Everyone talks about the weather, but no one does anything about it. Sometimes it feels like that’s what’s happening with vehicle affordability. It’s the beginning of a new year, so we’re getting a lot of data about 2023, and yeah, cars are expensive. So expensive. It’s getting better, maybe, at the same time that it’s getting worse.
Welcome to The Morning Dump, our daily feature where we look at the car news and try to paint a larger picture for you. Anyone can tell you the sales numbers, and we’ll do that, but we’ll also try to tell you what it means.
Yesterday, we learned that BYD edged out Tesla for electric car deliveries at the end of last year. Today, it’s Kia and Hyundai reporting good news.
We’ll end the dump on a weird rumor about Chinese automaker HiPhi, because rumors are fun.
17.9% Of Monthly Car Payments Are $1,000 Or More
The nature of inflation and modern economies is that, over time, many things will get more expensive. Gone are the days when you could get a movie, popcorn, and a candy bar for a quarter.
In theory, wages also rise along with prices and complex goods get relatively less expensive. Back when a movie cost $0.10 a computer cost, not adjusted for inflation, almost half a million dollars.
Cars seem to be resisting this trend. A base Mustang GT in 1965 cost, inflation-adjusted, about $28,000. Today it’s about $41,000.
Cars, however, are faster, safer, more comfortable, and loaded with technology. That 1965 Mustang looks great, but it would get smoked by a modern Mustang and would crumple like a can of Pabst in an accident with an F-150.
So, that’s part of why, in Q4 of 2024, approximately 17.9% of new-vehicle monthly car payments were at or above $1,000. That’s up from 17.5% in Q3 and way up from the 15.7% share in Q4 of 2022, according to Edmunds. There’s a little more to it than that. Trimflation plays a role, of course, as automakers have added more and more features and reduced the inventory of entry-level vehicles (though that’s improving).
Interest rates are up. According to the same Edmunds analysis, the average APR on new vehicles climbed to 7.4%, up from 6.5% in Q4 of 2022, but flat since Q3 of 2023. The average new car payment is now $739 a month for a 67.8-month term with a down payment of $7,074.
Cars are more expensive, interest rates are high, and the inventory of affordable vehicles has been restricted. Additionally, the lack of available used cars and off-lease used cars is down, making used cars still quite expensive, which puts pressure on new car prices.
The final factor is, of course, the existence of very wealthy people in the United States.
92.5% of equities are held by the top 10% wealthiest Americans. A record high concentration. pic.twitter.com/YhGQC0j0cL
— Lyn Alden (@LynAldenContact) January 1, 2024
The share of $1,000+ car payments usually goes up in Q4 as very wealthy people can do the thing most of us can’t, which is buy someone a car as a Christmas or Hannukah present.
Is the news all terrible? Not quite.
“On the surface, car financing appears to be following the harsh trend line of the past few years, with average monthly payments and down payments reaching all-time highs for new vehicles,” said Jessica Caldwell, Edmunds’ head of insights. “But there are some very encouraging signs as we kick off 2024 when considering the makeup of deals in the latter half of Q4 2023. Incentives are slowly coming back as inventory improves. Most consumers are looking for low APRs with longer loan terms, so the growth in those loans is helpful to lure consumers who have been sitting out due to adverse financing and pricing conditions.”
That’s good news and the Edmunds analysis showed that 0% APR loans were available for longer terms, which means that they’re not just limited to shorter loan periods.
Kia Sets Sales Records, With Cheaper Cars Performing Best
The first bit of news from Kia that’s worth noting is, of course, that it set a sales record of 782,451 vehicles, up 13% year-over-year. Kia is killing it. The cars are great. Even without tax credits for sales, Kia’s EVs and hybrids were up 41% year-over-year.
But here’s the fun thing. If you look at Kia’s best-selling SUVs/Crossovers they generally sell better the cheaper they are.
Ok, well, first a big caveat. The exceptional Kia Carnival was extremely delayed during the pandemic and those vehicles are finally coming to the market and sales of the Carnival were up 93%. This thing rules. I just put 2,000 miles on one and it’s fantastic. A review will hopefully come this week.
Putting that aside, let’s take the crossover lineup from cheapest to most expensive:
- Kia Seltos ($24,390) up 17%
- Kia Niro ($26,840) up 25%
- Kia Sportage ($27,090) up 12%
- Kia Telluride ($35,990) up 11%
Notice a trend? Generally, there’s more action at the bottom of the lineup. Some of this might be due to availability and vehicle age (the Niro was recently redesigned), but it just goes to show how much demand there is these days for affordable cars.
Hyundai Is Also Having A Good Time
Hyundai, the sister company of Kia, also had a great month/quarter/year, posting an annual increase of 11% over 2022 to a whopping 801,195 models. We’ll see how that compares with everyone else, but Hyundai and Kia are moving up in the market.
