This year, 2018, roughly 27 percent of Americans are planning to buy a car, and for many of them, of course, new or used car financing is part of the plan. When it comes to used car finance, complexities are commonplace. One thing, however, that lenders would expect to be obvious is the affordability of vehicles. One would imagine, when considering which vehicles car buyers might strain the most financially to finance, that the list would include mainly luxury and sports cars. According to a new study by Lending Tree, however, that may not be the case.
It turns out that the list of used cars stretching the most American budgets does not, in fact, include vehicles like Lexus LS series sedans, Chevrolet Corvettes, or even Dodge Challenger Hellcats. Instead, daily commute used cars dominate the list, with brands like Buick and Nissan at the top. But why, exactly, is this?
There are no two ways about it: living in a nation that covers about 3.797 million square miles practically requires car ownership. Certainly, some Americans living in urban centers can manage using solely public transportation and ride sharing services, while some cities, such as New York, boast fairly adequate train service out to suburbs and surrounding towns, but for the rest of the United States’ population, owning a vehicle is a must.
That is an issue, according to Lending Tree, for many Americans. Even those who seek to conserve money by choosing used cars, along with used car financing, often may have to stretch to afford payments. Surprisingly, according to Lending Tree, the used cars straining the most American borrows cost around $18,000 to $20,000, and often require monthly payments of roughly $400 to $500. These seemingly modest payments, however, represent an average 10.9 percent of these customers incomes. (Read our related article Millions of Americans Can’t Afford Auto Loan Payments.) Conversely, used Porsche owners, on average, spend only about 5 percent of their incomes, despite their used cars having a far higher price tag. Similarly, the owners of used cars such as Audis, Lincolns, Volvos, and Acuras usually spend between 6 and 7 percent of their incomes on monthly payments.
What might this mean for buy here pay here dealers? For one thing, this could indicate that there may be a potential untapped market for independent and buy here pay here used car sales. If a dealership can offer reliable daily drivers with used car financing resulting in monthly payments lower than $400, more consumers may be willing to support their business. Targeting this demographic as well as typical buy here pay here customers may, in fact, prove to be a smart business move for many used car dealers.