Median-Income Household Can Only Afford Average-Priced New Car in One of the 25 Largest U.S. Metros
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CHICAGO--Feb. 26, 2013: A median-income household can only afford the average-priced new car or light truck in one of the 25 largest metropolitan areas in the U.S. (Washington, D.C.), according to research released today by Interest.com, a Bankrate company. Interest.com published a related list of how much a median-income household in each metro area can afford to spend on a vehicle.
"What this research indicates, more than anything, is that a lot of Americans are spending too much money on their cars," said Mike Sante, managing editor of Interest.com. "Car costs are one of the most controllable parts of a household's budget. For example, if you live in New York City or San Francisco, you're probably going to have to pay a lot for housing, but you don't have to pay a lot for a car. You're better off driving something more affordable and saving or investing the difference."
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. That is: 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.
Interest.com recommends that median-income households spend no more than the following amounts on vehicle payments (principal and interest) in total and each month. For comparative purposes, the average price of a new car or light truck in 2012 was $30,550, according to TrueCar. That equates to a monthly payment of approximately $601.
|
Metro Area |
Affordable Purchase Price |
Maximum Monthly Payment |
|
1. Washington, D.C. |
$31,940 |
$628 |
|
2. San Francisco |
$26,786 |
$537 |
|
3. Boston |
$26,025 |
$507 |
|
4. Baltimore |
$24,079 |
$468 |
|
5. Minneapolis |
$24,042 |
$470 |
|
6. Seattle |
$22,963 |
$466 |
|
7. Portland, Ore. |
$21,985 |
$397 |
|
8. Denver |
$21,835 |
$432 |
|
9. San Diego |
$21,781 |
$433 |
|
10. New York City |
$21,464 |
$431 |
|
11. Philadelphia |
$21,069 |
$419 |
|
12. Chicago |
$20,616 |
$417 |
|
13. Los Angeles |
$20,385 |
$410 |
|
14. Sacramento |
$19,965 |
$397 |
|
15. Dallas |
$19,959 |
$389 |
|
16. Houston |
$19,811 |
$386 |
|
17. Milwaukee |
$19,297 |
$373 |
|
18. Atlanta |
$19,122 |
$376 |
|
19. St. Louis |
$18,550 |
$371 |
|
20. Pittsburgh |
$17,298 |
$340 |
|
21. Phoenix |
$17,243 |
$348 |
|
22. San Antonio |
$17,137 |
$334 |
|
23. Detroit |
$17,093 |
$332 |
|
24. Miami |
$15,188 |
$295 |
|
25. Tampa |
$14,516 |
$282 |
More information is available at:
Car Prices Outpace Median Income
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:
Sources:
Median incomes for each metro area were pulled from
the U.S. Census Bureau's 2011 "American Community Survey" (the latest year
for which data is available).
Insurance costs are 2010 statewide averages from the National Association of Insurance Commissioners (the latest year for which data is available).
TrueCar provided the average national cost for new cars or light trucks in 2012.
The average rate for a 48-month new car loan came from Bankrate.com (January 23, 2013).
Sales tax rates were obtained from local governments and car dealers.