'Justification, justification, justification': This Connecticut physician leases a Toyota RAV4 with a $718/month payment — insists she 'needs' an SUV for the snow. Caleb Hammer responds
Even newcomers aren’t immune to America’s auto loan crisis.
Aleena, a 31-year-old physician on a U.S. work visa, pays a hefty $718 per month to lease her Toyota RAV4. Based in Hartford, Connecticut, she says she “needs” an SUV because she’s not used to driving in the snow.
Don't miss
This Pennsylvania trio bought a $100K abandoned school and turned it into a 31-unit apartment building — how to invest in real estate without all the heavy lifting
Find out how to save up to $820 annually on car insurance and get the best rates possible
Finish 2023 stronger than you started: 5 money moves you should make before the end of the year
Aleena grew up in a subtropical region of Pakistan and says driving in a location that regularly has snow each year makes her anxious. Aleena believes her SUV is essential in this weather.
Personal finance YouTuber Caleb Hammer wasn’t convinced by her story.
“Justification, justification, justification!,” he exclaimed about her situation on his show, “Financial Audit,” calling the expensive SUV unnecessary.
Here’s why overpaying for an automobile has become more common in recent years.
High costs push car owners to the edge
High vehicle costs along with elevated interest rates have pushed many car buyers to the edge.
The average price for a new vehicle in November was $48,247, according to Kelley Blue Book.
Meanwhile, the typical interest rate on a new car loan was 10.33% while the typical monthly payment was $766, as of November 2023, according to Cox Automotive.
Read more: Thanks to Jeff Bezos, you can now cash in on prime real estate — without the headache of being a landlord. Here's how
Aleena might be fortunate to be paying slightly less than these figures — even on a lease she acquired with bad credit rather than a loan — but if you take a close look you will find a growing number of car owners are paying more than $1,000 a month for their wheels. A record 17.5% of consumers who financed a new vehicle were paying more than this amount in the third quarter of 2023, Edmunds data shows.
Over 100 million Americans have auto loans, according to the Consumer Financial Protection Bureau, so the scale of this crisis is truly national. The total debt burden of cars is $1.6 trillion, Federal Reserve Bank of New York data shows — equivalent to the student loan crisis.
The debt burden is already too much for some borrowers. According to data from Fitch Ratings, 6% of subprime borrowers were more than 60 days late on their car loans as of October. In September, this rate hit a record 6.11%.
Boosting income while avoiding ‘lifestyle creep’
Besides a car loan, Aleena also has credit card debt and a student loan. However, she saw a big jump in income after getting a job as an infectious disease physician in 2022. Now, she makes $300,000 a year, pre-tax, plus bonuses.
In Connecticut, the threshold for the top five percent of income earners is $336,800, according to SmartAsset. Aleena’s total compensation, including bonuses, could be somewhere near that threshold.
Hammer says Aleena is “the highest income we’ve had on this show.”
Simply put, she has the opportunity to mitigate her debt, unlike most average income earners. However, to do this Aleena needs to change her spending habits and avoid “lifestyle creep” — the temptation to spend more when you earn more
What to read next
Millions of Americans are in massive debt in the face of rising rates. Here's how to get your head above water ASAP
Rising prices are throwing off Americans' retirement plans — here’s how to get your savings back on track
The US dollar has lost 87% of its purchasing power since 1971 — invest in this stable asset before you lose your retirement fund
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.