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Old 06-20-2019, 02:08 PM
 
Location: Murphy, TX
645 posts, read 2,612,219 times
Reputation: 435

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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?
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Old 06-20-2019, 03:02 PM
 
121 posts, read 20,202 times
Reputation: 140
They made arrangements with the devil.
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Old 06-20-2019, 03:31 PM
 
Location: Aurora Denveralis
8,561 posts, read 3,001,676 times
Reputation: 12765
To sell cars. Interest on the loans is an essentially trivial factor in the overall deal. (Even for banks, since the loan is probably well over 100% collateralized and fully insured.)
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Old 06-20-2019, 03:45 PM
 
Location: The Triad (NC)
28,482 posts, read 62,084,629 times
Reputation: 32131
Quote:
Originally Posted by unseengundam View Post
Can some give me a detailed explanation of how ...?
The cars are almost incidental to the transaction.
The real product is the financing.
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Old 06-21-2019, 06:44 AM
 
Location: East of Seattle since 1992, originally from SF Bay Area
29,744 posts, read 54,373,866 times
Reputation: 31023
They would sell a lot fewer new cars without that kind of easy financing. people would keep their old ones longer and use credit cards to pay for major repairs.
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Old 06-21-2019, 07:24 AM
 
Location: NC
6,543 posts, read 7,956,796 times
Reputation: 13438
They have already offset the low interest rate with a higher price. Or they are trying to dump some inventory to get ready for new models
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Old 06-21-2019, 08:42 AM
 
2,729 posts, read 1,747,774 times
Reputation: 5962
Part it is probably competition since the auto companies all have their own captive financing companies. And obviously they are focused on moving inventory.
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Old 06-21-2019, 10:03 AM
 
4,490 posts, read 3,152,573 times
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Quietude is correct. The overall value of the car, and short amortization on cars compared to homes, is the main culprit in lower interest rates. The longest financing I've heard of on a car is (8) years. The majority of car notes are going to be (5) or (6) years, on a car with average financing of say $40k.


Typically the people who qualify for the super low interest rates, are probably buying the car with cash anyways, or they have their money work for them and hedge the car interest in the stock market. At the same time, they're likely driving that car 7-10 years as well, to recoup some of their investment during the years where they don't have a payment.


You'd never have these low rates on real estate, because banks wouldn't make money. Right now is the time where banks are showing record profits, due to the cost to borrow money from the fed is low, and if you have to pay interest on your deposit accounts, interest is low there as well. Margins are quite good in the finance industry.
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Old 06-21-2019, 01:15 PM
 
5,682 posts, read 8,749,928 times
Reputation: 4911
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.
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Old 06-21-2019, 01:53 PM
 
5,096 posts, read 2,743,062 times
Reputation: 9349
Quote:
Originally Posted by unseengundam View Post
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?
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?
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