High vehicle prices and problematic interest rates have kept many would-be car owners from buying a new vehicle. And the used market isn’t any better.

An August report from Edmunds found that the buyer-friendly pre-pandemic vehicle shopping market created “skewed perceptions of affordability” for many current car shoppers.

“[I]t’s critical for automakers and dealers to know the perception gap exists in order to offer a level of compassion for customers,” report author Jessica Caldwell wrote. “After all, these are people making real sacrifices in order to afford a vehicle, which is making the car shopping process more stressful than ever.”

Expectation vs. reality

That mistaken perspective persists across new and used vehicle prices, Edmunds found.

Nearly half of new-car shoppers surveyed said they’d like to spend $35,000 on a new car — the average transaction price around 2018.  And 14% want to spend $20,000 or less. The average transaction price for a new vehicle in July 2024 was $47,716, and there were almost no new vehicle transactions under $20,000, according to Edmunds data.

Similarly, 50% of used-car shoppers want to pay $15,000 or less, and 64% would like to spend $20,000 or less. In July, the average transaction price for used vehicles was $26,938, and only 5% of used vehicles were $10,000 or less.

Car shoppers’ ideal interest rates tell the same story, Edmunds found.

New-car shoppers want interest rates between 0% and 3%, but the average annual percentage rate (APR) in July was 7.1%. APRs are even higher for used-car shoppers: while 76% of shoppers said the highest APR they’d accept was between 0% and 4.99%, the average APR for a used car was 11.4% in July.

“Given transaction prices were $12,000 less six years ago, many consumers are simply unaware how many new vehicles have shifted into this price range due to not just inflation but added features, technology and, in many cases, increased size,” Caldwell wrote.

The cost of car ownership

High gas prices, soaring repair expenses, and ever-climbing car insurance costs can also contribute to affordability concerns.

While there’s no perfect formula to figure out how much car ownership one can afford, a common approach holds that auto expenses — including gas, maintenance, car payments, and insurance — shouldn’t exceed 20% of a buyer’s pretax monthly income. The average American spends 23.7% of their income on auto expenses if they’re financing a new car, according to an analysis of data from Insurify, the Bureau of Labor Statistics, Edmunds, J.D. Power, and AAA.

Numerous factors affect a driver’s car ownership costs — from state sales tax and loan term to vehicle price and driving history.

Car insurance alone has continued its steep increase, and Insurify data analysts project the average annual full-coverage premium will reach $2,469 by the end of 2024. Severe weather events and regional inflation also contribute to more pricey claims, while the rising cost of labor and repairs can drive up even basic maintenance expenses.

Americans are avoiding these high costs by holding onto their current cars for longer. The average vehicle age in the U.S. reached a new record of 12.6 years in 2024, according to S&P Global.

What’s next?

Things just might be looking up. In October, Kelley Blue Book (KBB) noted that manufacturers began piling on vehicle incentives in June to help move 2024 models and make room for 2025 models.

While average new-vehicle transaction prices continue to hover around $48,000 — nearly $11,000 higher than five years ago, as Edmunds reported — incentives on 2024 models average $3,522.

This new landscape, KBB said, is a buyer’s market. Shoppers with excellent credit may even see low-interest rate offers and lease deals. KBB recommended drivers shop around for the best deals on new cars and on their trade-ins.

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