New Cars Unaffordable in All But One Major Metro Area


money

CHICAGO--March 12, 2014: A median-income household can only afford the average-priced new car or light truck in one of the 25 largest U.S. metropolitan areas, according to research released today by Interest.com.

Washington, D.C. leads the list for a second straight year, followed by San Francisco and Boston. Two Florida cities (Tampa and Miami) bring up the rear and are the only two cities where car affordability declined over the past year. San Antonio experienced the biggest jump in affordability over the past year (seven percent), followed by Phoenix (six percent) and San Francisco and Atlanta (both five percent).

"Too many families are spending way too much on new cars and trucks," said Mike Sante, managing editor of Interest.com. "Just because you can manage the monthly payment doesn't mean you should let a $30,000 or $40,000 ride gobble up such a huge share of your paycheck. You can get a great car for much less and use the savings to invest in yourself. Here's where the money for your retirement or kids' college can come from."

Interest.com recommends that median-income households spend no more than the following amounts on vehicle payments (principal and interest). For comparative purposes, the average price of a new car or light truck in 2013 was $32,086, according to Kelley Blue Book. That equates to a monthly payment of approximately $633.

Metro  Area         

Affordable Purchase Price

Maximum Monthly Payment

1.   Washington, D.C.          

$32,531

$641

2.   San Francisco                  

$28,009

$563

3.   Boston                             

$26,669

$520

4.   Minneapolis                      

$24,846

$494

5.   Baltimore                         

$24,591

$479

6.   Seattle                              

$23,600

$480

7.   Portland, Ore.                     

$22,905

$415

8.   Denver                               

$22,775

$452

9.   San Diego                          

$22,175

$442

10. New York City                   

$21,907

$441

11. Philadelphia          

$21,775

$434

12. Chicago                 

$21,409

$434

13. Dallas                     

$20,731

$405

14. Los Angeles             

$20,637

$416

15. Sacramento              

$20,554

$412

16. Houston                    

$20,271

$396

17. Milwaukee                  

$20,013

$388

18. Atlanta                        

$20,000

$393

19. St. Louis                      

$19,016

$379

20. San Antonio                  

$18,376

$359

21. Phoenix                         

$18,199

$364

22. Pittsburgh                       

$17,965

$354

23. Detroit                    

$17,352

$338

24. Miami                      

$15,174

$299

25. Tampa                      

$14,209

$280

When calculating how much a household can afford to spend on a car or light truck, Interest.com considered three key factors that are commonly referred to as the "20/4/10" rule: a down payment of at least 20%; financing lasting no longer than four years; and principal, interest and insurance not exceeding 10% of a household's gross income.

More information is available at:

Interest--Affordable Cars and Trucks

Methodology:

For each metro area, Interest.com calculated 10% of the monthly median gross household income in that area and subtracted the average monthly insurance premium in that area to determine the maximum amount that the median-income household should spend on monthly car payments (principal and interest).

Interest.com used its Auto Loan Calculator to calculate how much the median-income household can afford to borrow. Assumptions: 20% down payment, 48-month loan, national average interest rate, roll the sales tax into the amount being financed. The calculator is available at:

Auto Loan Calculator

Sources: Median incomes for each metro area came from the U.S. Census Bureau's 2012 "American Community Survey" (the latest year for which data is available).

Insurance costs are 2011 statewide averages from the National Association of Insurance Commissioners (the latest year for which data is available).

Kelley Blue Book provided the average cost for new cars/light trucks in 2013.

Average 48-month new car loan rates are according to Bankrate.com (January 29, 2014).

Sales tax rates were obtained from local governments and car dealers.

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