Here are a few other major (though rarely considered) reasons why spending more than 10% of your annual income on a car is a horrible idea:ġ. Worst of all, after they pay a 20% effective tax rate on their annual gross income, they'll be spending almost 100% of their net income on the car! That means, median income earners who buy median-priced cars are essentially spending almost 80% of their gross salary. That's far more than what most American households can afford.Įven so, Experian found that 20% of borrowers are taking out loans of $50,000 or more. The average used-vehicle loan also hit a record, $20,137. According to a 2019 report from Experian, which tracks millions of auto loans each month, the average amount borrowed to buy a new vehicle hit a record $32,187 in the first quarter.
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