Taking public transportation, carpooling, and even relying on ridesharing services have become a way of life for some Americans out of necessity rather than environmental consciousness. For those living in major cities and parts of the U.S. where owning a car is a requirement rather than a necessity, forgoing owning a vehicle can be quite liberating.
The reality is that the vast majority of adults rely on their vehicles because it just isn’t possible for them to do without. Some will share a car. Others will keep pumping money into their old beaters just so that they can make it to work.
It may seem like business as usual, but for millions, car ownership is starting to be a burden rather than a sign of financial prosperity. Here are the six factors that are causing automobile ownership financial strain on the vast majority of drivers.
1. Salaries in the U.S. Have Remained Stagnant
If you have been waiting for your employers to give you a substantial raise then you are not alone. Rents have gone up, along with the price of gas, food, entertainment, and clothing. Likewise, the price of a new vehicle has steadily risen over the last 10 years.
Some consumers have combatted increasing new car prices by looking at less expensive vehicles with fewer bells and whistles. Then there is another segment of drivers that have completely refused to consider buying another vehicle until their current rides conk out. Whatever the case, the root cause is the same.
With salaries in the U.S. remaining almost totally stagnant for a lengthy period, it is becoming harder for consumers to buy new cars and keep up with the monthly payments.
2. Auto Finance Loan Terms Have Gotten Longer
When calculating the price of a new car purchase, loan companies and consumers work together to get to a number that everyone can agree on. For the majority of drivers, it is all about getting an affordable monthly car loan installment payment. To help offset the fact that salaries haven’t budged in years but yet new cars continue to get more expensive, the average auto loan term has increased.
Instead of motorists looking forward to loan terms that run from 48 to 60 months, they can look forward to paying for their new cars for anywhere from 72 to 84 months, on average. This means that it is taking car buyers an extra year or two to pay off their auto loans. At the same time, they aren’t getting a break on maintenance and repair fees.
So, imagine still making payments on a car that is six to seven years old and then you still need to come up with thousands for major repair costs.
3. Drivers Are Holding on to Their Cars Longer
Consumers don’t need to do more than look at a couple of auto dealership website to learn the going rate on new cars. As drivers have to contend with wildly fluctuating gas costs, many have decided to hang onto their cars for longer than they first expected.
People have come to realize that they are getting less when they trade in their well-maintained vehicles and paying more when purchasing new cars. So, there is little incentive in giving up a vehicle that you own free and clear with no car payments due just for the privilege of driving a newer model.
4. Used Cars Have Become More Expensive
When a driver wanted to get a good deal on a decent running vehicle, the logical solution used to be to purchase a previously owned vehicle. And used cars are still the most popular choice among buyers. So, what’s changed? The value of used cars has gone way, way up.
They’re retaining more value because there are fewer used cars listed for sale on the market at any given time. There are more auto shoppers looking to purchase a smaller pool of cars, which in turn has inspired a lot of auto dealers to jack up prices.
For someone who needs a good running vehicle in a hurry, it can be quite hard to find a car that is within their price range. Other factors can go up or down for drivers, like auto insurance and gas costs, but the fact of the matter is that used cars are the only practical option for people living on a strict budget.
5. Auto Insurance Costs Continue to Rise
Auto insurance is required for drivers across the U.S., with very few exceptions. Even buying the minimal coverage amount can run as much as a couple of hundred dollars each month, particularly for drivers living in metropolitan areas.
Drivers have to be concerned with getting tickets and getting into accidents because it could result in their rates going up. And unlike car payments, there is no guarantee that your auto insurance won’t unexpectedly go up even if you demonstrate safe driving practices.
Seeing a significant bump in car insurance costs can put a consumer behind the eight-ball, setting off a domino effect. Consider payday loans online and retain active insurance on your vehicle.
A payday loan can save a car owner from financial ruin if used intelligently. Ideally, you should pay back a payday loan as soon as you can to avoid paying excessive interest costs or getting into a cycle where you have to keep borrowing more money.
6. Auto Financing Requirements Have Tightened
Several years ago, the only real requirement for auto loan financers was gainful employment. Yes, you can still walk into a reputable dealership and qualify for financing but do you want to pay 19% interest on a car that you aren’t even in love with?
The top reason that car ownership has become so much of a financial strain on the average American is that interest rates have increased. In order to get a favorable interest rate, you have to have a minimum of a 750 credit score. And if you are a consumer who doesn’t have a lot of credit cards or a mortgage, it can be almost impossible to have an impressive credit rating.
While most motorists haven’t yet reached the point of buying old non-working vehicles and fixing them up themselves, the idea isn’t too far fetched.
Buying a car is expensive and maintaining it isn’t any easier. Sometimes, car owners have to take out payday loans just so they can pay for repairs and afford to keep their vehicles gassed up.
Whether you have a car already or are looking to buy soon, be fully aware of the financial strain you may experience.