It's official: prospective automobile buyers aren't likely to be able to find 0% financing deals anymore.
Rising interest rates have caused auto lenders to pull back on the offers that have been the driving force behind the auto industry for the better part of the last decade, the WSJ reports. Until recently, still fueled by big incentives, the industry hadn't seen too many meaningful aftershocks of rising interest rates. That's about to change in a big way (see "Car Sales Tumble As Automakers Slash Discounts For The First Time In 5 Years").
Lending companies have to pay the difference between the rate they offer customers and the Federal Funds Rate - as a result, 0% rates simply aren't a sensible financial option for captive financing companies, or banks, any longer. While some car companies are switching to different types of incentives, like discounted lease rates and rebates, even those are starting to slow.
Speaking to the WSJ, Adam Lee, chairman of Maine dealership chain Lee Auto Malls, said that "for a long time, everything was 0%. At first, buyers could find 0% finance deals on 48-month car loans, and then auto lenders started extending those deals to 60-month loans and eventually 72-month loans. There are fewer and fewer of those deals now."
The report noted that in September, the percentage of new cars that were financed with an interest rate of 1% or under was down to 5.3%, down from 8.2% a year prior and 11.7% two years ago. 0% loans made up for 3.4% of new car financings versus 9.1% two years ago.