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Manufacturers partner with banks to subsidize the sale of new cars to offer below par discount rates for financing. Ford and GM are always running huge discount APRs off to incentivize people to finance their vehicles. How else could they move $60k F150/F250s all day long?
Well, those enormous bulldozers used in landfills come to mind.
One thing I really can't fully comprehend how you can get super low interest on Cars from 3rd Party Lenders. I have seen 0.99%, 1.99% APR form Banks, Credit Unions for New Cars. Furthermore, some allow no cash down, over 100% financing for Sales Tax, Extended Warranties, etc. It is also very easy to get approved for one.
The thing with New Cars you easily are losing 20-30% of the value as soon as its bought. It is a depreciating asset, which means you are easily underwater on your car loan.
My next problem is there is a couple another type of loans available for appreciating assets or one that doesn't depreciate as much. But those are hard to finance. I am talking about Home Mortage, land, real estate investment, home improvement, solar panels, pools, etc.
I can easily see someone being 50% underwater on a Car loan, which means the borrower will have pony up that much if car gets totaled. A car loan for financial institution seems to me at least more risky than real estate loans, possibly close to 'personal loans' or maybe even Credit cards.
Can some give me a detailed explanation of how the financial institution is justifying such low rates and great terms?
The low rates correspond to low risk. People will default on their mortgage and credit cards before they will fall behind on their car payments. However, in recent months, auto loan delinquencies have been at or near a record high, so expect interest rates to move upward on these loans once the actuaries/analysts recalculate to the new baseline.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by creeksitter
Something to consider is the car will have a chip installed so it can be tracked. Makes it easy to reposess. Also some cars can be stopped by remote control so that motivates the buyer to make the payment.
True but I don’t think a chip is needed to find the house
One thing I really can't fully comprehend how you can get super low interest on Cars from 3rd Party Lenders. I have seen 0.99%, 1.99% APR form Banks, Credit Unions for New Cars. Furthermore, some allow no cash down, over 100% financing for Sales Tax, Extended Warranties, etc. It is also very easy to get approved for one.
The thing with New Cars you easily are losing 20-30% of the value as soon as its bought. It is a depreciating asset, which means you are easily underwater on your car loan.
My next problem is there is a couple another type of loans available for appreciating assets or one that doesn't depreciate as much. But those are hard to finance. I am talking about Home Mortage, land, real estate investment, home improvement, solar panels, pools, etc.
I can easily see someone being 50% underwater on a Car loan, which means the borrower will have pony up that much if car gets totaled. A car loan for financial institution seems to me at least more risky than real estate loans, possibly close to 'personal loans' or maybe even Credit cards.
Can some give me a detailed explanation of how the financial institution is justifying such low rates and great terms?
If you’re getting a .99 to 1.99 rate I can tell you one thing. That person actually WILL pay back the loan. The reason you get such rates from banks is because your credit history shows you are a low risk for default.
I've often wondered the OPs question as well. It doesn't seem to make sense that I can get a loan for a lower interest rate than the US government. I've often wondered who's buying these loans.
I've often wondered the OPs question as well. It doesn't seem to make sense that I can get a loan for a lower interest rate than the US government. I've often wondered who's buying these loans.
Generally this doesn't happen unless the lender is doing it purely for promotional reasons. Even for borrowers with excellent credit, the average rate quoted by this site is 3.60% on 60-month loan:
I still don't think people in this thread truely appreciate the power to debt/credit to distort a market. The entire US consumption economy is predicated on access to vast amounts of cheap and readily available credit. Manufacturers are riding this trend to subsidize rates and keep the proverbial foot on the consumption gas pedal.
Any small shift in the credit markets to either reduce access to capital or reduce quantity and the whole shebang collapses inward. None of this is "real".
Something to consider is the car will have a chip installed so it can be tracked. Makes it easy to reposess. Also some cars can be stopped by remote control so that motivates the buyer to make the payment.
What chip? Are you saying every dealer that sells a financed car is putting a repo chip in the vehicle?
What chip? Are you saying every dealer that sells a financed car is putting a repo chip in the vehicle?
Many (approaching most) new cars have active monitoring and reporting built in. It is inherently a security/tracking/repo device if the maker (and bank) chooses to use it that way. They can even watch for a pattern of non-use and come take it when it's 'safely' parked in the in-law's back alley.
Most used cars from bigger dealers have a security lock installed and can't be driven without inserting a dongle/chip card. They don't remove those, just disable them on sale.
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