When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.
Car companies often have a bancing licence on their own. So they pay some interest but can create more money with these deposits. So it's cheap money for them. https://en.m.wikipedia.org/wiki/Fractional-reserve_banking
When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.
it's just another form of competition right? all car firms offer lower and lower loans rates to try to get you to buy their product, and eventually the rate reaches 0%
If that was the case, why stop at 0%? Why not negative?
When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.
Car companies often have a bancing licence on their own. So they pay some interest but can create more money with these deposits. So it's cheap money for them. https://en.m.wikipedia.org/wiki/Fractional-reserve_banking
Virtually every car dealer partners with real banks to handle loans. They certify your car as collateral, and essentially apply on your behalf, and you walk out the door with a loan from JP Morgan, Chase, or whereevs.
I was under the impression that the whole point of auto-financing was to get even even more money out of the consumer. When I bought my last car, I just bought it outright (because it wasn't particularly expensive) which appeared to baffle the dealership. I was actually a little concerned that the dealership told me it was the largest check they'd ever seen (for ~$14k). Getting people to sign off on a contract they d…
I used to buy cars with cash. But right now car loans are so cheap, if you have good credit, it may make more sense to take the loan and keep the cash invested. I think my current rate is 2% or so... an unthinkable rate not so many years ago.
Just bought a car that I could have paid for cash but they offered me zero % financing over three years, with zero down.
When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.
The financing rate is 0% because the MSRP of the car is slightly inflated. If you pay with cash, you get a cash incentive (e.g. $2000 off), if you pay by financing, you get a similar discount but in the form of a lower nominal interest rate. Jurisdictions with good legislation require dealers to also show the effective APR, which takes the cash discount into account and is almost always a more reasonable rate. --- Ap…
My experience hasn't matched what you've posited here. I bought a car a couple of years ago, and found that multiple dealers consistently quoted me the highest price for cash and 0% financing deals, and would only structure discounts into the price if I paid interest. A discount for cash was right out. Perhaps cash purchases may have gotten you a discount at some point in the past, but dealers appear lately to be completely uninterested in them.
Almost no one pays cash for a car anymore and the industry knows this. Many dealerships make more money (or at least they did, but I'm sure they still do) from getting people to get a loan from one of their "partners" (auto-loan companies which accept their paper). It's been years since I worked for an auto-finance company (my soul still feels a little dirty), but I know it wasn't uncommon for dealerships to get an a…
So the hispanic couple thought they were being given a free car?
Yes, I don't know exactly how he convinced them of it, but it was pretty much the "That's how things are done in the U.S."
It's feature, not a bug. Remember the sub-prime mortgage crisis? People were made to buy homes they couldn't actually afford. It's the American way of doing capitalism, and people should have gotten used to it by now.
You have it backwards. Buyers demanded the ability to buy homes they couldn't afford, the government required Fannie Mae, Freddie Mac and banks to finance them and the US Government guaranteed some of the loans. The buyer behavior was rational, at least on the surface, because homes almost always appreciate over long periods and were appreciating like crazy during the bubble. We are pattern matching monkeys, all of u…
Your wrong, people with money were looking for "safe" places to park their money and make interest. Savings accounts suck, thus all these financial products were born.
Maybe I didn't understand the deal I bought a car with, or maybe it's an unusual deal, but I'm happy with it. My car costs me a set amount per month that I can afford, an amount that is actually equal to the monthly depreciation it would face anyway (on average) over a three year period (including the initial low value deposit I paid, this is still true). Even if I bought it outright, which I couldn't afford to do, I…
My understanding is GAP insurance only comes into play if the car is written off (and makes up the difference between what the car was worth and what the insurer pays out). I didn't think it was designed to cover any shortfall in the hand back price?
This is the way I've seen it too. It may not be everywhere now, but it was meant to be a safety net in the event that a car was totaled and you still owed the finance company money. For the finance companies, this was essentially free money. Of course they ran loss statistics on it to make sure that it was in their favor, but I did see it save people from a really bad situation. My coworker, driving to work one day got hit and totaled his car. He actually got his car loan at the company we worked for before he started working there. They just wrote off the car, and he was able to go and get a new 0% interest loan. Total win for him. This is the exception not the norm though.
Do you have recommended reading or links to an overview of how it actually works?
A student subscription to the Economist perhaps?
That my analogy is flawed is not exactly surprising or helpful. It is an analogy and only intended directionally. At best. You two seem to indicate it isn't good at even that. Which is a claim I'm interested in knowing more about.