After the 1929 stock market crash, humorist Will Rogers observed that America is the only nation in history to go to the poor house in an automobile. Nearly nine decades later, many of us are still living beyond our means, and one of the main ways it shows is in our vehicles. A new report by Edmunds.com found that last month, American car buyers borrowed an average of $31,000 to buy their vehicles (many of them big SUVs), at an average loan term of 69.3 months (that’s just shy of six years). At that rate, their average monthly payment would be $517. There’s more at the link.
The upside of taking on all that debt and such a high payment for so long on something that depreciates quickly is that it shows Americans have confidence in the economy and that they’ll be able to make the payments on the car of their dreams. The down side is that many Americans are struggling with that debt (one study estimates that about 6 million are behind on their car payments).
There used to be a rule of thumb that if you couldn’t pay off a car in three years, you couldn’t afford that car. That’s one of many old financial axioms that are now dismissed as outdated. But I’ll bet that people who still hold to it and have a paid-off used car sleep a lot easier at night than the guy who’s working three jobs to try to make his car payments.