MW Cars were breaking Americans' budgets even before Trump's car tariffs

By Venessa Wong

'What's the point of suffering every day for a car payment?' People are cutting back on spending, including for home purchases and medical care, to afford a car.

Karen Moore hadn't had a car payment in years. But her employer was calling workers back to the office five days a week and her 10-year-old Honda CRV was starting to show its age. Increasingly worried that new tariffs would make already high car prices even worse, she decided to pull the trigger on a CRV hybrid in February.

Yet prices had already starkly increased since Moore was last in the market for a car. Her new car cost $42,000, compared with the $26,000 she spent on her previous CRV (JP:7267) in 2015 - which, as a self-described "financially conservative" person, she had paid for in cash. Even after taking advantage of a 2.49% interest rate on a three-year loan, Moore is paying about $700 a month for the car.

"I almost fell over dead," she said of the new payment.

Moore, who is 61 and recently divorced, wants to pay off the car as soon as possible. "At my age, what's the point of suffering every day for a car payment?" she asked. Yet with the monthly payment consuming about 20% of her take-home pay - twice the 10% maximum that is often cited as a rule of thumb for affordability - she feels "squeezed down to the last drop."

"It's blown a hole in [my budget]," she told MarketWatch. She doesn't shop for nonessentials like new shoes anymore, she said, and she buys lunch at work only once a week. "There's no fun times now," she said.

Many Americans who have recently bought cars now are finding themselves in a similar position. The average new car costs almost $50,000 and the average monthly payment is now about $750, up from $580 at the end of 2019, according to Edmunds data. Transportation is the second biggest household expense after housing, government data show, and it is just one of the many household expenses that have soared in recent years. Groceries, rents, mortgage payments, child care and other costs are all putting more pressure on people's budgets. But many if not most Americans need a car to get to their job.

Meanwhile, the price of car insurance has increased by 55% since 2020 and the cost of vehicle maintenance has gone up by 31%, according to the Bureau of Labor Statistics. The AAA estimated the total cost of owning a new vehicle, including fuel, maintenance, insurance, fees, depreciation and finance charges - to be nearly $12,300 last year.

After the Trump administration announced a 25% tariff on finished cars and automobile parts on Wednesday, Jessica Caldwell, head of insights at the car-buying site Edmunds, said in a statement that "it's reasonable to expect that vehicle prices will rise, which presents an added challenge to an industry that is already grappling with ongoing affordability concerns." While the administration's tariff plans remain in flux, industry experts expect these policies, if implemented, to further increase the average price of a car by thousands of dollars.

In a 2024 survey by Edmunds, more than half of respondents said they planned on putting off other purchases in order to afford a vehicle. The top delayed expenses were vacations (29%), basic monthly needs (15%) and a home purchase (11%), and 5% said they were putting off a medical procedure to buy their next car.

"We're basically looking at unprecedented numbers, in terms of what people are paying," said Joseph Yoon, a consumer analyst at Edmunds. Those who need financing also face interest rates that have nearly doubled, on average, in recent years.

In addition to making quality-of-life tradeoffs, car buyers are also opting for longer-term financing, stretching out their payments in order to get them down to a monthly amount they can handle. By the end of 2024, the term of the average new-car loan was 68.8 months, compared with 59.6 months in 2002, according to Edmunds.

Some buyers are even financing vehicles for more than seven years. The share of new-car loans that are over 84 months, for instance, crept up from 1.55% in 2022 to 1.75% in 2024, according to Experian (UK:EXPN).

Read more: Cars were once a financial engine of America's middle class. Now they're a 'wealth killer.'

Who can afford today's cars?

One consequence of the current high prices is that the buyers of new cars are now disproportionately higher earners. The median household income in the U.S. was $80,610 in 2023, but to stay within the typical parameters of affordability - that is, putting less than 10% of income toward car payments - a household would now need earnings of $100,000 to afford the average new car.

