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So where's the money coming from? Who wants to make 0.9% on a car loan? You can get about 2.4% right now on a damn 1-year US Treasury! And that's tax free too!

So where's the money coming from? Who wants to make 0.9% on a car loan? You can get about 2.4% right now on a damn 1-year US Treasury! And that's tax free too! Is there something I'm missing here? I'm extremely confused as to why someone buying a car, even with insanely good credit, would get a FAR better rate on borrowing money than the US Government.

NedIsakoff 8y ago
My wife bought a Civic. I got 3 years @ 0.99%
Spooky23 8y ago
The manufacturer subsidizes the loan, and it’s secured by a lien on the car. Pretty low risk.
- lotsofpulp 8y ago
  Especially when they come with GPS that tell the lender exactly where it is to come repo it.
justinjlynn 8y ago
Because the rate isn't where they're making money. The rate is almost certainly a distraction from unfavourable terms elsewhere.
- TylerE 8y ago
  It's the free market at work, to an extent. If Toyota doesn't want to offer $rate, Hyundai will - and now Toyota has to match it or they lose market share. (Of course, it's more complex than that, since obviously people get car loans from banks, but most of the big automakers have finance arms).
  - justinjlynn 8y ago
    In a sense it's rather unfortunate that the market drives the evolution of obfuscated contractual agreements. Of course, it's not surprising at all.
mturmon 8y ago
As the model year changes, makers offer financing incentives to clear inventory. My 2018 Civic was financed at 1.9% for 5 years. There was no point in paying cash.
pkaye 8y ago
In some cases the money is coming from the car manufacturer who wants you to buy the car.
jaas 8y ago
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.
- pdonis 8y ago
  > I think the answer is that low-interest car loans often come from a finance arm of the auto maker. Exactly. Most auto makers would actually be better described as financing companies that happen to build autos on the side. Particularly when you look at their financials and realize that all of the actual profits are coming from financing and that actual vehicle sales are often a net loss if taken by themselves.
  - firebones 8y ago
    0.9% exists to get people into cars (aka, volume) who otherwise might not come through the door + add origination fees + attract the type of people who are likely to incur late payment fees. I would guess at a macro-level, the effective rate is much higher and more than offsets the 1.5% difference between safe treasuries. Lots of people buy based on "what would it take you to get into this car" monthly payments rather than TCO, so if you're a cash buyer and can safely arbitrage the interest rate difference, you're probably the exception. I suspect the local sales guy pockets any loan origination fees; the automaker is just paying that as commission for the actuarial likelihood that the people who finance will default at a rate that still makes it profitable when taking into account the benefits of maintaining low inventory in a given model year.
refurb 8y ago
The real interest rate is built into the cost of the car!

NedIsakoff 8y ago

My wife bought a Civic. I got 3 years @ 0.99%

Spooky23 8y ago

The manufacturer subsidizes the loan, and it’s secured by a lien on the car. Pretty low risk.

lotsofpulp 8y ago
Especially when they come with GPS that tell the lender exactly where it is to come repo it.

justinjlynn 8y ago

Because the rate isn't where they're making money. The rate is almost certainly a distraction from unfavourable terms elsewhere.

TylerE 8y ago
It's the free market at work, to an extent. If Toyota doesn't want to offer $rate, Hyundai will - and now Toyota has to match it or they lose market share. (Of course, it's more complex than that, since obviously people get car loans from banks, but most of the big automakers have finance arms).
- justinjlynn 8y ago
  In a sense it's rather unfortunate that the market drives the evolution of obfuscated contractual agreements. Of course, it's not surprising at all.

mturmon 8y ago

As the model year changes, makers offer financing incentives to clear inventory. My 2018 Civic was financed at 1.9% for 5 years. There was no point in paying cash.

pkaye 8y ago

In some cases the money is coming from the car manufacturer who wants you to buy the car.

jaas 8y ago

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.

pdonis 8y ago
> I think the answer is that low-interest car loans often come from a finance arm of the auto maker. Exactly. Most auto makers would actually be better described as financing companies that happen to build autos on the side. Particularly when you look at their financials and realize that all of the actual profits are coming from financing and that actual vehicle sales are often a net loss if taken by themselves.
- firebones 8y ago
  0.9% exists to get people into cars (aka, volume) who otherwise might not come through the door + add origination fees + attract the type of people who are likely to incur late payment fees. I would guess at a macro-level, the effective rate is much higher and more than offsets the 1.5% difference between safe treasuries. Lots of people buy based on "what would it take you to get into this car" monthly payments rather than TCO, so if you're a cash buyer and can safely arbitrage the interest rate difference, you're probably the exception. I suspect the local sales guy pockets any loan origination fees; the automaker is just paying that as commission for the actuarial likelihood that the people who finance will default at a rate that still makes it profitable when taking into account the benefits of maintaining low inventory in a given model year.

refurb 8y ago

The real interest rate is built into the cost of the car!