Average Used Car Requires $120k in Income to Afford, Advisors Call It a Wealth Killer

💡 A $120k income is now required to afford the average used car, according to the 20-4-10 rule, raising concerns about wealth inequality and affordability.

The average used car price in the US has risen to unsustainable levels, making it difficult for many Americans to afford a reliable vehicle. The 20-4-10 rule, a common benchmark for car affordability, suggests that a household must earn at least $120,000 per year to afford a $40,000 used car with a 10% down payment and a 20% interest rate.

Car Affordability Crisis Deepens

The rising cost of used cars is a wealth killer, as it disproportionately affects low- and middle-income households who cannot afford the increasing prices. This has led to a used car shortage, as many people are unable to afford new or used vehicles, forcing them to rely on public transportation or alternative modes of transportation.

Inflation and Interest Rates Fuel the Crisis

The current inflation rate of 6.5% and interest rates of 4.5% have contributed to the used car affordability crisis. Higher interest rates make it more expensive to finance a car, while inflation erodes the purchasing power of consumers, making it harder to afford a car even with a steady income.

What It Means for Investors