Why we pay more for cars with bad credit

Can You Afford a New Car? Depends on Where You Live

Detroit residents are having the hardest time coming up with money for a new car.

With the median income in Motor City little more than $25,000, new car buyers can only afford a $6,000 car, according to new research from Bankrate, a financial planning website. They looked at the costs in the 50 biggest U.S. cities.

“The lower a city appears on the list, the more difficult it would be for the typical car buyer to come up with the money,” Bankrate says. “Kelley Blue Book said the average price for a new car or light truck at the time of our analysis was $33,865.”

In some ways, this isn’t surprising. The poorer you are, the more you will end up paying for a car because of bad credit. Bad credit or no credit means higher interest rates and spending more on a vehicle in the long run, making it harder to avoid debt and keeping your credit poor.

But the truth is, we all spend too much on cars. Even in the city with the highest median income on the list — San Jose, CA at $87,210 — people can’t quite afford the average-priced car, “only” a $33,000 one.

What about you? Check out our breakdown of Bankrate’s research in the map below. The redder the circle, the less car people can afford…

What the map really drives home is that most people can’t afford new cars, and should be buying used. (Definitely not leasing.) But it also shows that income isn’t the only factor to go by — housing costs are other big budget items come into play. For instance, the median income in Austin is just over $58,000, but the “affordable” price for a new car is $21,000. Meanwhile in Portland, the median income is $4,000 lower, but people there can afford $400 more worth of car.

Bankrate says around 20 percent of your income should go to your car payments and related expenses, but that number can also change based on your debt-to-income ratio, your credit history, and other expenses. Housing costs should be around 30 percent.

If you are going to buy new, you can certainly beat a $34,000 price tag. Kelley Blue Book says one of the least-expensive new cars you could buy is the 2016 Nissan Versa for close to $12,000. Other inexpensive new cars include the Chevy Spark ($12,682), the Hyundai Accent ($14,456) and the Honda Fit ($15,913). But do your homework — some cars cost more to maintain even if they’re cheaper up front. (KBB’s “affordable” recommendations are based on the estimated cost of owning the car for five years.)

According to Bankrate, these cities struggle the most with affording new cars…

  • Detroit ($6,174 affordable price)
  • Rochester, NY ($7,391)
  • Cleveland ($7,558.23)
  • Hartford, CT ($7,960)
  • Buffalo, NY ($8,319)
  • Miami ($8,646)
  • New Orleans ($9,812)
  • Birmingham, AL ($9,823)
  • Cincinnati ($11,017)
  • Providence, RI ($11,297)

No city in the lowest 10 listed here has a median income higher than $38,000.

Click here to find credit monitoring services
Posted in: Home, Lifestyle
Tagged with: ,