The average costs of used cars are now unaffordable for most families

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The cost of an average used car is now out of reach for most Americans.

Following recent increases in used vehicle loan rates, only households earning among the top 40% can afford the average used car, according to a new report from the car ownership app Jerry, which describes a “crisis of accessibility that is broad and deep.”

According to the study’s definition of affordability, you shouldn’t spend more than 17.5% of your after-tax income on cars. (This includes your monthly payment and operating expenses like gas and insurance.) Jerry says average annual costs for a used car are about $12,200.

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For a family with a median income of about $64,000 in real after-tax income, paying that amount would mean spending 19% of their earnings on a used car. In other words, the once frugal transportation choice is now slightly out of budget.

“This is one average used car – let alone two – in a country where a car is a necessity for nearly every working adult,” the report states.

The analysis indicates that many used car buyers have only two options: drive a cheaper car or borrow more than they need to.

How much does a used car cost?

According to Experian data released in December, used car buyers pay an average of $533 per month in loan payments for their vehicles. This is an increase from $473 per month in 2021.

What has changed? For one thing, the average amount financed increased over that two-year period, from $26,305 to $27,167. But the real difference maker is auto loan rates, which rose to 11.35% at the end of 2023, up from 8.06% in 2021. Auto loan rates increased following of Federal Reserve rate increases in response to inflation.

Fortunately, the affordability of used vehicles could improve in 2024. According to Cox Automotive, rates could drop by up to a full percentage point if inflation continues to slow. Yes, prices for usEVs are in decline, having fallen 3.5% over the past year, according to the latest Consumer Price Index data.

There is light at the end of the tunnel.

“Falling new and used vehicle prices are likely to improve affordability, especially in the second half of the year,” Jonathan Smoke, chief economist at Cox, wrote in a recent report.

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