Over the last three years, articles about vehicle prices have sounded like a broken record: everything keeps getting more expensive. However, today we’re singing an altered, if not entirely new, tune. Although most vehicles remain expensive, used and electric ones are becoming more budget-friendly.
Thanks to median household incomes that rose by 3.7 percent over the last year, and used vehicles prices that fell by 5.4 percent from their pandemic highs, the average household was more than capable of responsibly purchasing a used vehicle in September.
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The average used vehicles gets a score of 104.03 on iSeeCars‘ affordability index. That means that American households are making four percent more than they need to pay for a car under ideal circumstance. In the case of used vehicles, that means a down payment of 20 percent, and annual payments of no more than 10 percent of the household’s income.=
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Used vehicles’ increase in affordability also translated to electric vehicles. Although both new and used EVs still cost more than the average household should ideally pay, falling prices mean that they’re getting closer to being affordable.
In September, used EVs scored a 90.1 on the Affordability Index, a startling rise from January, when they scored in the 60s. Meanwhile, thanks to average prices that have fallen by more than 10 percent, new EVs are also becoming more affordable. In October 2022, they scored a 57.02 on the index, and by September 2023, they had reached a score of 63.08.
While they remain more expensive than the average new internal combustion vehicle, they are at least headed in the right direction. New vehicles in general keep becoming less and less affordable.
Credit: iSeeCars
“With the average new car price rising from $46,551 to $49,499, plus the big interest rate hikes we’ve seen over the past year, new cars are less affordable for consumers today compared to last year,” said Karl Brauer, iSeeCars’ executive analyst. “The same increase in median household income that made used cars more affordable was not enough to counter these factors, as the growing gap between qualifying household income and median household income confirms.”
In fact, of the more than 350 new vehicles sold in the U.S. right now, just 70 can be defined as affordable based on iSeeCars’ index. All of which means that consumers may be looking at longer loans to keep monthly payments down. However, longer loans carry more interest, meaning that buyers are actually paying more.
“While a longer car loan seems like the easy path to affordability, it actually makes today’s already high-priced new and used cars even more expensive for the consumer,” said Brauer. “The extra expense may be shrouded in more affordable monthly payments, but the math doesn’t lie – and the much higher total cost of the vehicle reflects it.”
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