According to Humphrey Yang, 4 hidden ways cars are driving Americans into poverty

According to the latest US Census data, 92% of Americans own at least one car. Unless you live in a city with excellent public transportation, owning a car can seem like a must. However, this does not mean that you should spend a large part of your income on a car.

Unfortunately, as personal finance influencer Humphrey Yang pointed out in a recent YouTube video, many Americans are struggling financially with car payments and related expenses. Here’s why and what you can do.

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Compared to other types of loans, such as mortgages, car loans are not nearly as regulated. When you apply for a mortgage, your lender will usually check your income, assets, debts, credit and a number of other factors. They may need pay stubs, bank statements, federal tax returns, and investment account statements. Most lenders will not approve your loan if your mortgage payment exceeds 36% (in some cases 45%) of your gross monthly income.

However, the requirements for car loans are much less stringent. Your lender may check things like your income and credit. However, they usually don’t ask for additional documents to prove that you can afford to pay for the car and all related expenses. They may even extend the repayment period if it means you need to get a loan instead of rejecting your application.

As Yang pointed out, this can be a big problem. According to Experian, the average down payment for a new car is $745, compared to $521 for used cars. Even if you can afford to pay on paper, you may face other costs like insurance, maintenance, and gas.

Also, a longer repayment term means more to pay. Let’s say you get a $25,000 car loan with a 72-month repayment term and an interest rate of 6%. Your monthly payment would be about $414 and the total interest paid would be $4,831. Upgrade to a 48-month term and you’ll pay $587 monthly with a total interest charge of $3,182.

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According to Yang, many people see their car as a status symbol. But with status often comes a higher price. After all, in 2025 The Honda Civic has a starting MSRP of $25,400 and a 2025 MSRP of $25,400. The BMW M4 starts at around $80,875.

Whether it’s technology or vehicles, it’s easy to feel pressured to buy the latest and greatest. If you’re surrounded by successful people, chances are you want to feel part of a group. However, if you’re buying a luxury vehicle for luck or self-worth, you may end up with a payment you can barely afford.

Humphrey Yang’s advice is to try to separate your identity from what you drive. See your car as a tool, not a reflection of yourself.

Not everyone knows how to calculate a budget for a car. Some pick the make and model they like and go for it. Others look at their total income and base their decision on that. But if you don’t want to take out a loan you can’t afford, you need to run the numbers.

Yang suggested following the 4/20/10 car affordability rule:

• Save 20% on your down payment.

• Get a maximum repayment term of four years.

• Spend no more than 10% of your monthly gross income on your car payment.

Let’s say your gross salary is $60,000. Under this rule, your maximum car payment (including insurance and maintenance) would be $500. You can use a simple car loan calculator to determine what you can afford. Be sure to factor in other fees, such as registration and sales fees.

As with real estate, it all depends on the location. Many Americans buy a vehicle simply because they don’t have access to good public transportation. Unless you live somewhere like New York or Washington, you probably need a reliable vehicle.

But reliable doesn’t have to mean expensive. Ask yourself:

• What (and how many) vehicles do I need?

• Can I comfortably afford the payment (and any associated fees)?

• Will this car payment keep me from reaching other financial goals?

• Do I attribute my self-worth to what I drive, and if so, why?

If affordability is an issue, consider buying certified pre-owned. You’ll want to check the vehicle’s history for any problems, recalls, mileage, or accidents. But you can save yourself a lot of financial stress.

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This article originally appeared on GOBankingRates.com: 4 hidden ways cars are driving Americans into poverty, according to Humphrey Yang