Say Farewell To Zero Percent Auto Loans Because They're Disappearing Fast

Photo: Tim Boyle (Getty)

To spur record sales over the last few years, automakers and dealers have turned to everything from super loose credit to subprime buyers to zero-percent financing. The former is disappearing from the new car market, and now the latter is also going by the wayside, too, according to Bloomberg.

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Interest rates on new car loans were expected to rise following decisions this year by the Federal Reserve, and now we’re apparently starting to see the after-effects of that. The average interest rate for a new loan inched higher to 5.7 percent, reports Bloomberg, and zero-percent offers fell to 7.4 percent of auto loans last month. That’s a big drop from a year ago, when no-interest deals comprised 11 percent of auto loans.

Here’s more from Bloomberg:

“Nobody wants to be the first one to go from zero to 0.9 percent, or from 0.9 percent to 1.9 percent, but you’re going to see zero no longer be the norm,” Jim Lentz, the chief executive officer of Toyota Motor Corp.’s North American operations, said in an interview at the New York auto show last week. “That has to be pushed along. That will impact, marginally, some people getting pushed out of the market.”

Car manufacturers that took advantage of near-zero benchmark rates to cheaply lure buyers into showrooms now have to look to other tools in their battle for market share. As those kinds of financing deals fall off the table, automakers are leaning more on cash incentives or discounted lease payments to draw buyers within a shrinking market. J.D. Power estimates car companies were offering discounts of more than 10 percent off suggested retail prices as of mid-March.

Automakers enjoyed a healthy month of sales in March, but vehicle costs continue to rise to record heights and buyers are taking on record-setting loans to purchase new cars. Americans owe more than $1.1 trillion in car loans.

The past several years have been a party for the industry, but clearly that has had an impact on consumers. And now automakers can’t rely on cheap financing to keep pumping out sales. The rest of the year portends to be a rocky ass ride.

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Ryan Felton

Senior Reporter, Jalopnik/Special Projects Desk

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