Driving Beyond One's Means: Financing Luxury Cars

Ryan Heshmati

May 10, 2024

Audis, Mercedes, BMWs, Porsches. For many, these automobile brands conjure images of wealthy individuals. Why else, of course, would one shell out the kind of money these cars cost? Well, that image might be well-served by an adjustment. Financing plays a major role in the auto market, even at the higher cost levels. In the market of luxury vehicles, those who drive around debt loads are much higher than many might think.

Look at the higher end of the spectrum, even for luxury: cars over $100,000. Surely, at this level, where buyers are looking at top-of-the-line Mercedes s-classes or seven-series BMWs, cash is king when it comes time to sign on the dotted line. Such an assumption would be far from the truth, however. In a 2022 Capital One Auto Navigator piece, Brett Berk examines Cox Automotive data that tells a very different story. He writes, “Overall, only 8.5% of these high rollers paid cash. Around 31% leased and 60.4% took out a loan with an average payment of $2,201 and an average term of 56 months.” That is unbelievable! While leasing can sometimes be justified by those whose businesses create tax incentives for the option, 60.4% of consumers financing these vehicles is just ludicrous.

If one cannot afford to pay for a $100,000+ vehicle at once, they certainly cannot afford to have it hang over them as debt. The reality that such a small sliver, 8.5%, actually paid cash for the vehicles they were walking away with sheds light on an America that prioritizes attractive logos over prudent financial decision-making. While some may feel the pressure of acquiring the likes of Mercedes or BMWs as status symbols, the knowledge that the vast majority are financed should erase most of the perceived prestige that comes with driving them. Not only do 60.4% spend money on vehicles that consistently lose value, but they also borrow and pay interest to do so.

Of course, there is nothing wrong with enjoying luxury cars. For the financially well-off buyer who both seeks to and can afford to spend $100,000+ on a fast-depreciating vehicle, go for it. The problem comes when a consumer cannot afford to but chooses to do so anyway. The easy access to credit in the United States has fueled a dangerous culture of consumption. $2,200+ monthly payments should be for housing, not vehicles. Considering the power of luxury products’ allure, it is unlikely, however, that Americans’ trajectory will change.