PhotoWe know that the average transaction price of new cars keeps going up. It has reached the point now that the average consumer must stretch his or her budget beyond recommended limits to buy one.

According to new research from, a median-income U.S. household can't afford the average-priced new car or light truck in the 50 largest U.S. metro areas. To buy the cars, consumers are putting too little down and financing them for more years than they should.

"People are spending far too much money on their cars," said Steve Pounds, personal finance analyst at "There are many safe, affordable and stylish options on the market for people to choose from that won't cut into more important budget items; such as college funds and retirement savings."

By the numbers

There is a formula that tells you how much you can afford to spend on a vehicle: it's called the 20/4/10 rule.

The price should be low enough that you can afford to make a 20% down payment. With that price and down payment, you should be able to afford the monthly payment if the vehicle is financed over four years. Finally, that payment, along with insurance, should not exceed 10% of a household's income.

By that formula, very few consumers can afford today's new car, which averages close to $34,000. Let's apply the 20/4/10 formula to that price.

The down payment should be at least $6,800, leaving a balance of $27,200. At 3%, the monthly payment for four years is $602. Add in $48 a month for insurance and a household buying the average new car should earn at least $65,000 a year.

Where you live counts

If you live in a high-income area like San Francisco and earn a good salary, you can probably afford that. But if you live in Detroit, for example, Bankrate estimates – based on median incomes – you can only afford to pay $6,174 for a new ride, with a monthly payment of $120.

Yet consumers continue to spend more than they should for new cars and trucks. Kelley Blue Book reports the estimated average transaction price (ATP) for light vehicles in the U.S. was $33,652 in June, up 2% from June 2015 and $31 more than in May.

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