4 ms·

I have received offers of 0% financing from Jeep and Ford for 84 months. They are desperate to sell cars and trucks.

icelancer 7y ago
0% financing for 80+ months is insane. I gotta look into these deals once my credit hit from refinancing my house is clear in a month or two.
- chrisseaton 7y ago
  Why does the % figure for financing matter? I don't care what they're charging me for the financing. I just care about the final bottom-line price. They can make 50% or 0% on financing for all I care. Ignore how they say they're arriving at their final number - just look at what the final number is.
  - perl4ever 7y ago
    Sure, but the "final bottom-line price" includes the value of the financing. If a bank would charge you 4%, then on a 5-year loan for a $30K car, 0% financing is worth on the order of $3,000. I'd regard the interest rate as fictitious on its own, but it goes into your calculation to determine how good your deal is for comparison.
    - chrisseaton 7y ago
      > 0% financing is worth on the order of $3,000 It doesn’t make any sense to think about it like this - the finance isn’t available without the car and if you want the car without the finance you will suddenly find the price of the car can be lower. They aren’t two separate things. It’s one price!
      - perl4ever 7y ago
        It's useless to negotiate it separately; I understand that. Even though the provided interest rate, the price of the car, and the trade-in value (if any) are fictitious numbers, they still go into your bottom line cost.
        chrisseaton 7y ago
        So why say ‘wow the finance is 0%’? The cost of finance is meaningless on its own. I could be paying 20% finance and be getting a better deal than you paying 0% finance.
        cjhopman 7y ago
        Because in the real world those scenarios don't happen. We can go all day making up ridiculous wild scenarios and working out the math of how they compare, or we can stick to what people actually experience when buying cars.
  - cjhopman 7y ago
    > I just care about the final bottom-line price Then you are making bad decisions by not considering the time value of money. And I think it's obvious that that's the case and then you can adjust your position to take that into account. Consider. I have a car that I will sell to you for $100,000. Alternatively, I will offer you a financing arrangement where you get the car today and in 10 years you pay me $105,000. Now, in this scenario, two things are immediately obvious. First, I'm really dumb for making this offer. I have little to gain and it's a super risky loan for me and it gets really bad over time. Second, you'd be dumb to accept the pay now option over the financing, despite the fact that the final bottom-line price is higher for financing. Even a ridiculously conservative, barely over inflation, adjustment of 4% per year gives you an extra ~$43,000 at the end of that 10 years by taking the financing.
    - chrisseaton 7y ago
      No, you're misunderstanding how this works. > gives you an extra ~$43,000 So that's counted in your bottom-line price, isn't it? All that matters is the price at the end, not how it was arrived at. The finance price on its own gives no information.
      - antonvs 7y ago
        > All that matters is the price at the end Paying $1000 today is not the same as paying $1000 in six month's time - that's the time value of money that people have mentioned. If you just add up total amounts without factoring in differences between how payments are distributed over time, your comparison can be incorrect, since the larger number in that case isn't necessarily the more expensive one. To do a proper comparison, you need to calculate the net present value (NPV) or a similar measure that takes into account time value. See e.g. https://corporatefinanceinstitute.com/resources/knowledge/valuation/time-value-of-money/ https://corporatefinanceinstitute.com/resources/knowledge/va...
- kardos 7y ago
  I've always found the "zero percent" financing to be misleading: if you opt to pay with cash there is usually a cash rebate (or equivalent) that makes your purchase price lower. This difference amounts to something like a 4% interest rate. Are there any cases where the cash price matches the "zero percent loan" price?
