A Record Number Of Americans Are Paying At Least $1000 A Month In Car Payments

$1000 car payments

Few things are a bigger drain on your wallet than a car. If you’ve walked around a car dealership lately, you know just how sky-high sticker prices are these days. 

But there’s some good news… 

After soaring fluctuations in prices over the last three years, Kelly Blue Book finally recorded a decrease in the average price of a new car in February 2023. The prices were down 1.4% from the January 2023 average. The average new American car cost $48,763, according to KBB. 

The kicker? Brace yourself…

That number is still 5.3% higher than a year ago. 

We’re not just talking about expensive luxury cars or electric vehicles. Kelly Blue Book found that the average price for non-luxury cars sold in February was $44,697. The average new luxury car sold for $65,534. And the average EV sold for $58,385. 

Incredibly, those are both decreases compared to all-time highs in each segment.  

Oh, any looking for an affordable new car under $25,000? Good luck.

In December, Cox Automotive found that there are only 10 models with MSRPs under $25K currently on the market.

Only 43,557 new vehicles sold for under $25,000, which is only 4% of the U.S. auto market. 

Used car prices are trending back towards record levels

These price increases aren’t just for new cars. The used car market is also surging, inching back towards record highs. 

According to a new report from Cox Automotive, wholesale used vehicle prices increased 4.3% in February from January. This marks the largest increase in the used car market since February 2009, when prices rose 4.4%.

This is spells out bad news for consumers looking to get a deal on a car that’s been driven off-lot. 

Kelly Blue Book found that the average used vehicle price in January 2023 was $26,510. This is a decrease of $633 from December 2022, but the new data doesn’t bode well for where the market is going.  

Expensive cars means expensive car payments

Of course, very few Americans are paying cash out of pocket for those cars. Raising car prices and raising interest rates across the board means serious financing to get behind the wheel.  

According to Edmunds, the number of Americans paying over $1,000 a month is on the rise.

About 16% of consumers who financed a new car in the last three months of 2022 are paying over $1,000 a month. That’s a significant raise from 2021, when 10.5% were paying over $1,000 a month for their car payment. In Q4 2020, Edmunds reported 6.7% of auto buyers paying $1,000 or more. 

Edmunds also notes that the average rate for both new and used automobiles is climbing significantly, at 6.5% for new cars and 10% for used cars. Just last year, Edmund reported an average of 4.1% and 7.4%, respectively. 

Increased car payments are a bad sign that Americans are living beyond their means

Cost of living isn’t going down any time soon.

A staggering number of American adults earning over $100,000 a year say they’re living paycheck to paycheck.

Overspending on a car can be a serious hit to anyone looking to save money for retirement and other life expenditures. 

Tips to help you avoid overspending on a car

If you’re in the market for a new car, here are some tips to keep in mind. 

Set a budget: Think long and hard about what you can afford. Consider what costs you’ll have to cut if you’re paying an extra couple hundred dollars a month or so just to make your payments on a dream car. Will you have to cut back on things you enjoy, like eating out, a round of golf, date nights, or weekend getaways? Set a budget and stick to it. Determine how much you can afford to spend each month on car payments, insurance, and maintenance – it all adds up. 

Consider buying used: Yes, used car prices aren’t exactly cheery right now. In some cases, they’re just as expensive as a new car. But when you weigh your options on what kind of car you need, a well-maintained used car with low mileage can help you save big.

Don’t buy more car than you need: Consider what you’ll use the car for and don’t buy more car than you need. Do you need a big truck with four-wheel drive for running errands and getting groceries? Probably not! A smaller, more fuel-efficient car may be better for your budget and future financial goals.

Negotiate: A little haggling can go a long way, depending on what’s happening behind the scenes at the dealership.  Don’t be afraid to negotiate the price of the car. Remember, the sticker price isn’t always what you’ll pay. Do your research on the value of the car elsewhere and be willing to walk away if the price isn’t right.

Compare financing options:  In a high interest rate environment, consider how much money is going out the door just for financing. The most competitive rates might be with another dealership or financial institution than the one you usually use for your day-to-day banking. Shop around for financing options to find the best interest rates and terms. Also, consider getting pre-approved for a loan before you start shopping and look for mailers or other promotional materials advertising low rates.

Consider all costs: Few things in consumer life can nickel and dime you like owning a car. Just ask anyone who bought a lemon at a price that was too good to be true. Remember that the cost of the car isn’t just the purchase price. You’ll also need to factor in insurance, gas, maintenance, and repairs.

Don’t rush the decision: Car salespeople have a tendency to rush customers into a decision. Don’t fall for it. Stand your ground, be intentional and deliberate. Take your time when shopping for a car. Speak your mind, ask questions. Don’t let a salesperson make you feel stupid or silly for asking questions – it’s a big decision. Rushing into a purchase can lead to overspending or buying a car that doesn’t meet your needs.

B. Carlisle

Contributing editor at Wealth Gang. An entrepreneur at heart, he's passionate about meaningful ways to leverage technology and social media for business opportunities and side hustles.