While only about 40% of U.S. households earn more than $100,000, data from S&P Global Mobility shared with MarketWatch show that those households accounted for 60% of new cars purchased from July 2024 to January 2025.

Households that earn $250,000 or more - roughly the top 10% - accounted for about 18% of purchases. These households now represent about half of all U.S. consumer spending, according to an analysis by Moody's Analytics.

More on this: Most Americans can't afford life anymore - and they just don't matter to the economy like they once did

People ages 55 and older make up about 30.5% of the U.S. population but accounted for 47.9% of new-car sales, according to the S&P Global Mobility data. The average new-car buyer is 52 years old, according to Cox Automotive.

"That's a big signal of who's propping up the car market right now," Yoon said. "There are people out there paying more than what they would prefer per month out of their net budget for their car. But I think ultimately, the people buying new cars, and especially the more expensive ones, just have higher household incomes to begin with."

Still, even car buyers who stay within the affordability parameters can be shocked by today's costs. Elizabeth Windisch, a financial planner with Aspen Wealth Management, bought a BMW (XE:BMW) X5 hybrid electric in December, which she financed at 2% with a monthly payment of more than $1,000. About 19% of new car buyers now have a monthly payment of $1,000 or more, according to Edmunds.

Windisch said that even though she can afford this expense, "who wants a car payment if you don't need one?" She bought her last car, a used 2010 Jeep $(STLA)$ Patriot, 13 years ago, and had a monthly payment of about $200. She decided it was time to buy a new car because the Jeep was in such poor condition that she had started storing extra radiator fluid in the back.

Not only does she have a large monthly payment now, but Windisch, who lives in Colorado, said registration for the BMW also costs more: $1,500 annually, compared with $58 annually for the old Jeep.

Her steep car payment has made Windisch somewhat more aware of how much she spends on shopping and dining out, but it is having the biggest impact on her ability to save, she said. A financial planner, she is still hitting her retirement-savings goals, but she can no longer put any extra money toward them.

"It's gotten so expensive, and you get a depreciating asset," she said about a new car. "That absolutely digs into people's ability to build wealth."

Related: 'Why did I do this to myself?' says TikToker with $1,600 truck payment and $1,400 SUV payment

Used cars are an incomplete solution

Price-sensitive consumers typically shop for used cars rather than new ones, and the average used car is listed for about half the price of a new vehicle - about $25,000, according to the car-buying site CarEdge.

However, Edmunds researchers noted in a report last month that the supply of used cars is tight, because the slowdown in new-car sales due to affordability issues means fewer used vehicles are available. Specifically, Edmunds describes three-year-old used vehicles as "the cornerstone of the used car market," because those are often still in good condition and under warranty. The researchers said that "2025 will be defined by its dearth of these popular models."

"For used-car shoppers who have held off on a purchase with hopes of a more stable market and stronger discounts, 2025 could prove to be a challenging environment from both selection and pricing perspectives," the researchers wrote.

The average monthly payment on a used car was about $600 in January, according to S&P Global Mobility. Experian research shows that used-car buyers tend to have lower credit scores, which means they face higher interest rates. The average rate on a used-car loan was 11.62% last year, compared with 6.35% for new cars.

Peter Decoteau's Chevy $(GM)$ Cruze was on its last legs - "it would just shut off at stoplights," he said. But he hoped it would keep running until his son was out of day care, which costs $25,000 per year, an expense that left him and his wife with little room in their budget to purchase a car they liked. "Unfortunately, my car didn't make it that long," he said. Under pressure to act fast, he got $800 for his Cruze and used it to buy a 2016 Volkswagen (XE:VOW) Jetta with 85,000 miles on it for $11,000.

Decoteau's monthly payment is now $200, which he acknowledged is low. Still, he said, "I would have liked to have been able to be selective about what I was going to get." In today's market, he noted, "I had to find something functional, reliable, low-cost, that would just work."

Related: Americans get a bigger tax break for EVs than for raising children. 'What in the world are we doing?'