Gone are the cheap and fun Hyundai Veloster and Hyundai Accent, so the most affordable Hyundais are now the Elantra and Hyundai Venue. And no surprise, over the year the Elantra saw a 14% increase in sales (though down in Q4 and the Venue was up only up 3%).
Hyundai’s still reasonable crossover, the Hyundai Kona, was also up dramatically this year by 24%, though by volume, it was the Hyundai Tucson that had the biggest impact on total sales. In total, the Tucson was up 20%, meaning more than 209,000 of them were sold last year.
Hyundai and Kia are in the sweet spot of offering cars that look and feel premium but can still be purchased at a relatively reasonable price.
What’s Up With HiPhi?
Here’s a tweet from contributor/Chinese car watcher Tycho de Fiejter that caught our attention this morning:
HiPhi in trouble in China?
HiPhi is our favorite new Chinese EV brand. They made totally mad cars with mad lights, mad doors, and madder dashboards. I went to two of their shops in the summer, and stayed for hours checking it all out.
Perhaps it was all a tad too mad for the… pic.twitter.com/2BYwADc91k
— Tycho de Feijter (@TychodeFeijter) January 3, 2024
I’ve been watching HiPhi as well and it seemed like the automaker was starting to consistently sell cars so this is a bit of a surprise. More on this as we learn what’s going on, since it’s just at the rumor stage.
What I’m Listening To As I Write This
Apple TV+ is out with a new series based on Edith Wharton’s posthumously published novel “The Buccaneers” and the soundtrack is killer. Here’s Warpaint’s Emily Kokal and Miya Folick covering “North American Scum”
The Big Question
What was your most recent car payment? Mine was $500 a month at 1.9% for 48 months.
Top graphic image: Saturday Night Live/YouTube
I’m at the tail-end of a 6 year loan: $299.63 a month on 12.5% interest for my Compass. No money down, no real credit score, $250 in trade in.
I’m hooked until October, then it’s mine forever. Can’t wait honestly, as it’s been such a great vehicle for me so far. It’ll probably change soon, but it’ll still be cheaper than a new car payment.
I think my last car payment was around $360 on a 2014 Passat TDI. Though I think it averaged out to around $-10 once they bought it back:)
I’m absolutely dreading the idea of buying a car now. I can appreciate the improvements in safety and efficiency but so much of the extra stuff that is forced on us is too much. I simply don’t need to drive as much and the costs of new cars has really impacted my interest in them because it’s very hard to seperate a passion for them vs the pragmatic review of the costs.
I cannot remember the exact amount my monthly payments were on the Civic (2017 my) but I want to say it was in the $200-$300 a month range. I find it very interesting that despite many holding the view that “cheap cars don’t sell” that is exactly what is in demand right now. Obviously, the market forces and interest rates play a role in causing crazy shifts in consumer sentiment, but I think the definition of “cheap car” is wrong. Americans don’t want cheap, they want affordable. People buy cheap because they have to, not because they want to.
This will come down to industry executives to make the call to come up with less bloated products because our govt pretty much gives them whatever they want. You’d think Kia, Hyundai, Toyota, and Honda’s success would give them some motivation to act, but it’s clear that the big 3 have skewed almost entirely to the affluent demographic.
Hope I’m still around for when the 10% start doling out free cars /s
“People buy cheap because they have to, not because they want to.”
I guess I’m not what you’d call “people” then.
Your confusing “cheap” with “crap”. There are lots of people with more money than brains who see buying expensive, unreliable crap as a mark of status but there are even more folks who are fine, even prefer a cheap, high value Toyota or Honda even if a more expensive car is comfortably within their means.
I like to go for value myself. Every dollar you pay a corporation to profit margin is a dollar that isn’t going into the product you bought. I’ll even buy very expensive things if I have the money and I’m getting good value for the money, even if expensive generally isn’t a habit of mine. An Alfa Romeo 4C or Lotus Elise would be something that could part me with a chunk of cash if the right one came along, at least once I have a place to keep it.
Same. I’m happy to spend more for something if the value is clear. I don’t consider shareholder value as part of that, nor CEO bonuses.
Show me the loss leaders!
He said “affordable rather than cheap”; you say “cheap rather than crap” – you both mean the exact same thing but are just choosing different words. And you are both right, except that Americans will happily choose expensive crap over affordable value.
Gotta impress the neighbors – who probably won’t notice or don’t care
I think of that every time I see a lower-range BMW or Benz or somesuch – those people are likely struggling to afford this status symbol (one that I cannot imagine affording myself, and we make decent money) which is completely invisible to almost everyone – just another grey, white, or black car in a parking lot.
