To purchase an average car, it takes 41.3 weeks to earn a median income.
As the average new car payment rises to $712, affordability continues to decline. May 2022 saw a record month in the automotive industry with an average car purchase of $712. Cox Automotive also found that new car affordability has worsened than ever.
It is no secret that both new and used car prices have increased rapidly over the past few years. New car prices continue to rise due to a variety of factors, including the global COVID-19 Pandemic and the chip crisis.
Cox Automotive reports that the median number of weeks needed to buy an average vehicle has increased to 41.3 weeks in May, from 40.8 weeks in April. This is a 19% increase year-over-year, which indicates that car prices continue to rise at a rapid rate.
The average vehicle purchase required just 33.5 weeks of median income in May 2021. This is almost 8 weeks less than what it took in May 2022 (41.3 weeks). There are many factors that contributed to this huge increase in costs. The median income increased only 0.3% year-over-year, but the price rose by 1.0%. Manufacturer incentives decreased, and the average interest rates increased by eight basis points.
Customers are choosing to amortize their loans over a longer term, which is currently 72 months. This will lower monthly payments, but it can also increase the vehicle’s overall cost as the loan interest compounded over a longer term. Owners are required to keep their vehicle for a longer period of time to avoid carrying over the loan balance to the next vehicle. This can cause financial strain and increase your risk of default.