These Massachusetts towns don’t overspend on cars

Six Massachusetts communities boast very low debt-to-income ratios when buying a car.
Six Massachusetts communities boast very low debt-to-income ratios when buying a car. –Mario Anzuoni / REUTERS

A handful of Massachusetts communities were just recognized by consumer finance site WalletHub for demonstrating frugal spending habits when buying a car.

The towns of Lexington, Winchester, Arlington, Needham, Brookline and Belmont are among the top 30 most frugal in the country when it comes to buying a car, according to WalletHub’s findings.

Consumers in these Massachusetts towns have auto loan debt that ranges from $12,573 to $15,358, which represents between 19 and 25 percent of the average annual income of the towns’ residents. That means the debt-to-income ratio for these communities ranges from 0.19 to 0.25.

At the other end of the scale, Bridgewater received the worst score for any Massachusetts town and ranked No. 2,537 nationwide. With an average car loan of $15,423 and an average annual income of $11,025 Bridgewater has a very high debt-to-income ratio of 1.4.

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WalletHub analysts looked at the average auto-loan balance of residents in 2,570 cities nationwide to determine where Americans are overspending on cars. To determine the debt-to-income rate, WalletHub divided the average car loan debt by residents’ income based on TransUnion data.

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The most and least expensive cars to insure in Massachusetts:

For example, consumers in Lexington have an average auto loan debt of $15,358 while the average income in Lexington is $80,033. This gives Lexington a debt-to-income ratio of 0.19.

Of course, it helps that residents of these towns have incomes that are relatively high. WalletHub analyst Jill Gonzalez points out salaries in these communities range from $55,791 to $80,033, which “most definitely’’ helps keep debt-to-income ratios lower.

“All [of these towns] have very low debt-to-income ratios, meaning that residents here have debt levels that are typically just 1/5 of their income when it comes to cars,’’ said Gonzalez in a statement to Boston.com.

For consumers who are not earning this much money, Gonzalez says it’s important to maintain a strong credit score.

“Building up your credit score will pay off dividends in the long run, no matter your income,’’ she said.

She points out that the average interest rate for car buyers has dropped nearly 32 percent since early 2014. Buyers with fair credit scores could end up paying six times as much in interest payments as buyers with excellent credit.

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Buying a car with a stronger credit score could save a consumer over $6,000 in interest payments over the course of a five-year loan worth $20,000. If a consumer’s credit is a problem, Gonzalez says, it pays to delay the purchase.

“Consumers should try to obtain a small debt-to-income ratio when car shopping and, if they can wait, attempt to build or rebuild credit before applying for a car loan.’’

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