“Americans will happily choose expensive crap over affordable value”
Some do, some don’t. Plenty of Americans still buy Camrys, Priuses, Corollas, Civics and Accords. You just don’t hear from them much.
There are exceptions to every rule. I agree though, those cars do fly under the radar.
We need more cheap cars. The Chinese can undercut ANYBODY, even with tariffs. NOTHING will stop them!
They can totally sell a new car for like 10k over here. Fuck the gougers that opened up space for the Chinese to enter. There’s no reason for the Mirage to have doubled in price over the past few years, except for disappearing competition.
If we just enslaved the UAW we could have $10,000 cars too!
*CUVs. American automakers would never let anyone, even robot slaves, make a compact car.
Now imagine a 4 or 5 seater minimalist compact car with two variants:
-a $15k 3-cylinder ICE variant that gets 35+ mpg city and 70+ mpg highway which does 150+ mph top speed on about 90 horsepower thanks to drag reduction
-a $20k EV version with an honest 200 mile range at 70 mph in fair weather, maybe 150-ish in the winter under the same conditions, that does 0-60 mph in under 5 seconds
Both designed to be repaired with basic tools, easily serviced, greatly understressed mechanicals, using commonly available parts bin components, minimal gadgets/frills to break(give them a screen to plug their phone into, AC, and heating), and with enough passenger space for the occupants to fully stretch their legs out, where such a massive focus on drag reduction was made that the exact same body and parts gets produced for decades in a row, to keep parts replacement cost down on older vehicles and to encourage them to be kept on the road.
Wouldn’t that be useful to people that don’t have a whole lot of money to piss away on cars and their upkep?
Automakers would love to hear your ideas on that. Maybe something with the 13th amendment.
The
spicequarterly profits must flow.It has little to do with the UAW, and slave labor is nowhere near the only way China can keep prices down. It’s also about counterfeiting, IP theft, etc.
The Chevy Spark was made in South Korea and was a reasonable price.
I don’t like financing things if I don’t have to. Every vehicle I’ve bought has been cash (or cheque). I just save until I have enough to buy what I want
Concur. The only vehicle I’ve ever financed was a Mazda B2200 in 1988. Don’t remember payment, but it couldn’t have been much over $150. Everything else has been cash, and never over $9K (the cheapest was $1.00).
I got something like $350/mo at 2.25% for 60 months on my car, was on track to pay off about 18 months early but…
Found a killer deal on an old high-mile truck that even after I dump a few grand into will still be $10k less than I’d have paid for a sorted version. Had to take a personal loan due to the mileage at 13.9%, but I’ll be able to pay most of it off as soon as I get my previous truck sold and the extra I was pouring into sedan overpayment will now be directed here.
Edit: my wife’s Stinger comes off lease this summer, and the rate environment is… A touch different than when we got it. I am a little worried about what the buyout is going to look like, but she loves the car and is seemingly committed to it for the long haul.
My last car payment was in 2003 and frankly I don’t remember.
I guess I’m a trendsetter, having had an $1100 payment way back in 2015.
That loan was at 2.9% and the vehicle is now worth some 50% more than I paid, so at least I didn’t commit the commentariat’s mortal sin of “financing a depreciating asset”.
My most recent loan is at 3.59% and the payment is ~$540/month.
sounds like a 1-series M coupe. Is that right?
Did they sell those here in 2015? I thought the 1 series was gone by then?
It appears you’re right. The 1-series was gone by then. Oops.
It was. I might have bought a 135i but they stopped making it in 10/2013, and I retired the following June determined to get a new car.
I dodged a bullet. I not a 2015 Fit instead! Saved $30k and avoided constantly breaking fuel pumps.
Also I was able to pay cash.
Taking a shot in the dark, but was/is the vehicle a Viper?
That would be a reasonable guess
How does it hold up with maintenance/part availability? To an outsider, it feels almost like a limited-run car…and I’d imagine the standard Dodge dealership might not be the best place to take it.
It’s a mix. Some of the stuff (UConnect, oil filters, interior buttons, sensors, etc) are standard FCA equipment and extremely reasonable. I can do an oil change in my driveway with parts available for $60 at Walmart, a laughable concept for a Ferrari or similar.
Engine-specific or body parts can potentially be many multiples the cost for something similar on a Corvette and rival high end Euro stuff. Nothing on my car so far is NLA, but that is an issue with earlier Vipers already. Paying $5000 for a used headlight for a Gen 2 is not out of line.
I do not bring the car to a Dodge dealer except for warranty work, and even then only to a certified Viper tech. Luckily, I have not had any major issues *knocks furiously on table*, but if I did, I would trailer the car to an independent Viper specialist, of which there are a few across the country.
