The loans may also be genuine interest free - but with a few caveats such as settling by a certain date to avoid penalty fees and such. There will be enough people falling into this trap to make it profitable for the loan company.
Quite often the same loan company is also financing the dealer's stock so there are also hidden incentives for him to push loans - such as preferential rates for himself.
The dealers are using 3rd-party partners to finance the loans. The only risk the dealers take is if you're rejected and can't buy the car. Besides that, the loan is the same as cash for them, except they also get kickbacks for the financing lead.
Borrowing is fine, just without interest. Suppliers already lend retailers and restaurants with no interest, and car dealerships offer 0% interest loans when they want to sell. It can be done.
Makes sense. I wonder if they also offered no fees (6,12,24 months) as a form of loan as well if that would be appealing to their customers. At the end of the term, you'd be responsible for paying back all the fees during the term plus interest.
It's a loan with conditions. Not all that unusual. Each company can decide if they accept the conditions or want to reject the loan offer and get their finance elsewhere.
I think the answer is that low-interest car loans often come from a finance arm of the auto maker. I once got a 0% loan from Volkswagen to buy a Volkswagen. Seems like a way for them to sell more cars to people with good credit who will almost certainly pay back the loan.
I don't have any particular insight into this industry beyond my own personal experience though, so there's a non-trivial chance that I'm wrong with regards to the general case.
I don't think they are a lending company. They do not charge interest, their model lets you pay over time, and you pay a fixed fee to extend the payments. It's all fee based, no interest, so i think there's some regulations they get to sidestep.
Yup. Car companies (well, sometimes their importers) subsidize financing for dealers through financing subsidiaries.
The caveat is that you usually have to have very good credit to get the top tier rates, which might be why the github user wasn't aware of this.
If the loan is below inflation, the loan is actually making you money...as long as inflation stays higher than the loan rate for the length of the loan, that is.
Isn’t that what dealerships call “bonus cash”? Like you have to run the numbers yourself but you can use that as a point of negotiation if you’re buying outright.
Also 0% loans are fantastic for your credit! I take them as much as possible because it’s a free credit score bump.
My most recent auto loan had no origination or other fees. If you finance through the manufacturer's captive lender then they often don't charge any such fees.
You're not giving them free money, you're getting them to pay you a lot more in total over many years by selling them a much more expensive vehicle up front. Instead of, say, $20k over 3 years, they can get $40k+ over 7 years for selling a product that doesn't remotely cost them twice as much to build. It's more profit for them.
These 0% 7 year loans are not coming from banks. They're coming from the car companies. They're a sales tool.
Quite often the same loan company is also financing the dealer's stock so there are also hidden incentives for him to push loans - such as preferential rates for himself.
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