Are You Spending Too Much On Your Car?

What are some signs that a car payment is taking up too much of a person's budget?

You know a consumer bit off more than they can comfortably handle when they have to cut back on the amount they drive. That is usually one of the first signs that their budget is stretched. Rather than drive somewhere they stay home or get a ride with a friend. The cost of fuel on top of a high car payment is more than many can afford. Another sign is when someone puts off needed maintenance simply because they must choose between making the car payment or covering the maintenance. With rising auto insurance premiums, this puts further pressure on a consumer who accepted a payment that was already a stretch to make before prices started spiking upward. Depreciating assets like cars and trucks are not the type of purchases someone should stretch for, perhaps real estate, which usually appreciates over time but certainly not cars.

In your experience, how do consumers typically end up with car payments that take up too much of their income?

The first mistake people make is buying their wants as opposed to buying their needs. Wants tend to cost more than needs. The second mistake they make is not closely examining all of their expenses, leading them to assume they can afford a bigger payment than they actually can. The third mistake they make is not checking the cost of their automobile insurance until after they have purchased their new vehicle, leading to shock at how much their monthly premium increases. And finally they fall for the payment trap the Finance and Insurance Manager sets when they sign their loan documents. Unwanted, overpriced protection packages, longer loan terms, and higher interest rates all seem acceptable when the F&I manager says, 'You don't think the bank would agree to this payment if they weren't confident you could pay it back, do you?'

Have you noticed any changes in recent years that have made car payments less affordable for consumers?

New car and pre-owned interest rates are much higher today than they were just a few years ago, which has negatively impacted car payments. 84 and 96-month loan terms also give the appearance of making a car more affordable when in fact customers agree to pay thousands of dollars more in interest in most cases.

How can you determine how much car you can afford?

I recommend that no more than 10-15% of your gross monthly income go toward covering your car, including your car payment, insurance premium, fuel cost and maintenance.

What should consumers do if their car payment is too high?

Contact the bank that holds the car loan if you are having trouble making your payment and ask if you can make partial payments for a time being until things improve financially. Remember, banks want to be in the lending business not actually the car business, so in most cases they will try to work with a customer so they don't have to repossess the vehicle.

Besides refinancing, what other options are available?

For those struggling with their monthly payments I suggest they contact each provider they are paying and see if they can negotiate a lower payment plan to lessen their monthly obligations until they regain their financial footing. That would include your credit card providers, cell phone services providers or utility providers. Many government-approved credit counseling service providers are available for people struggling financially, and someone in this situation should seek one out.

Will affordability improve soon?

I do not expect affordability to improve any time soon, so buyers need to thoroughly and completely understand their budgets and limit purchases to things that they need not necessarily what they want. Save as much as they can for a down payment and limit their loan term to avoid paying thousands of dollars in extra interest. Discipline is the key, make only discipline-informed purchasing decisions.

About CarEdge

CarEdge is a leading consumer platform, Founded by father-and-son team Ray and Zach Shefska, that is dedicated to empowering car shoppers to make confident, informed and financially savvy decisions. The company’s CarEdge Pro subscription service gives car shoppers real-time market insights and an expert AI Car Negotiator agent to make the process simple, easy and fair. It’s premium-level CarEdge Concierge offers buyers a white-glove experience with a dedicated automotive expert who locates, negotiates and secures the best possible deal on your behalf. Both CarEdge tiers help consumers save money, time and hassle. Also with trusted resources that includes hundreds of guides on YouTube, CarEdge is redefining transparency, fairness and value in the automotive industry. Connect with him at: www.CarEdge.com. Or on Social Media on: YouTube, TikTok, X, Facebook, and Instagram.