If you’ve been wondering how are Americans able to afford big cars and houses, the truth is most of them can’t. Even so, there are advantages to living in the United States that allow someone will less income to buy more expensive homes and cars.
How are Americans Able to Afford Big Cars and Houses
It may seem that everyone in America is driving around in a big SUV and living in a mini-mansion, but that’s not really the case. There are plenty of people living in small, inexpensive homes and driving cheap cars.
For example, I live in a small town in Illinois which means houses here are super cheap. My house is only 1,900 square feet but it does have a corner double lot and a two-car garage which is nice.
Even so, it isn’t big by any means and it certainly wasn’t expensive.
My car is an SUV, but I bought it used and it is paid off and actually, it is now 13 years old. I drive it because it works, looks fine, and I love not having a car payment.
There are a lot of people like me living well within their means or simply because they want to or because they have no choice.
But, okay, what about all those that decided to go for the big house and big car. How did they do it?
1. They Went Deeply Into Debt
Americans are notorious for having lots of debt. Student loan debt, large mortgages, huge car loans, it’s part of the American experience.
I’m sure that was a time, especially after the great depression, that people stayed as far away from debt as they could, but that’s no longer the case.
A lot of American’s are completely comfortable living up to the means and even over them. Debt doesn’t scare them.
They want what they want and they want it now. In fact, some people feel entitled to it.
That’s okay. No judgment here, it just means that some people can get themselves into a difficult situation.
When their expenses equal their income, they can have real problems if there is an emergency such as an illness, or losing their job.
Even if they are making $60,000…$80,000…$100,000 dollars a year, they may only be one paycheck from being out on the street.
Personally, I would find that really stressful, but that’s how many Americans live.
So for a lot of people in the United States, they have very large mortgages on these very big houses. Not to mention, they are paying a ridiculously large amount to have one or two big cars.
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2. Car Loans Have Expanded to 7 Years
One of these reasons people can afford these big cars is because lending companies have increased how long you have to pay off your car.
It used to be a 4-year loan was a long loan. Then they increased to 5 years and then 6 years and now it’s up to 7 years. Yikes!
Seven years to pay off a car? That’s just crazy, but it’s happening because cars are getting so expensive that for a lot of people they really don’t have much of a choice.
These longer-term loans also allow people that really can’t afford the car to buy one because the car payments are spread out over so many years.
For example, the woman that cleans my house just bought a new Jeep Grand Wagoner. It’s a nice car and certainly nicer than mine.
She told me it cost her $50,000 dollars and that was with $5,000 dollars in rebates. Wow…that’s a lot of money for a car that isn’t even a luxury car.
Anyway, being nosy, I asked her what her payment was going to be. She told me $550 dollars per month. I’m not sure for how many years, but when she bought her last Jeep her payment was $450 for seven years.
She paid more each month than she owed, so she had some equity in the car and when she got this new one she got $22,000 dollars for her trade-in.
That means she financed $38,000 dollars. If she didn’t have that large of a trade-in her payments would have been much higher and she would have needed at least seven years to pay it off.
The point is, she was able to afford this big car because she financed it for longer than what used to be the norm.
She was smart to make extra payments in the last couple of years on her old Jeep, but still, it’s a lot of money. Not to mention the only reason she bought it was because it is blue but to each their own.
The bottom line here is that people in the United States are able to buy big, expensive cars because they can finance them for 7 years.
3. Low-Interest Rates and Easy Money
Another reason folks in America can buy large cars and big houses are because of the low-interest rates we have.
Right now, you can get a 30-year mortgage with a 3 percent or less interest rate. This makes a huge difference in how big or how expensive of a house you can buy.
The lower the interest rate the more money you can get – depending on your credit, of course.
Not to mention, for a lot of years, there has been a lot of easy money floating around. This isn’t as true as it was before the big crash in 2008.
Before then, lenders were handing out mortgages like they were candy even for people with less than stellar credit.
This lead people to buy big houses that they actually couldn’t afford. They got an adjustable-rate mortgage that started off with low payments and they were happy.
Of course, as the adjustable-rate climbed upwards then they couldn’t afford their mortgage payments any longer and they deflated on their loan and lost their house.
It’s one of the things that lead to the big crash.
Easy money isn’t as easy now, but it is still out there and it seems like lenders are heading back that way, so more people will be able to buy large houses that they can’t really afford.
Hopefully, they won’t get themselves into a sticky situation and find themselves on the street.
How Many Americans Can’t Afford Car?
If you go by the 20/4/10 rule which means you put 20 percent down on when you purchase the car, finance the rest for 4 years, and spend 10 percent or less on your car payment and all other expenses of owning a car, the vast majority of Americans cannot afford a new car.
To Sum it All Up:
The reason a lot of American’s can afford big cars and big houses is that they are willing to go deeply into debt to have them. Easy money and low-interest rates play a part as well. Not to mention leaders will now loan money on a car for up to seven years. All of this allows a lot of people to spend big money on houses and cars than otherwise would be able to.