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Venessa Wong

MW Cars were breaking Americans' budgets even before Trump's car tariffs

By Venessa Wong

'What's the point of suffering every day for a car payment?' People are cutting back on spending, including for home purchases and medical care, to afford a car.

Karen Moore hadn't had a car payment in years. But her employer was calling workers back to the office five days a week and her 10-year-old Honda CRV was starting to show its age. Increasingly worried that new tariffs would make already high car prices even worse, she decided to pull the trigger on a CRV hybrid in February.

Yet prices had already starkly increased since Moore was last in the market for a car. Her new car cost $42,000, compared with the $26,000 she spent on her previous CRV (JP:7267) in 2015 - which, as a self-described "financially conservative" person, she had paid for in cash. Even after taking advantage of a 2.49% interest rate on a three-year loan, Moore is paying about $700 a month for the car.

"I almost fell over dead," she said of the new payment.

Moore, who is 61 and recently divorced, wants to pay off the car as soon as possible. "At my age, what's the point of suffering every day for a car payment?" she asked. Yet with the monthly payment consuming about 20% of her take-home pay - twice the 10% maximum that is often cited as a rule of thumb for affordability - she feels "squeezed down to the last drop."

"It's blown a hole in [my budget]," she told MarketWatch. She doesn't shop for nonessentials like new shoes anymore, she said, and she buys lunch at work only once a week. "There's no fun times now," she said.

Many Americans who have recently bought cars now are finding themselves in a similar position. The average new car costs almost $50,000 and the average monthly payment is now about $750, up from $580 at the end of 2019, according to Edmunds data. Transportation is the second biggest household expense after housing, government data show, and it is just one of the many household expenses that have soared in recent years. Groceries, rents, mortgage payments, child care and other costs are all putting more pressure on people's budgets. But many if not most Americans need a car to get to their job.

Meanwhile, the price of car insurance has increased by 55% since 2020 and the cost of vehicle maintenance has gone up by 31%, according to the Bureau of Labor Statistics. The AAA estimated the total cost of owning a new vehicle, including fuel, maintenance, insurance, fees, depreciation and finance charges - to be nearly $12,300 last year.

After the Trump administration announced a 25% tariff on finished cars and automobile parts on Wednesday, Jessica Caldwell, head of insights at the car-buying site Edmunds, said in a statement that "it's reasonable to expect that vehicle prices will rise, which presents an added challenge to an industry that is already grappling with ongoing affordability concerns." While the administration's tariff plans remain in flux, industry experts expect these policies, if implemented, to further increase the average price of a car by thousands of dollars.

In a 2024 survey by Edmunds, more than half of respondents said they planned on putting off other purchases in order to afford a vehicle. The top delayed expenses were vacations (29%), basic monthly needs (15%) and a home purchase (11%), and 5% said they were putting off a medical procedure to buy their next car.

"We're basically looking at unprecedented numbers, in terms of what people are paying," said Joseph Yoon, a consumer analyst at Edmunds. Those who need financing also face interest rates that have nearly doubled, on average, in recent years.

In addition to making quality-of-life tradeoffs, car buyers are also opting for longer-term financing, stretching out their payments in order to get them down to a monthly amount they can handle. By the end of 2024, the term of the average new-car loan was 68.8 months, compared with 59.6 months in 2002, according to Edmunds.

Some buyers are even financing vehicles for more than seven years. The share of new-car loans that are over 84 months, for instance, crept up from 1.55% in 2022 to 1.75% in 2024, according to Experian (UK:EXPN).

Read more: Cars were once a financial engine of America's middle class. Now they're a 'wealth killer.'

Who can afford today's cars?

One consequence of the current high prices is that the buyers of new cars are now disproportionately higher earners. The median household income in the U.S. was $80,610 in 2023, but to stay within the typical parameters of affordability - that is, putting less than 10% of income toward car payments - a household would now need earnings of $100,000 to afford the average new car.

While only about 40% of U.S. households earn more than $100,000, data from S&P Global Mobility shared with MarketWatch show that those households accounted for 60% of new cars purchased from July 2024 to January 2025.

