This is the Motor City. Of course, we’re home to lots of cars, right? We, after all, put the nation on wheels?
Well, sure. But can Detroiters actually afford those cars anymore? A recent survey by Bankrate.com puts the city of Detroit at the bottom of the nation for being able to afford a new car.
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 for what Kelley Blue Book said was the average price for a new car or light truck at the time of the analysis: $33,865. And Detroit’s at the bottom at number 50 of 50.
Which is interesting considering the $5 a day wage was born here that in some degree made it affordable for the workers – living in Detroit – to buy the cars they made.
When Bankrate.com calculated how much a household can afford to spend on a car or light truck, they considered three key factors that are commonly referred to as the “20/4/10” rule.
That is: a down payment of at least 20%; financing lasting no longer than four years; and principal, interest and insurance not exceeding 10% of a household’s gross income. They also factored in the national average rate for a 48-month new car loan during the week when they conducted the study in the spring: 4.24%.
An interesting statistic is that approximately a quarter of Detroit households don’t even own cars. According to the data, the car an average Detroiter can afford is worth about $6,174.
People across the country, according the experts at Bankrate, are spending too much on their cars relative to their income. Car purchase costs, as well, have been rising year over year. For example, in 2010, the average new car price was $27,950, a nearly six thousand dollar price increase in six years compared to 2016 – or an increase of 17.5%.
“People are spending far too much money on their cars,” said Steve Pounds, personal finance analyst at Bankrate.com. “There are many safe, affordable and stylish options on the market for people to choose from that won’t cut into more important budget items; such as college funds and retirement savings.”
The city that can afford cars the most? San Jose, California. That’s followed by San Francisco, CA; Seattle, WA; San Diego, CA; and Charlotte, NC.
Those in San Jose can afford a car that costs about $32,855. You can check out the rest of the list here.