  - toomuchtodo 7y ago
    Time value of money [1]. You should evaluate if the cash rebate is a greater amount than you could've earned taking a 0% loan and sticking the cash into investments. Any interest rate on a loan at or below the rate of inflation is essentially free money (assuming you can service the debt without fail). Also, lots of comments in this thread not understanding the cost of the vehicle versus the cost of financing. You should always negotiate the cost of the vehicle separately (as low as possible, obviously, between different dealerships), before the financing to prevent being sold on a monthly payment versus total vehicle price. Otherwise, it becomes trivial for the dealership to inflate their margins on your transaction. [1] https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/time-value-of-money https://www.khanacademy.org/economics-finance-domain/core-fi... (Khan Academy: Time value of money)
    - ghaff 7y ago
      >sticking the cash into investment Which is essentially zero (or less than zero) return adjusted for risk and and discounted for inflation. All of which is especially hard to gauge at the moment. Maybe I'd take a 0% loan for something I'd otherwise put cash on the barrel for at the moment. But it wouldn't be for the purpose of putting the cash into an equities bet.
      - toomuchtodo 7y ago
        If you gave me $37k in cash today (average price of a new vehicle), I would still immediately put it in the equities market. It is likely one of the few investments left with reasonable risk adjusted returns (>4%) accessible to your average retail investor. Yes, there's high vol currently, but as long as you think the world will continue to exist (and the cashflows generated by said world), it's a sound strategy (dollar cost averaging).
sandworm101 7y ago
Be afraid of those deals. In the US, there is an entire industry based on people defaulting on car loans. It is very possible for a lender to make substantial profit a loan they know is going to fail. The money comes from repossession and resale of the car (a conveniently mobile asset as opposed to houses) combined with penalty charges. So they might push 0% loans onto people who they know are likely to default. The inclusion of GPS trackers on cars has made this all the simpler. Remember the adage: If you aren't paying, you are the product. 84 months is also ridiculous for a car loan. That means you will very quickly owe more than the car is worth, a dangerous situation for a lender. They would only offer such a loan if they had alternative contingency plans such as massive penalties.
- toomuchtodo 7y ago
  These loans are offered because that is what it costs to "move the metal". Someone in Ford accounting has done the math that its more capital efficient for "Ford" the manufacturer to offer "Ford" the credit finance arm a sum to push the rate down (similar to points on a mortgage) to "well qualified buyers" ("prime" credit) versus what it would cost to not move those units (assuming carrying cost of existing unsold units, depreciation on manufacturing capacity, etc). "Ford Credit" then goes to the capital markets and packages up these loans for investors (which, in a yield starved world, there is a voracious appetite for depending on risk profile of the loans packaged; another time, another thread about bond ratings and how it impacts money management). Dealers have to pay interest as well on cars sitting on their lots by the way. Every month a unit goes unsold, that interest cost eats into the margin for that unit. This is not to negate your point about "buy here pay here" subprime dealers/lenders, which are also part of the problem. But that is a distinctly separate arrangement to what's going on here with new car financing sponsored by the manufacturer. TLDR Automakers pay to subsidize zero percent financing on new car sales to get the cars out of inventory during periods of weak sales volume.
- bluedino 7y ago
  Those are for brand new cars, you're thinking of shady used dealers
- chrisseaton 7y ago
deleted 7y ago
[deleted]

