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Published: Feb 15, 2024 3 min read
Photo Collage of an aerial view of a car laying on top of a giant  For Sale  sign
Money; Getty Images

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 in the top 40% can afford the average used car, according to a new report from car ownership app Jerry, which describes an “affordability crisis that runs wide and deep.”

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

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

“That’s a single average used car — never mind two — in a country where a car is a necessity for nearly every working adult,” the report says.

The analysis indicates that many used car shoppers only have two options: Drive a cheaper car or borrow more than they should.

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. That’s an increase from $473 per month in 2021.

What’s changed? For one thing, the average amount financed increased over that two-year period, rising from $26,305 to $27,167. But the real difference-maker is used auto loan rates, which rose to 11.35% at the end of 2023 — a surge from 8.06% in 2021. Auto loan rates increased as a result of the Federal Reserve's rate hikes in response to inflation.

Fortunately, used vehicle affordability may improve in 2024. Rates could drop by as much as a full percentage point if inflation continues to slow, according to Cox Automotive. Already, prices for used vehicles are trending down, having fallen 3.5% in the past year, according to the latest consumer price index data.

There's light at the end of the tunnel.

"Likely declines in new and used vehicle prices should 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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