Some Americans are spending more on car payments than rent

Yahoo Finance's Pras Subramanian joins Yahoo Finance Live to discuss Americans' car payments as well as Toyota hitting an EV milestone that will phase out its tax credit.

Video transcript

JARED BLIKRE: You may want to open that wallet a little wider if you plan on buying a new car any time soon. Yahoo Finance's Pras Subramanian, excuse me, is here on the details on why some Americans may be paying more for their vehicles than they spend on rent. And Pras, I'm from Miami. I remember 10 years ago, people were spending $1,500 on their car payment, double what they spent on their rent, maybe a little out of whack with reality. But what are the details behind it?

PRAS SUBRAMANIAN: It seems like the world is becoming more like Miami, you know, Jared, with the Edmunds finding that 13% of Americans are paying 1,000 bucks or more on a car payment, which is double the percentage of last year. So we're seeing a confluence of higher rates, the kind of the shortage of cars, especially the higher end, that people are going after, and also seeing people actually buying these luxury cars, as opposed to leasing them.

And you're seeing right there, so that average monthly payment on 672 bucks, we actually have a chart of rents across America, the cheapest rents across America, and that actually compares favorably to renting a place in Akron, Ohio or Wichita or Lubbock, even Lexington, Kentucky. I mean, you're talking about a one-bedroom place costs the same, if not less, than a car that you can rent right now in most of America. And it's just like how sustainable is that for most people? And we're talking about people dipping into savings and higher gas prices. It doesn't seem like this can keep going on much longer at this pace.

JARED BLIKRE: Yeah. Rachelle.

RACHELLE AKUFFO: And to think-- when you have those added costs, people are thinking maybe a hybrid, maybe an EV, but then even more cost added. We're seeing Toyota phasing out its EV tax credit incentives. What can you tell us about that?

PRAS SUBRAMANIAN: Yeah, Rachelle, so Toyota is the latest automaker to hit that threshold where they sold 200,000 plug-in vehicles, electric plug-in vehicles. And now they're going to lose out on that $7,500 tax credit that then now goes down to $3,500 starting October 1. And then every six months, it halves until it actually goes away. And that'll happen in 2023. So this is kind of a double-edged sword, right? Because you're saying-- we're seeing success in these companies selling electric cars, but we're going to start losing that very lucrative tax credit they use to sell these cars.

GM also lost that a while ago. And Tesla lost it two years ago. But it hasn't really stopped them from selling more and more electric cars, as the consumer appetite for them has increased. Apparently, Ford and Nissan will be next. They're the closest to that 200,000 threshold for that tax rate. So it's a lot of money there.

And the Biden administration has tried to actually renew that. There's been some controversy about how they wanted to actually make it more for companies that have union labor. So we'll see if that actually does happen where they actually re-- kind of reinstate that tax rate, because beyond that, it's going to be harder and harder to actually justify that higher EV cost if you're not getting the government to step in just a little bit.