4-digit cost headlight assembly replacements aren’t all that abnormal for anything made within the last half decade or so, even on more common relatively inexpensive vehicles. Common vehicles are beginning to have repair costs on some items approaching that of an exotic, and that is more than a bit scary to consider.
I had an argument with someone on another forum who was firmly in the “absolutely never finance a depreciating asset” camp. He could not understand that there are situations in which it is absolutely reasonable. You have enough for a down payment on a reliable vehicle and need reliable transportation? You can get low enough interest that your money does better for you? To him, there could be no justification. If you couldn’t afford to buy a reliable car outright, you should walk/bus to work, even if that’s not feasible in many parts of the US. (Here, there are people more able to keep an unreliable car running, but I’d still assume most of us understand that a reliable car is necessary for people without a fleet to make it to work.)
Heck, even if you just want something that you know you can afford by financing (assuming relative financial stability, of course), it’s justifiable to me, especially if you have the basic financial literacy to recognize you need to set aside money for unforeseen expenses and plan for various costs to go up.
Most always/never rules have a lot of caveats people don’t acknowledge.
100% agreed.
I’d go as far as to say that apart from trivial cases (don’t burn $100 bills for warmth), there are no financial rules that apply to absolutely everyone in every case.
This article from almost a decade ago is one of my favorite rebuttals to the “wrenching on something used is always better” attitude.
https://www.thetruthaboutcars.com/2015/02/no-fixed-abode-gotta-rich-cheap-car/
thanks for sharing that’s a really interesting piece. this is something I’ve been wrestling with lately as both my car and my wife’s are slowly but surely hitting the age and mileage where it’s beginning to feel questionable to keep putting money into them.
There is a commenter on this article who is 100% anti-financing. I started to type a response but … it’s usually not worth the argument.
Yeah, I regretted it in that other forum. The person also claimed to have an 850 credit score without having taken on any loans except a mortgage…which seemed suspicious. I try to only argue occasionally, and only so that other folks can see that [X] isn’t the only viewpoint.
And I really get the idea of being anti-financing personally. You don’t like to know you owe money? You are afraid you’ll forget to make a payment? You’re afraid you’ll be underwater on the loan? You’re afraid you’ll overspend because you can justify spending a bit more over time? Cool. I get it. But being against it in general tends to mean a lot of assumptions about the people who do finance.
Absolutely. I mentioned elsewhere I paid cash. I could have had 0 percent financing and made 5+ percent on the $20k in the market, but I hadn’t thought it through.
$900/month CAD over 7 years. 2.39%.
Unless my investments tank, at that low a rate, paying cash will cost more once you account for lost investment compounding interest.
I also keep my cars 10-12 years on average.
Plus, not having a mortgage or rent does offer flexibility in our expenditures.
Now, if only I could sell the kids…
Our most recent payment was somewhere around $400/month for 72 months on my wife’s CX-5. We paid it off a little early, but the car is nine years old now with a whooping 22k miles on it, so we’ll be keeping it for many more years. We had one warranty claim on it when it was six months old for the center screen going out. Other that that all I’ve had to give it is an annual oil change, and a set of tires when the original ones aged out
But… how!?
I’ve put 40k on my car in the past 16 months
The pandemic changed driving habits for a lot of people!
When the pandemic hit, it took me over a year and a half to put 11,111 miles on my car.
My wife has been work-from-home since March ’20. We had to buy her a new car in June ’20 after a wreck, and it has in the neighborhood of 25k miles today, and that includes around 1,800 miles for a vacation last June.
A good friend has a Civic SI that is about 3 years old (?) now, and doesn’t have 10k miles; he may still be under 6k…
I could go on, but those are just a few examples, and if Shop Teacher’s wife has been work-from-home or similar since before the pandemic, it’s believable to me.
I’m not quite there, but I stopped traveling as much when covid started, and my 5 year old car has almost 40k now. Once upon a time, I would have put that on in the first two years.
My job moved, so that I now take the train to work. I started up my car (my wife has a daily which I tend to use first, since I have to move it to get my car out) for the first time in three weeks on Friday, just so that it would be harmed from sitting around too much.
It’s primary purpose is ferrying our children about. School is 1 mile away. Nothing else is much farther. She drives less than 1k miles a year. I change her car’s oil annually (synthetic of course).
I put 22k miles on a custom built “bicycle” in less than 2 years!
I see your comments often on the site and am always intrigued by your vehicle. Do you have a website/reddit post/imgur gallery or something where you show off your build? I’m sure I can’t be the only one who want’s to see what you’ve cooked up.
