How Much Can You Afford to Spend on New Car?
A new car costs more than the average, median-income family can afford, new research shows.
The study by Interest.com revealed that households earning the median yearly income can afford an average-priced new car or light truck in just one of the 25 largest metropolitan areas in the U.S. Only in Washington D.C. could such families afford the average price of $30,550.
In determining the maximum amount the average family could pay for a new car, Interest.com calculated 10 percent of the monthly, median gross household income for each metro and subtracted the average monthly insurance premium. The site also considered three key factors, often referred to as the "20/4/10" rule, which are a down payment of at least 20 percent, auto financing lasting no longer than four years and principal, interest and insurance not exceeding 10 percent of a household's gross income.
Based on the research, median-income families in Tampa can least afford the price of a new car.
"What this research indicates, more than anything, is that a lot of Americans are spending too much money on their cars," said Mike Sante, managing editor of Interest.com.
Based on the study, Interest.com calculated the amounts median-income families in each city can afford to pay for a new car or truck:
Washington, D.C. — ?Affordable Purchase Price: $31,940; Maximum Monthly Payment: $628
San Francisco — ?Affordable Purchase Price: $26,786; Maximum Monthly Payment: $537
Boston — Affordable Purchase Price: $26,025; Maximum Monthly Payment: $507
Baltimore — ?Affordable Purchase Price: $24,079; Maximum Monthly Payment: $468
Minneapolis — ?Affordable Purchase Price: $24,042; Maximum Monthly Payment: $470
Seattle — Affordable Purchase Price: $22,963; Maximum Monthly Payment: $466
Portland — ?Affordable Purchase Price: $21,985; Maximum Monthly Payment: $397
Denver — Affordable Purchase Price: $21,835; Maximum Monthly Payment: $432
San Diego — ?Affordable Purchase Price: $21,781; Maximum Monthly Payment: $433
New York City — ?Affordable Purchase Price: $21,464; Maximum Monthly Payment: $431
Philadelphia — ?Affordable Purchase Price: $21,069; Maximum Monthly Payment: $419
Chicago — Affordable Purchase Price: $20,616; Maximum Monthly Payment: $417
Los Angeles — Affordable Purchase Price: $20,385; Maximum Monthly Payment: $410
Sacramento — ?Affordable Purchase Price: $19,965; Maximum Monthly Payment: $397
Dallas — Affordable Purchase Price: $19,959; Maximum Monthly Payment: $389
Houston — Affordable Purchase Price: $19,811; Maximum Monthly Payment: $386
Milwaukee — ?Affordable Purchase Price: $19,297; Maximum Monthly Payment: $373
Atlanta — Affordable Purchase Price: $19,122; Maximum Monthly Payment: $376
St. Louis — ?Affordable Purchase Price: $18,550; Maximum Monthly Payment: $371
Pittsburgh — ?Affordable Purchase Price: $17,298; Maximum Monthly Payment: $340
Phoenix — ?Affordable Purchase Price: $17,243; Maximum Monthly Payment: $348
San Antonio — ?Affordable Purchase Price: $17,137; Maximum Monthly Payment: $334
Detroit — ?Affordable Purchase Price: $17,093; Maximum Monthly Payment: $332
Miami — Affordable Purchase Price: $15,188; Maximum Monthly Payment: $295
Tampa — Affordable Purchase Price: $14,516; Maximum Monthly Payment: $282
The differences by city were attributed to both the significant variation in median household incomes in different locations and the wide range of tax rates and insurance costs.
Sante said car costs are one of the most controllable parts of a household's budget.
For example, if you live in New York City or San Francisco, you're probably going to have to pay a lot for housing, but you don't have to pay a lot for a car," he said. "You're better off driving something more affordable and saving or investing the difference."
This story was provided by BusinessNewsDaily, a sister site to LiveScience. Follow Chad Brooks on Twitter @cbrooks76 or BusinessNewsDaily @BNDarticles. We're also on Facebook & Google+
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