Households that earn $250,000 or more - roughly the top 10% - accounted for about 18% of purchases. These households now represent about half of all U.S. consumer spending, according to an analysis by Moody's Analytics.

More on this: Most Americans can't afford life anymore - and they just don't matter to the economy like they once did

People ages 55 and older make up about 30.5% of the U.S. population but accounted for 47.9% of new-car sales, according to the S&P Global Mobility data. The average new-car buyer is 52 years old, according to Cox Automotive.

"That's a big signal of who's propping up the car market right now," Yoon said. "There are people out there paying more than what they would prefer per month out of their net budget for their car. But I think ultimately, the people buying new cars, and especially the more expensive ones, just have higher household incomes to begin with."

Still, even car buyers who stay within the affordability parameters can be shocked by today's costs. Elizabeth Windisch, a financial planner with Aspen Wealth Management, bought a BMW (XE:BMW) X5 hybrid electric in December, which she financed at 2% with a monthly payment of more than $1,000. About 19% of new car buyers now have a monthly payment of $1,000 or more, according to Edmunds.

Windisch said that even though she can afford this expense, "who wants a car payment if you don't need one?" She bought her last car, a used 2010 Jeep (STLA) Patriot, 13 years ago, and had a monthly payment of about $200. She decided it was time to buy a new car because the Jeep was in such poor condition that she had started storing extra radiator fluid in the back.

Not only does she have a large monthly payment now, but Windisch, who lives in Colorado, said registration for the BMW also costs more: $1,500 annually, compared with $58 annually for the old Jeep.

Her steep car payment has made Windisch somewhat more aware of how much she spends on shopping and dining out, but it is having the biggest impact on her ability to save, she said. A financial planner, she is still hitting her retirement-savings goals, but she can no longer put any extra money toward them.

"It's gotten so expensive, and you get a depreciating asset," she said about a new car. "That absolutely digs into people's ability to build wealth."

Related: 'Why did I do this to myself?' says TikToker with $1,600 truck payment and $1,400 SUV payment

Used cars are an incomplete solution

Price-sensitive consumers typically shop for used cars rather than new ones, and the average used car is listed for about half the price of a new vehicle - about $25,000, according to the car-buying site CarEdge.

However, Edmunds researchers noted in a report last month that the supply of used cars is tight, because the slowdown in new-car sales due to affordability issues means fewer used vehicles are available. Specifically, Edmunds describes three-year-old used vehicles as "the cornerstone of the used car market," because those are often still in good condition and under warranty. The researchers said that "2025 will be defined by its dearth of these popular models."

"For used-car shoppers who have held off on a purchase with hopes of a more stable market and stronger discounts, 2025 could prove to be a challenging environment from both selection and pricing perspectives," the researchers wrote.

The average monthly payment on a used car was about $600 in January, according to S&P Global Mobility. Experian research shows that used-car buyers tend to have lower credit scores, which means they face higher interest rates. The average rate on a used-car loan was 11.62% last year, compared with 6.35% for new cars.

Peter Decoteau's Chevy (GM) Cruze was on its last legs - "it would just shut off at stoplights," he said. But he hoped it would keep running until his son was out of day care, which costs $25,000 per year, an expense that left him and his wife with little room in their budget to purchase a car they liked. "Unfortunately, my car didn't make it that long," he said. Under pressure to act fast, he got $800 for his Cruze and used it to buy a 2016 Volkswagen (XE:VOW) Jetta with 85,000 miles on it for $11,000.

Decoteau's monthly payment is now $200, which he acknowledged is low. Still, he said, "I would have liked to have been able to be selective about what I was going to get." In today's market, he noted, "I had to find something functional, reliable, low-cost, that would just work."

Related: Americans get a bigger tax break for EVs than for raising children. 'What in the world are we doing?'

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Venessa Wong

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March 27, 2025 12:19 ET (16:19 GMT)

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