Pics of a previous iteration of this build:
https://
imgur.com/1KvhZN8
imgur.com/j75uGn7
imgur.com/1aaEtdp
imgur.com/tzO209r
imgur.com/Jrz8rYc
It gets the equivalent of about 4,000 mpg using the motor to cruise 30-35 mph in the street with light pedaling effort. I used about 8 Wh/mile at that speed.
The new body going on it should have about 1/3 the aerodynamic drag of the one pictured above. It now has thicker tires and DOT rims. I don’t have recent pics of it as it is a work in progress.
Videos of an even earlier iteration of this build before I put an electric motor in it(it was purely a bicycle here):
vimeo.com/284616898
vimeo.com/284616919
In total, the bike itself is approaching 80k miles since building it in 2016.
Awesome, thank you for sharing!
NICE!
Mine was $205 at 0.9% for I think 60 months but I paid it off early a few months ago. This was for a 19 Fiesta ST bought in July of 2019
I’m trying to remember, but I think it was just under $400 a month, and I paid it off almost nine years ago. Which means I’ve been out of the market for so long I have almost no chance of getting back in. My wife’s car is 15 years old this February and quite frankly I have no idea what we’re going to do, the prices of cars are insane. Our household is technically just above middle class and the idea of us buying two new cars is basically a financial impossibility. She can, but we both can’t.
I don’t feel like we live extravagantly, I guess others would disagree but when I’m having difficulty finding room for a new car it makes me constantly wonder who the hell they’re selling all these cars to.
I’ve never had a car payment. Every car I’ve purchased has been cash. Two of them for $1,200, one for $4,000.
Given the nature of debt and compounding interest, even if I buy new, it will be cash only.
$1,000/mo is ridiculously expensive. Your average person certainly can’t afford that, and this sort of payment is part of the reason that there are people making $2XX,XXX+ gross income which are still living paycheck to paycheck…
Prediction: I expect dealership lots to pile up with unsold inventory in the coming months/years. We’ll get a saturation of unsold vehicles coupled with an end to easily accessible credit, and cash will be king in that market, assuming you can even get to your cash at all.
Payments? Nope: I used to stuff $30 each week in the cookie jar—plus whatever I made on the side wrenching until I had enough to buy the next thing that caught my eye. My mortgage was $340 @ I think 4% in 96, so I just can’t fathom $1000 a month on a depreciating asset.
But, I had a garage & could wrench. Everybody’s situation is unique and I’m not trying to give anyone a hard time about doing what they think they needed to do. I will say that, if I had to finance something, it would be the absolute base model whatever I could find that would get me around as needed.
That $340/mo mortgage in ’96 at 4%, to get the equivalent today home, would probably be closer to $2,340/mo at 10%…
Times have certainly changed.
The last time we made payments on cars was in 2007. $275 a month for a 2005 Ford Focus, and around $320 a month I think for a CPO 2002 Toyota 4Runner. Sold them both before we moved to Oregon, barely got enough to pay them both off, and have been strictly buying cars for cash, in the $2000-5000 range, since then. I’ll never make a car payment again.
I’m definitely naive on the average finances of people, but I couldn’t imagine paying anywhere near $1000/mo on a car!? I have a $220/mo on one car and own my other outright. I would go bankrupt in under a year with an expense that large, and I can only imagine most of that 17% will be underwater soon too.
As low-interest money becomes available, financing expensive things becomes more appealing to the wealthy, with the net-net of it being that the median finance charge doesn’t change, while the average goes up. It’d be interesting to see that 1k/month payment broken out by prime and subprime borrowers.
All that said, it’s a weirdly bifurcated market right now. The average car on the road is the oldest it’s ever been (12 years old and change), while new cars are more expensive than ever.
You can take a look at the Federal Reserve’s dataset here to see what the average new car purchase price was in the past 20ish years.
I’ve never had a car payment; one car is 24 years old and has been owned by me for 11 years, the other is 8 years old and was purchased in full 3 years ago. After 2008 and seeing a lot of families struggling not because they were low earners but because they had incredibly low income elasticity, I’m in the camp of “Never have a car payment.” A family earning 80k and on the hook for $1200 in car payments a month and $1600 in mortgage doesn’t really have a lot of room to cut back easily when everyone else is also trying to unload their underwater assets.
My current car payment is somewhere in the neighborhood of $300. It’s down to less than $5000 at 2.2% and I earn 5% on my checking account, so I am paying the monthly payment and earning the interest. If rates go back down and I stop earning that interest, I’ll pay it off, but it’s a better deal to keep my cash right now.
I’ve not generally carried a car loan, but it’s hard to turn down paying less to borrow than I’m earning.
With a balance of $5000, you are only earning $140 in interest per year by keeping the car payment. I don’t have a problem with this strategy, but you aren’t making a lot of money by doing this.
