Cars have become unaffordable for many Americans. Here’s what the numbers show.
For millions of households, the car market never truly returned to “normal” after the pandemic shock. New and used vehicles remain markedly more expensive than before 2020, borrowing costs are the highest in years, and insurance premiums have surged. Even as inventories improve and some prices ease, the total cost of owning a car is straining budgets—especially for lower-income and subprime borrowers.
The short version
– Prices jumped and stayed high: Average new-vehicle transaction prices in 2023–2024 hovered around $47,000–$48,000, roughly 25–30% above 2019 levels. Used prices came down from their 2022 peak but remain far above pre-pandemic norms.
– Borrowing got much more expensive: Typical interest rates on new-car loans rose to roughly 7% in 2023–2024; used-car APRs often ran 11–12% or more, sharply lifting monthly payments.
– Payments hit records: Average monthly payments for new cars settled around the low-to-mid $700s; used around the high $500s. Roughly one in six new-car borrowers has a $1,000+ monthly payment.
– Ownership costs spiked: Auto insurance premiums jumped about 20–25% year over year in 2023–2024, while repair and parts costs also rose.
– Affordability is still worse than before 2020: By one widely watched index (Cox Automotive/Moody’s), it takes roughly 20–25% more of a median household’s income to buy the average new car than it did in 2019.
How we got here
1) Sticker prices climbed—and stayed elevated
– New vehicles: Automakers prioritized higher-margin trucks and SUVs during the supply crunch. With microchip shortages limiting production in 2021–2022, incentives evaporated and average transaction prices surged to around $49,000 at the late-2022 peak. In 2024, better supply and bigger discounts nudged prices down slightly, but the average new vehicle still costs roughly a quarter more than in 2019.
– Used vehicles: A historic spike in 2021–2022 pushed wholesale and retail prices to unprecedented levels. Prices have eased since mid-2023 as supply improved, but by 2024 used vehicles were still roughly 25–35% pricier than in 2019.
2) The cost of money soared
– Interest rates: The Federal Reserve’s rate hikes pushed auto loan APRs sharply higher. New-car loans commonly carried rates around 6.5–8% in 2023–2024; used-car loans were often in the 10–13% range. That alone adds hundreds of dollars to the total cost over a 5–7 year term compared with the low-rate era.
– Longer terms: To manage payments, buyers stretched loans to 72 or even 84 months. While this lowers the monthly bill, it increases total interest paid and keeps more borrowers “underwater” (owing more than the car is worth) for longer.
3) Monthly payments and insurance became budget breakers
– Payments: The average new-car payment settled around $720–$750 in 2023–2024; used around $550–$600. The share of borrowers with $1,000+ monthly payments rose to the mid-to-high teens—levels unheard of a few years ago.
– Insurance: Auto insurance inflation turned into a major affordability shock. Premiums rose roughly 20–25% year over year into 2024, with national averages around $2,500 annually for full coverage. Causes include higher repair costs (more expensive parts, labor shortages, pricier ADAS sensors), elevated vehicle values, medical and legal costs, catastrophe losses, and insurer underwriting resets.
– Repairs and parts: The cost of maintenance and parts also climbed well above general inflation in 2022–2024, further raising the total cost of ownership.
4) Incomes didn’t keep pace
– Wage growth since 2020 helped but lagged the combined surge in vehicle prices, interest, insurance, and repairs. Affordability indexes show modest improvement from the worst points of 2022–2023 as incentives and inventories recovered, but conditions remain meaningfully worse than in 2019.
– By common budgeting rules of thumb, a car payment ideally stays near 10% of take-home pay (and total transportation 15–20%). The typical new-car payment in 2023–2024 often consumed 14–15% of median household income before fuel and insurance—well above those guidelines.
Who is feeling it the most
– Subprime and near-prime borrowers: Higher APRs and tighter lending standards pushed many lower-credit buyers into older vehicles, longer terms, or out of the market entirely. Delinquency rates for subprime auto loans rose to their highest levels since the Great Recession in 2023.
– First-time buyers: Without trade-in equity or large down payments, entry buyers face particularly steep payments.
– Urban drivers with high insurance costs: Premium spikes have been acute in certain states and cities, further stretching budgets.
New vs. used vs. electric: What the market looks like now
– New vehicles: Inventory returned closer to historical norms in 2024, and manufacturer incentives improved from the extremely low levels of 2021–2022. Leasing, which had collapsed during the shortage, rebounded somewhat, offering a relief valve for payment-sensitive shoppers—though still below pre-pandemic share.
– Used vehicles: Prices cooled more than new, but higher rates keep payments elevated. Three- to five-year-old vehicles often offer the best value, balancing lower depreciation with still-modern safety and tech features.
– EVs: Electric-vehicle prices came down notably from 2022 peaks thanks to price cuts and generous incentives. Leasing became an especially attractive way to capture federal tax credits via passthroughs. Still, average EV prices generally remain above comparable gas models, and insurance/repair learning curves can be steeper, though fuel and maintenance can be cheaper for many drivers.
Why affordability hasn’t snapped back
– Product mix: Automakers leaned into bigger, more feature-rich (and expensive) trucks and SUVs. Even compact models gained advanced tech and safety equipment that raises MSRP and repair costs.
– Industry costs: Labor, materials, and regulatory compliance costs increased. While supply chains healed, some cost pressures persisted.
– Financing and insurance: Elevated interest rates and re-priced insurance risk remain the heaviest near-term drags on affordability, even as vehicle prices inch down.
What could improve affordability
– Lower interest rates: Any broad easing in borrowing costs would filter quickly into monthly payments, especially for new-car buyers.
– Sustained discounts and inventory: If dealer inventories continue to normalize and automakers maintain higher incentives, transaction prices could drift lower.
– More affordable models: A renewed push for entry-level trims and smaller vehicles—gas and electric—would broaden options for cost-conscious buyers.
– Cooling insurance inflation: As insurers regain profitability and claim severities stabilize, premium increases could moderate. Regulatory approvals and competitive dynamics will matter by state.
What consumers can do right now
– Buy used, but smart: Focus on 3–5-year-old vehicles with strong reliability records. Consider certified pre-owned for warranty benefits if the price premium is modest.
– Shop the loan, not just the car: Get preapproved with banks, credit unions, or online lenders before visiting a dealer. Even a one-point APR reduction can save thousands over the term.
– Consider leasing: If you drive predictable, moderate miles and value a lower payment, leasing can help—especially for models with strong incentives or passthrough tax credits.
– Increase the down payment: 10–20% down reduces payment and negative-equity risk. Apply trade-in equity strategically.
– Keep total cost in view: Compare insurance quotes before you buy; advanced safety features can raise repair costs. Consider usage-based insurance or higher deductibles if appropriate.
– Don’t stretch too far: Favor a shorter term (60–72 months over 84) when possible. A more modest vehicle at a shorter term often beats an expensive model stretched over seven years.
– Maintain what you have: Delaying a purchase by keeping a reliable car longer—paired with preventive maintenance—can be the single biggest money-saver.
Bottom line
Cars are still attainable, but “affordable” in the way many Americans remember pre-2020? Not yet. Even with slight relief on prices and more incentives in 2024, higher borrowing costs and surging insurance have kept ownership budgets tight. Until interest rates and insurance pressures ease meaningfully—or automakers deliver more truly budget-friendly models—the typical household will continue to face far tougher math at the dealership than it did just a few years ago.
