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0% Interest, No Money Down: How Aggressive Financing Props Up in a Pandemic

The COVID-19 pandemic has wreaked havoc on industries across the nation, decimating small and medium businesses that rely heavily on consistent cashflow. Car sales have fared surprisingly well throughout the economic shutdowns, carried in large part by the swift implementation of financing incentives on new cars.

Edmunds reports that zero-percent interest loans have spiked to 25.8 percent of funded loans in the month of April. That’s an incredible climb compared to previous months – February 2020 had just 3.6 percent of loans registered as 0% while March was slightly higher at 4.7 percent. It’s the highest portion of car loans paying no interest since Edmunds began keeping records in 2004.

According to the Cox Automotive Auto Market Weekly Summary for May 4th, vehicle sales volumes appear to be down about 50 percent compared to April 2019, and SAAR is trending for a record low, but was buoyed somewhat from sales momentum built at the end of April 2020. That’s when the Trump administration clarified that auto sales were included in the definition of essential business. 0% interest

No Down Payment, No Interest

Consumers have been drawn out of isolation with tempting offers, and at a time when incentive checks have been sent out to stimulate the economy. No-interest car loans are particularly enticing on a couple of fronts. Not only do they eliminate all the interest paid on a vehicle purchase, but they lower the monthly payment a great deal. For example, on a $30,000 car loan:

  • Compared to a standard 4.9% rate, an 84-month term at 0% interest reduces payments from $422/month to $357/month and eliminates $5,499 in interest paid.
  • Compared to a common 2.9% rate, a 72-month term at 0% interest reduces payments from $454/month to $417/month and trims $2,721 in interest from the total cost over the term. 

But 0% loans aren’t the only attraction for consumers, as you’re aware. Captive lenders are even more willing to finance without a down payment so even shoppers who are stretched very thin can get into a new car immediately. 

Related: What Dealers Can Do as Auto Loan Delinquencies Rise

180 Days No Payments

As you’re aware, one additional layer that’s widespread have been deferred payments for 90 days, often combined with an additional three months of payments made by the carmaker. Essentially, a new car owner can drive their new car at no cost and payment-free for half a year if they qualify for incentives.

As They Say, Make Hay While the Sun Shines

For dealers, the incentives offered by manufacturers on new cars may be the savior they need. There’s no telling what shape the industry would be in without aggressive financing for the masses. And while they’re in place, dealers should help qualified buyers make the most of it.

For owners with cars two to three years old, it may be an opportunity to trade up to a new model and lower their payments. For owners with cars over 6 years of age, it’s the chance to ensure a reliable vehicle going forward at a very reasonable price.

Dealers should strategize how best to market their incentives. While the virus continues to hold America tightly, direct phone calls between salespeople and their clients would be effective, and a gently-worded script should be adhered to so as to feel genuine and compassionate rather than sales-y.

It doesn’t appear that incentives will be disappearing anytime soon. However, getting sales back on track is an important function for all departments, not just the sales team.


Did you enjoy this article from Jason Unrau? Read other articles from him here.

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Jason Unrau
Jason Unrau
Jason Unrau is an automotive specialist with more than 15 years of experience at the dealership level. Focusing mainly on fixed operations and the service industry, Jason’s expertise is in enhancing the customer experience and promoting a healthy, profitable service department.

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