I am not saying this applies to you (and I am hopefully not coming across as being critical of you), but many people overthink their finances and end up worse off in the end. You are earning an extra $140 per year, but it is very easy to spend that $140 on something else. I know a lot of people who think they are winning financially with financial hacks like these, but then go on to waste money without even realizing it (things like buying lunch for $10 every day instead of bringing your lunch to work or buying a $5 daily coffee when you can make the same coffee at home for $1). Again, I am not trying to be critical of your strategy, but make sure you aren’t overthinking one aspect of finance and underthinking others.
The reverse could easily be said of spending an extra few hundred a year on interest vs saving up for years to pay cash. Yes, you come out ahead in the long run, but the difference is not very significant.
I don’t disagree with that at all. Realistically, the problem is not financing per se as much as it is people overextending their budgets to buy a car. If someone’s entire savings consists of $50,000, buying a $50,000 car with cash is still not a great idea. The problem is that financing makes it much easier to overextend your budget on a car.
I’m keeping well over the 5k in my interest-earning account and spending it down just to avoid having a car payment would be the dumber move, even with the earnings on that 5k being that low. In addition to the extra interest, keeping that account active and making payments on time is better for my credit score than paying it off immediately (our somewhat counterintuitive credit score system is a problem in a bunch of ways I’m not going into here).
If I were in a bit of a different financial situation, it’s still smarter to keep the loan. If I had 5k in the bank and a 5k loan, I’d be better situated for an unexpected expense.
Sure, some people make poor financial choices, but I think it’s overly critical to assume that most people would spend more because they are earning a little more interest than they are paying. It seems at least equally likely that the hypothetical person who would do that would also spend more just because they have no car payment.
I am not necessarily saying that people spend more than they are saving. I am saying that people focus on small wins while unintentionally spending hundreds of dollars on things that don’t add value to their lives. I don’t have a problem with spending money, but money should be spent intentionally and not mindlessly. I worry that those who focus on small wins are missing bigger wins that are less obvious (again, this may not apply to you and I am not trying to be critical of your strategy).
My most recent car payment was around $600; it has been a few years since I paid my truck off so I can’t recall exactly what it was. I had a 4 year loan but I intended to pay it off well before the term ended. I think I paid it off in 18 months or so.
I am doing my best to resist writing a lengthy rant about the sheer stupidity of $1,000+ car payments as well as people who buy $70,000 luxury SUVS and whine about how high the cost of living is today. The whole narrative around car payments and the high cost of new cars frustrates the hell out of me. Transportation is a necessity, but that doesn’t mean a Model S or an F150 Platinum is a necessity. People need to stop buying cars they cannot afford. If you need 60 month financing or a $1000+ car payment, you CANNOT AFFORD THE CAR. Buy a damn Hyundai.
For the most part, you are correct. However, these are weird times we live in. If I am getting 5.5% interest in a high yield savings account that is FDIC insured, why would I take the money out of that account to pay for a new Escalade when I can finance it for 2.9%? For the record I have a 2011 Camry, so this is purely theoretical for me. However, I do have a HELOC that is financed at 4% that I am paying the minimum on because I am getting 5.5% on my savings account.
I have no problem with someone taking on a car payment in this scenario. As long as you have the discipline to not spend the money in the savings account on something else, this is reasonable. Of course, this only applies to a very small subset of buyers. Most people with $1000 car payments presumably do not have the balance of the loan in a savings account, and some of those who have the balance of the loan in a savings account will find an excuse to spend that on something else.
I sort of use a similar strategy in that I pay myself “car payments” of $750 a month into a high yield savings account that is paying 4.5% interest. When I am ready for a new vehicle in a few years, I’ll use that money for the down payment, or I will buy the car out right.
Does the data break out who is carrying these loans? There is an enormous population of Americans who can afford a $1000+/mo on a car (or hobby) without breaking a sweat.
I know it’s fun to rag on the mythical overextended jerkoff in the Yukon Denali, but I want to see the data.
I recall at one point seeing loan delinquency rates broken down by car payment. I can’t find that article now, but I think delinquency rates of the highest car payments were only slightly lower than delinquency rates on low car payments. That would suggest that buyers are buying on the higher end of their budgets, irrespective of their income.
https://www.coxautoinc.com/market-insights/in-2022-low-inventory-and-high-prices-contributed-to-growing-frustration-with-car-buying-process/
I wish there was a better breakdown of the new-car buyer in 2022-23, but 2/3 of them making over $75K makes intuitive sense to me.
10% of households in the US make over $225,000 or so. That is millions of people who probably aren’t super fazed by a four digit car payment.
Woohoo, my household is in the top 10% (just scrapped in) only 9% more to go LOL.
