Boston ranks No. 10 for car affordability
But overall, new cars are unaffordable for median-income families in all major U.S. cities.
If you’re tired of taking the T, rest assured that buying a new car in Boston is far less painful than purchasing a vehicle in many other cities.
A recent Bankrate study analyzed how much a median-income household can afford to spend on a new car or light truck in the 50 largest U.S. cities and ranked Boston No. 10 for car affordability.
To determine the rankings, the personal finance website considered three key factors commonly referred to as the “20/4/10’’ rule. This means that financial experts recommend a down payment of at least 20 percent; financing lasting no longer than four years; and principal, interest, and insurance not exceeding 10 percent of a household’s total income.
For each of the 50 largest metro areas in the U.S., Bankrate calculated 10 percent of the monthly median gross household income and subtracted the average monthly insurance premium for each area to determine the maximum amount that the median-income household should spend on monthly car payments.
The study found that virtually no median-income household could afford the average new car price ($33,865) in any of the nation’s 50 largest metro areas if it follows the 20/4/10 rule.
“People are spending far too much money on their cars,’’ said Steve Pounds, personal finance analyst at Bankrate.com. “There are many safe, affordable and stylish options on the market for people to choose from that won’t cut into more important budget items; such as college funds and retirement savings.’’
Pounds added that many people buy expensive cars and spend more than 10 percent of their income on car payments, sometimes stretching the loan over six or seven years. This is a bad idea, he said, that could trap people in a vicious cycle of car payments for many years to come.
Boston came in at No. 10 in the Bankrate ranking, with a median-income household able to reasonably afford up to $19,941 (not including tax) for a new car. San Jose, California took the top spot for car affordability, followed by San Francisco, Seattle, and Washington D.C.
At the other end of the spectrum, Detroit was ranked as the least affordable city to buy a new car, followed by Rochester, New York, and Cleveland. Detroit residents, according to the survey, should spend no more than $6,174 on a car, taxes included.
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