Car ownership costs are causing financial strain for Americans

Owning a car is becoming more difficult as the rising costs of vehicles and insurance make ownership a luxury for more Americans, a new study finds.

Nearly four in 10 Americans surveyed by Lending Tree, or 39%, said a car is a luxury they cannot afford. And more car owners say they are stretched too thin with their costs, the study said.

Rising fixed costs, especially in loan payments and insurance, are the main reasons people cited for why car ownership has become so expensive and elusive. Loan payments average $7,275 annually with insurance averaging $2,277, gas $2,105 and maintenance coming in at $1,184.

Insurance costs have surged 37.5% since 2021, outpacing income growth (23.9%) and other vehicle expenses, Lending Tree said.

Consumers are taking on too much car-related debt

A long-held rule of thumb is a monthly auto payment shouldn't exceed 10% of monthly income and that your overall auto-related expenses shouldn't top 20% of your income, said Matt Schulz, Lending Tree chief consumer finance analyst. But many people are topping the 20% threshold with their car payment alone, which is troubling, he said.

“Costs tied to car ownership continue to rise faster than incomes," and insurance premiums are also outpacing income growth, Schulz told USA TODAY. "When those rising costs are combined with high loan payments and everyday financial pressures, it leaves many households with very little room for error.”

Many Americans with active auto loans are spending 15% of their income on car-related expenses, which equates to $12,841 annually against a median household income of $85,759, Lending Tree said. That matches the benchmark that experts use to define being transportation cost-burdened, according to the U.S. Department of Transportation.

According to an analysis by Lending Tree, auto loan holders in Louisiana had the highest strain at 23.2% or $14,894 of their $64,199 median household income going toward car costs. Mississippi followed at 21.5% and New Mexico rounded out the top three at 19.8%.

On the other end of the list, Massachusetts auto loan holders put the smallest share of their income toward car costs at 10.6% followed by New Hampshire (10.9%) and the District of Columbia (11.4%).

Despite affordability challenges, the majority of survey respondents or 61% said they personally owned or leased a car. That number was higher among Baby Boomers (78%) but drops to 39% of consumers whose earnings were less than $30,000.

For those who are car-shopping, 21% said they delayed a purchase and that figure rose to 27% among Gen Zers. Additionally, 16% said they chose a less expensive car than they originally wanted while 13% said they kept their original car longer than they planned. Another 12% chose not to buy a new car at all.

Some shoppers are also committing to longer auto loans — as long as seven years — to make their monthly payments more affordable, but that can come with risks, said Schulz.

"Longer loans often mean paying significantly more in interest over time, and they can keep borrowers in debt for years longer than they expected," he said. "There’s also a greater chance of becoming upside down on the loan, meaning you owe more than the car is worth. That can create real financial strain if the car is totaled, needs major repairs or if your financial situation changes unexpectedly."

And current high gas prices are adding another strain to already financially stressed consumers, Schulz said.

“When gas prices rise, that creates another unavoidable cost that many people simply can’t cut back on, particularly in areas where driving is a necessity," he said.

Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at [email protected] or follow her on X, Facebook or Instagram @blinfisher and @blinfisher.bsky.social on Bluesky. Sign up for our free The Daily Money newsletter, which breaks down complex consumer and financial news. Subscribe here.