20% more personal loan debt than women. Men have 16.3% more auto loan debt than women. Men have 9.7% more mortgage debt than women. Women have 2.7% more student loan debt than men.
Myth 1: Being debt-free means being rich.
A common misconception is equating a lack of debt with wealth. Having debt simply means that you owe money to creditors. Being debt-free often indicates sound financial management, not necessarily an overflowing bank account.
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
If you're looking for a few tips on managing a high car payment, you're not alone. The average monthly car payment is now a record $733, according to Edmunds. And even if your monthly auto loan payments are around $500 per month, that still may be uncomfortably high.
How much should I spend on a car if I make $100000?
Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.
| Loan Amount | Loan Term (Years) | Estimated Fixed Monthly Payment* |
|---|---|---|
| $15,000 | 3 | $463.09 |
| $15,000 | 5 | $311.30 |
| $20,000 | 3 | $617.45 |
| $20,000 | 5 | $415.07 |
To afford this, you would need to have a gross income of at least $53,666.67 per year. Unless you use a different financing method like a Savings Club. You would get a lower rate for the same length of the term and be able to afford the vehicle more comfortably.
Millionaires Avoid Car Payments
And more importantly, 8 out of 10 millionaires buy their cars with cash and don't have a car payment to worry about. In fact, research done by Ramsey Solutions found that non-millionaires are twice as likely as millionaires to have outstanding car loans.
So, how much car can you afford? As a rule of thumb, never spend more than 35% of your gross annual income on a car.
