According to Experian, a leading credit reporting agency, the average car loan has crept up to an all-time high of $523 per month…for 69-month terms. That price tag doesn’t even include automobile insurance.
There are two factors at play. First, Americans are willing to spend more than ever to have a new car, truck, or SUV ($31,453 is the average price) and second, interest rates have been creeping up. Unfortunately, incomes have not been moving up to match. In 2016, the average American household income was $59k, which means $600+ a month is a big cut of the owner’s take-home pay.
Cars are depreciating assets, which means they lose value every day. Pinning five years of your income to something that’s literally costing you cash isn’t the best money move. Here are some things to consider.
Dropping half a stack on a car note each month will feel whack as soon as your vehicle loses its “new car smell.” Go older. The sticker price drops a few thousand for each birthday your ride has experienced. Do your research, find a good mechanic, and save your money. Get your jollies off by renting a new car when you need a fix, but keep your cash flowing by staying out of long-term debt.
If you really want a new car, put in the work. Log in extra hours, get a side gig, start an extra hustle and stack your chips. It’s a win/win. You have the exact car that you want without being saddled with debt. Even more, you’ll really know just how much you love a vehicle after spending months toiling to get your dollars up.
Think Needs Over Wants
You may need a vehicle, but does it have to be new? Consider your other financial goals, like getting a house or condo, stacking cash in your emergency fund, or even paying off your student loans. How much of a dent should a ride put in your pockets? Select a car that makes financial sense in the big picture.