Car to Income Ratio

I have pondered this many times over as I try to keep my finances in check, especially when purchasing a ‘new’ vehicle. Everyone talks about the ratio when purchasing a house and what your monthly mortgage payment to monthly earnings should be (25-35% of your gross monthly income depending on who you ask), but no one ever talks about cars.

There has to be many individuals that blow the budget on their ride to keep up with the Joneses. Speaking from a United States perspective (sorry rest of world, I have to talk to the country I know best) the average household income in 2014 was $53,657. On the flip side in 2014 the average vehicle purchase price was $32,386. With the current 60 month auto loan rate racking in around 2.86%, that means a monthly payment with no cash down would be $580. Further, that makes an auto payment about 13% of your average monthly gross income. That is a little over half of what some say your spend should be on your mortgage! A payment that has no tax benefit, unless you are a self employed / small business owner / etc. Even worst it depreciates over time!


So what kind of income does it take to afford that super desired car you put on a pedestal that you’ll never buy new, but might buy it used 15 years later?

What kind of income does it take to buy a modest reliable people mover brand new?

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