We lease two EV’s and between them they are $1,150ish. Both our current cars were a big jump in lease payment, mine almost doubled from the previous EV lease payment. However we are both incentivized by our employers to drive EV’s. We also make enough electricity from the panels on the roof we can drive 30K miles between us, power the house and still have SCE write us a check at the end of the year for surplus electricity.
Curious what type of employers incentivize driving EVs?
I’m a contractor for an electric utility company and even they don’t hand out perks like that.
I work for an electrical contractor. My wife works at a car dealership. To fully explain as it is a very particular situation for probably just us.
I had a gas card, the bump in car allowance to go EV without a gas card was nice, and I get to keep it as I ‘self power’ the car. Whereas before all my gas was paid for, now I keep the difference.
My wife gets an allowance if she leases (not buys) one of their brand’s vehicles. We switched her to a EV because of huge manufacturer incentives on the car plus staff pricing etc. It would have been silly not to go EV with this particular car.
We also save in gas cost for her car as we get our electricity for ‘free’. or will in 4 more years when the savings pay for the system’s 7 year investment. that’s without the $150 or so a month in gas savings from my wife’s car.
The current auto industry is reliant upon this paradigm, with ever-increasing costs to accompany it, and it is not sustainable. They’ve been steadily moving upmarket on all offerings in the USA, which is why there are a record number of $1,000/mo car payments.
Consider that my father paid $650/mo when he purchased an Audi TT 225 Quattro in 2003. This was not a cheap car and I thought this was a very stupid(but simultaneously cool/fun) decision as a kid. Nominal wages have not increased a whole lot since then… yet there are people paying $1,000/mo for humdrum CUVs…
Before we paid off my wife’s car we were paying about $750 a month for both of our cars. Now we just have my car at $300 a month because I was too cheap to buy myself something new. I can’t imagine spending $1,000 a month on a single vehicle. Good on you if you can afford it, but I worry that a lot of the people with these vehicle mortgages are going to be completely screwed when the warranty expires and they have to start making expensive repairs in addition to payments on a vehicle with negative equity.
Most recent car payment? $7000. I paid that payment one time and then owned the car. 20 years of car buying, I’ve never bought a car with a loan. I don’t expect I ever will. There’s lots of things I can do with extra financial freedom that I can’t do with a nice car. I drive over 100 miles round rip to commute to work, and even so, I would rather drive used running for cash than nice for a loan. My current DD cost me $2400 three years ago, and since then, I have done brakes and tires.
I’m paying 610/month at about 5% (it was a 4 year term, but the monthly payment reflects me paying it down in a little over 3 years). I’ve got 2.5 years to go. This was on a used Chrysler Voyager.
I really couldn’t fathom paying more than that for a vehicle as far as a monthly payment goes. In theory, my son should be entering school (leaving daycare) and the van should be paid off at around the same time. I am very, very excited for that day.
These payment numbers never cease to blow my mind. I cannot even begin to fathom taking on a $1,000+ car payment and my wife and I each make six figures. I also cannot even begin to fathom taking out a loan longer than 60 months, and I actually think 60 is a little too long and that 24-48 is where we’ll keep it moving forward.
Maybe I’m old school but I was always told that if you can’t make it work in 60 months or less then you can’t afford the car and I stand by that. I also stick with the a car note shouldn’t be more than 10% of your income rule…although I could maybe make a slight stretch for something truly special. That ain’t happening anytime soon, though.
Add in the average interest rate of 7.4% and it’s just so bleak. We really need to add basic financial skills to American curriculum in middle and high school. Most people shop by monthly payment and it’s just asinine. Some dude making $60,000 a year financing an $80,000 F150 King Ranch Overlord or whatever is absolutely fucking himself taking out an 84 month loan to get his payments under $1,000.
Anyway my wife’s CRV is paid off and we’re going to roll with it for a while longer and eventually probably replace it with a new CRV Hybrid because she doesn’t give a shit about driving and if it ain’t broke don’t fix it. My Kona N was financed at 60 months, 2.75% interest which comes out to a payment of roughly $450 a month but I pay $600. I wanted a 36 or 48 month loan but the 2.75%/$500 off MSRP special they were running was only for 60 and it was far and away the best interest rate I was going to get in 2022.
I figured I’d take it and pay it off ahead of schedule. We could pay it off today without any issue if we really wanted to but the interest rate is low enough that it’s not really a priority right now.
Yep, with regular savings accounts paying over 4% interest it definitely does not make sense to pay it off right now. Take your cash on hand and put it into an Apple Savings Acct and the difference in what you’re paying into your loan and what you make is a positive gain of 1.5%.
