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WalletHub Study: Cities That Overspend on Cars

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author photo by Jessica Shea Choksey February 2017

With the help of historically low interest rates and an abundance of consumer financing options, U.S. auto sales reached record highs in 2016 for the seventh straight year. This is great news for car and truck retailers, but it may be a very different story for buyers looking for the best deals, as evidenced by a new study conducted by personal-finance website WalletHub.

The comprehensive report makes key observations about car financing and affordability, while identifying the top cities around the country that overspend on cars. The findings were based on a comparative analysis of auto-loan balances in each of 2,539 U.S. cities. Auto-loan balances have been growing steadily, according to the Federal Reserve Bank of New York.

"Residents in some cities can simply afford to spend more on cars than others," said WalletHub Analyst Jill Gonzalez. "To find out which exactly those are, we compared the average car loan debt and the average earnings by city. Some cities have very high auto debt to income ratios, indicating that residents might have serious problems paying off those loans. However, auto sales continue to grow and auto loan interest rates are historically low, encouraging lending to subprime borrowers."

Below are the top-five U.S. cities that overspend, as well as the top-five U.S. cities that spend the least on cars (for the complete list, please visit https://wallethub.com/car-payment-calculator/%20-%20calculator).

Cities That Overspend on Cars Cities That Spend the Least on Cars
Ruston, LA Scarsdale, NY
Williamsburg, VA Cupertino, CA
Ellensburg, WA Hoboken, NJ
Morgantown, WV Saratoga, CA
College Station, TX Chevy Chase, MD

What better time to release this information than just prior to the upcoming President's Day holiday, one of the busiest car-shopping weekends of the year? Here are some key learnings directly from WalletHub's analysis:

  • Interest rates for new cars are near their lowest point in three years, with the average new-car loan today charging 16 percent less interest than the average used-car loan.
  • Compared with buyers who have excellent credit, those with fair credit will spend about six times more, or about $6,403, in interest over the life of a 5-year, $20,000 loan when financing a vehicle.
  • The best options for financing a new car include car manufacturers (rates at 43 percent below average) and credit unions (rate at 25 percent below average). Secondary options include national banks (rates at 2 percent above average) and regional banks (rates at 29 percent above average).

Of all the car manufacturers surveyed, those with the lowest financing rates are Toyota, Hyundai, Kia, Mazda, Subaru, Ford, FIAT and Chrysler. The brands with the best leasing offers are Chrysler, Mazda, Hyundai, Chevrolet, Honda, Jaguar, Toyota and Subaru.

In addition, the study found that car companies lack transparency when it comes to leasing offers, so it's important you fully understand the terms before signing on the dotted line. The average automaker received a WalletHub Transparency Score of just 4.68 out of 10. That's concerning. The most transparent manufacturers are currently Mazda, Infiniti, Mini, BMW, Acura, Mercedes, Honda, Volkswagen, Kia, Toyota, Nissan, Audi and Hyundai.

WalletHub recommends prospective car buyers check their credit scores and utilize a car-payment calculator to determine affordable terms that fit their budgets.

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WalletHub Study: Cities That Overspend on Cars - Autotrader