As New Cars Become Unaffordable, Leasing Is The Practical SolutionJuly 9, 2017
As new car prices go higher and higher, and household incomes remain stuck where they are, there is now only a single US metropolitan area in which an average new car is affordable to a median-income household.
According to a recent report by Bankrate.com, only the residents of Washington, D.C. can still afford to buy a average-priced new car! And how much income does that median income D.C. household make that allows them to afford that new car?
Nearly $100,000, that’s how much! According to Bankrate’s formula, that gets you a single vehicle priced at $37,223 or less. If you need two vehicles in your household, cut that in half. All other average US metro families simply can’t afford to buy a new car! It may be because income levels are lower in their city, car-related expenses are higher, or a combination of both.
It Takes A Lot Of Money To Make A New Car Affordable
Bankrate used a formula called “the 20/4/10 rule” to calculate their affordability index. Here’s what it means:
- A 20% Down Payment;
- A Four-Year Loan;
- Principal/Interest/Insurance Payments Equal To 10% Of Household Gross Income
If you can’t swing buying a car on these terms, and most Americans can’t, then you are overextending your finances to buy that car. Cutting your down payment and extending your loan to six or seven years may seem like a good idea, but it puts you into a debt cycle that is nearly impossible to get yourself out of. You can see the complete rankings here:
Avoid The Car-Buying Money Pit When You Lease
The financial solution for today’s strapped car buyers is leasing. Leasing gets you a great car for a much lower monthly payment, and with less of a down payment. Best of all, the lease term is much shorter than with financing – if you set it up right, your car will be under warranty during the entire lease. This protects you from uncovered and unexpected repair bills, which is even better for your finances!
Leasing Gives You Many Practical Benefits
Another benefit of leasing is always having a car with the latest technology, fuel efficiency, and safety equipment. Plus, you are able to tailor the lease to allow for the actual mileage you normally drive, so you don’t have any unpleasant surprises when you turn your leased car in. That’s smart!
If you use your leased car for business, you will discover that the IRS treats leased cars more generously than purchased cars at tax time. More savings for you when you lease!
Leasing Makes Cars Affordable Again!
For all these great reasons and more, leasing is the answer to the ever-increasing prices of cars, trucks, and SUVs. Lease your next vehicle and you’ll enjoy your time behind the wheel without the worries of how to pay for it!bankrateinterestLease