0% financing for 80+ months is insane. I gotta look into these deals once my credit hit from refinancing my house is clear in a month or two.

chrisseaton 7y ago
Why does the % figure for financing matter? I don't care what they're charging me for the financing. I just care about the final bottom-line price. They can make 50% or 0% on financing for all I care. Ignore how they say they're arriving at their final number - just look at what the final number is.
- perl4ever 7y ago
  Sure, but the "final bottom-line price" includes the value of the financing. If a bank would charge you 4%, then on a 5-year loan for a $30K car, 0% financing is worth on the order of $3,000. I'd regard the interest rate as fictitious on its own, but it goes into your calculation to determine how good your deal is for comparison.
  - chrisseaton 7y ago
    > 0% financing is worth on the order of $3,000 It doesn’t make any sense to think about it like this - the finance isn’t available without the car and if you want the car without the finance you will suddenly find the price of the car can be lower. They aren’t two separate things. It’s one price!
    - perl4ever 7y ago
      It's useless to negotiate it separately; I understand that. Even though the provided interest rate, the price of the car, and the trade-in value (if any) are fictitious numbers, they still go into your bottom line cost.
      - chrisseaton 7y ago
        So why say ‘wow the finance is 0%’? The cost of finance is meaningless on its own. I could be paying 20% finance and be getting a better deal than you paying 0% finance.
        cjhopman 7y ago
        Because in the real world those scenarios don't happen. We can go all day making up ridiculous wild scenarios and working out the math of how they compare, or we can stick to what people actually experience when buying cars.
- cjhopman 7y ago
  > I just care about the final bottom-line price Then you are making bad decisions by not considering the time value of money. And I think it's obvious that that's the case and then you can adjust your position to take that into account. Consider. I have a car that I will sell to you for $100,000. Alternatively, I will offer you a financing arrangement where you get the car today and in 10 years you pay me $105,000. Now, in this scenario, two things are immediately obvious. First, I'm really dumb for making this offer. I have little to gain and it's a super risky loan for me and it gets really bad over time. Second, you'd be dumb to accept the pay now option over the financing, despite the fact that the final bottom-line price is higher for financing. Even a ridiculously conservative, barely over inflation, adjustment of 4% per year gives you an extra ~$43,000 at the end of that 10 years by taking the financing.
  - chrisseaton 7y ago
    No, you're misunderstanding how this works. > gives you an extra ~$43,000 So that's counted in your bottom-line price, isn't it? All that matters is the price at the end, not how it was arrived at. The finance price on its own gives no information.
    - antonvs 7y ago
      > All that matters is the price at the end Paying $1000 today is not the same as paying $1000 in six month's time - that's the time value of money that people have mentioned. If you just add up total amounts without factoring in differences between how payments are distributed over time, your comparison can be incorrect, since the larger number in that case isn't necessarily the more expensive one. To do a proper comparison, you need to calculate the net present value (NPV) or a similar measure that takes into account time value. See e.g. https://corporatefinanceinstitute.com/resources/knowledge/valuation/time-value-of-money/ https://corporatefinanceinstitute.com/resources/knowledge/va...
kardos 7y ago
I've always found the "zero percent" financing to be misleading: if you opt to pay with cash there is usually a cash rebate (or equivalent) that makes your purchase price lower. This difference amounts to something like a 4% interest rate. Are there any cases where the cash price matches the "zero percent loan" price?
- toomuchtodo 7y ago
  Time value of money [1]. You should evaluate if the cash rebate is a greater amount than you could've earned taking a 0% loan and sticking the cash into investments. Any interest rate on a loan at or below the rate of inflation is essentially free money (assuming you can service the debt without fail). Also, lots of comments in this thread not understanding the cost of the vehicle versus the cost of financing. You should always negotiate the cost of the vehicle separately (as low as possible, obviously, between different dealerships), before the financing to prevent being sold on a monthly payment versus total vehicle price. Otherwise, it becomes trivial for the dealership to inflate their margins on your transaction. [1] https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/time-value-of-money https://www.khanacademy.org/economics-finance-domain/core-fi... (Khan Academy: Time value of money)
  - ghaff 7y ago
    >sticking the cash into investment Which is essentially zero (or less than zero) return adjusted for risk and and discounted for inflation. All of which is especially hard to gauge at the moment. Maybe I'd take a 0% loan for something I'd otherwise put cash on the barrel for at the moment. But it wouldn't be for the purpose of putting the cash into an equities bet.
    - toomuchtodo 7y ago
      If you gave me $37k in cash today (average price of a new vehicle), I would still immediately put it in the equities market. It is likely one of the few investments left with reasonable risk adjusted returns (>4%) accessible to your average retail investor. Yes, there's high vol currently, but as long as you think the world will continue to exist (and the cashflows generated by said world), it's a sound strategy (dollar cost averaging).

sandworm101 7y ago

Be afraid of those deals. In the US, there is an entire industry based on people defaulting on car loans. It is very possible for a lender to make substantial profit a loan they know is going to fail. The money comes from repossession and resale of the car (a conveniently mobile asset as opposed to houses) combined with penalty charges. So they might push 0% loans onto people who they know are likely to default. The inclusion of GPS trackers on cars has made this all the simpler. Remember the adage: If you aren't paying, you are the product. 84 months is also ridiculous for a car loan. That means you will very quickly owe more than the car is worth, a dangerous situation for a lender. They would only offer such a loan if they had alternative contingency plans such as massive penalties.

toomuchtodo 7y ago
These loans are offered because that is what it costs to "move the metal". Someone in Ford accounting has done the math that its more capital efficient for "Ford" the manufacturer to offer "Ford" the credit finance arm a sum to push the rate down (similar to points on a mortgage) to "well qualified buyers" ("prime" credit) versus what it would cost to not move those units (assuming carrying cost of existing unsold units, depreciation on manufacturing capacity, etc). "Ford Credit" then goes to the capital markets and packages up these loans for investors (which, in a yield starved world, there is a voracious appetite for depending on risk profile of the loans packaged; another time, another thread about bond ratings and how it impacts money management). Dealers have to pay interest as well on cars sitting on their lots by the way. Every month a unit goes unsold, that interest cost eats into the margin for that unit. This is not to negate your point about "buy here pay here" subprime dealers/lenders, which are also part of the problem. But that is a distinctly separate arrangement to what's going on here with new car financing sponsored by the manufacturer. TLDR Automakers pay to subsidize zero percent financing on new car sales to get the cars out of inventory during periods of weak sales volume.
bluedino 7y ago
Those are for brand new cars, you're thinking of shady used dealers
chrisseaton 7y ago

deleted 7y ago

[deleted]