[Arizhel]

>Most make their money in the finance or service department. It was not uncommon for a loan to be 5-6 years long

Yeah, but with the extremely low interest rates we've been seeing the past several years, how are they making money there either?

[stevenmays]

By financing people with bad credit for extremely high rates.

[Arizhel]

Sorry, but that makes no sense. The used-car dealerships giving people crappy high-interest loans are not affiliated (nor are their lenders affiliated) with the new-car dealerships giving people 0% loans. What incentive is there to give someone a 0% loan at all? There's no profit in it. The only way it makes any sense for the lender is if 1) they hope you'll forget to make a payment and then they can charge you fees, or 2) they're affiliated with the manufacturer, and being used to promote sales.

[massysett]

Only people with good credit are getting 0 percent. A new car dealer will happily find crappy high-interest financing for poor credit buyers. The finance guy has contacts with a dozen or more lenders.

0 percent brings in good credit buyers who might otherwise buy a different car, or who might just keep driving their old cars.

[Arizhel]

>A new car dealer will happily find crappy high-interest financing for poor credit buyers.

They will, but not necessarily with the same lender. Lender A giving out 0% loans is not getting money from lender B giving out 15% loans.

>The finance guy has contacts with a dozen or more lenders.

Exactly. So what's the incentive for bank A to lend at 0%? They're not going to see any of the profit that other lenders get. In fact, they're not going to get any profit at all, unless the buyer defaults early or misses payments. It seems to me that the whole 0% loan thing is a way for dealers and mfgrs to keep their inventory moving, and perhaps make money just on the regular mark-up of the car itself (which isn't much with new cars these days), and hope the buyer comes back for overpriced service.

[Zachery]

They've increased the cost of the cars to offset the 0% rate.

You should get a bigger cash discount to buy the car outright, instead of financing through them.

[Spooky23]

0% is a teaser rate from the manufacturer's captive financing arm. They only subsidize the premium, low risk buyers.

[gscott]

My wife bought a car from Carmax she has good credit they offered her a loan at 10%. She want through Farmers Insurance for a car loan at about 5%. At least in the case of Carmax they are doing high rate loans hoping people don't shop around for the loan.

[datasage]

Its not so much about making money on the person getting 0%, since buying a brand new car isn't that high margin for the dealership.

Instead, that buyers is more likely to be trading that car in 2-3 years at which point the dealer can make more off the car again.

[Spooky23]

It's not a zero percent loan. The interest is subsidized by the manufacturer. The dealer gets a commission for originating the loan.

If you have shitty credit, that 0% loan pops up to 8-11%.

[vkou]

Interest rates on houses are low, but interest rates on vehicles are... Not so low.

Besides, it doesn't matter what the prime interest rate is - the consumer rate is always (prime + markup)%.

[kbutler]

Eh. Subprime rates, maybe. But I've got two car loans, one under 2%, one under 1%. I feel like I should pay them off early on principle (as opposed to principal), but it would be foolish to divert investment funds to paying them off early.

[trendia]

Assuming you can stomach the risk, if you can get a car loan for 1% and a market return of >1%, then you would be better off taking the loan, investing your money, and paying off the loan later.

[vkou]

With a good enough credit rating, and in tough enough times, you can get 0% loans, no payments for 12 months. Sometimes, the need to dump inventory outweighs the need to make money on loans.

(Of course, if you miss a payment, that 0% rate will jump to 12%.)

[birdmanjeremy]

Really? Both our cars are financed at < 2%. Cheap auto loans are all over the place.

[drspacemonkey]

I was under the impression that those were introductory teaser rates that balloon up later, just like what happened with subprime mortgages.