I am in a similar situation though I am one that the $1000/mo doesn’t sound that dire. As someone with a love of fun and fine automobiles I’ve made some bad choices through the years. I’ve never paid nearly that much for one vehicle but right now we are paying $1200/mo for the two we have. Both will be paid off later this year. One loan at 3% the other at 3.49%. I have the money in the bank to pay them both off and having those payments gone has been a temptation for a while but I am getting back more in earnings.
Also, times are in flux right now and having cash on hand gives you much greater flexibility if you lose a job or something. I would not make the same decisions with a 6-7% interest loan and likely won’t even consider buying something until things come back down to earth anyway but I also can’t wait to not have those payments!
We’re fortunate to be well into 6-figure territory on annual income in this house as well. We paid cash for my wife’s 2020 Kia Soul GT-Line Turbo in 2021. I bought my 2023 Hyundai Santa Cruz Night Edition in December 2022 and was going to pay cash, but Hyundai offered 0% for 36 months.
Free money for three years? Yes, please.
So I took that offer and put as much as I could onto the note, which is right at $1039 a month. I put the money I was going to pay for the car into a high-yield certificate (just under 5% now) and pay out of cash flow.
I can easily justify why I did what I did. But the people making half or less than I do and buying more expensive cars with high interest over a long period of time perplex me. I could have purchased a fancier and more expensive car for sure, but I didn’t want the financial drain of it. I can’t imagine making $70k a year and spending the same on a car, and adding interest to that equation. Ouch.
Ayyyyy weird Hyundai crew represent! I love the Santa Cruz. Give us an N version goddammit.
And right? With my credit, income, employment history, etc. I could be approved to finance an $80,000+ car/pay cash for damn near that much right now if I really wanted to, and not to be a dick or anything but that’s well under what I made in 2023, and my wife makes more than I do to boot.
But why in the name of fuck would I do that? We bought a house two years ago (which unfortunately has depreciated slightly due to interest rate Armageddon) and have a kid on the way. I love cars as much as anyone and don’t hesitate to treat myself every now and then…but they’re an incredibly stupid thing to have your money tied up in unless you’re mega wealthy and can afford to collect them.
But even then, it’s a passion project and any competent financial advisor could put a portfolio together for you that you’d make more off the stack of money you’re burning on cars with. I am more than happy to keep rolling with my Kona N for the next several years and the next time I shop I don’t even think I’m going to spend more than about 50…not to mention my wife’s car will need replacing well before mine and she’s already said she just wants the highest trim of a regular car over anything with a luxury badge.
We’re in similar places, except no kind onf the way here (we’ve kind of aged out). But house bought 2 years ago, worth a bit less than we paid for it. Love the 3.6% mortgage. I can pay the house off if I wanted, but will not. Etc. etc.
I actually wanted a Lincoln Aviator hybrid, but the new ones were in the $72-$75k range. I can swing that, but my Spidey Sense just kept telling me “yes, you can afford it, but you don’t really neeeeed it”.
So I bought a Hyundai that cost about half of that but give me 80% of the Lincoln to put an objective number on a subjective concept. Regardless of any of it, I’m happy, and I saved money. Heck, I might even be able to retire before I’m 70 at this pace.
On the one hand, of course there are a record number of Americans with >$1000K car payments. There are more Americans and more cars than ever, and inflation means that our expenses go up over time.
On the other hand (forgive me for being an ass for a moment), I’m damn close to being in the 1% and yet my car payment is only about $600 a month. Apparently I’m getting old because $1000 a month on a car seems bonkers to me.
I have two. $1050/month and $640/month. The larger one- my wife and I both worked very hard to get our companies through COVID (medical and foodservice industries) and were compensated well by our respective employers. We rewarded ourselves with a new BMW. Factory order, and we are so proud of it. Even with 20% down, it is still a big payment.
The smaller payment was an unabashed present to myself when I “retired” and started my own business. No regrets with either.
I mean, you. are the Sausage King of Chicago so you earned it.
The name isn’t ironic. 😀 I “retired” to sell hot dogs and sausages in the SW suburbs of Chicago.
So of course he went with the “same sausage, different lengths” manufacturer.
I’ve been doing bi-weekly $327 payments on the Camaro since December 2019, and also made a few extra payments just to pay off the principle, and after just checking on it, I’ve only got $458.33 left on it. It will be very nice to be done paying that soon.
Enjoy that release of lien letter when you get it. I consider it one of those little joys in life that we should all take a moment to appreciate.
And don’t lose that lien release. I recently sold a vehicle I owned for 16 years (and had paid off for about 14 of those years). New guy went to title it and state still showed a lient on the vehicle. Fortunately I was able to find the lien release in my records.
When I’ve paid off a car and (finally, as it takes these finance companies forever) get the letter I go to the Secretary of State with it and order a new title for just that reason.