Auto Lenders Dangle Sweet Deals to Lure Customers
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Here's your money briefing for Tuesday, May 5th. I'm J.R. Whalen for The Wall Street Journal. With most people staying at home and all the economic uncertainty from the pandemic, hardly anyone is buying a car these days. To get sales back on track, dealers and lenders have been sweetening their offers. That could include generous financing deals or delayed payments.
The car is in your possession May, June, July, and you're not required to make any payments during those three months. Then come August, that is when the repayment period on the loan you signed up for back in May starts.
But there's a catch. In just a moment, Wall Street Journal reporter Anna Maria Andriotis will explain why these attractive deals aren't being offered to everyone.
How have dealers and lenders changed car incentives during the pandemic?
The coronavirus pandemic has car dealers scrambling to make up for lost sales. They're offering big incentives for the right kind of customer. Wall Street Journal reporter Anna Maria Andriotis joins us with details. So, Anna Maria, tell me the kinds of deals auto lenders are putting out there.
Lenders are offering loans that allow people to delay making payments for up to four months. They are also providing record amounts of financing at 0% interest rate. So loans with no interest charges essentially for the life of the loan. And we've seen examples of this for as long as seven years.
Seven years? That's a long time for 0%.
Right. I mean, they're really dangling some of the best offers that have been in the car loan market in years. Just as an example of how unusual the 0% financing is right now, some 26% of loans for new cars that were bought in April... had a 0% interest rate attached to them. That was about 5% of new car loans in March. And the data which comes from Edmunds, a car shopping website, Edmunds says that the 26% is a record high since the company itself has been tracking this data. So definitely rolling out offers to try to incentivize people to buy.
And the banks were okay with this?
Most of the lenders that are behind these generous offers are not banks, but rather are mostly comprised of the financing arms of car manufacturers. So Think of the financing divisions that belong to the likes of Hyundai, Lexus, Chrysler, that sort of thing, as well as credit unions. We have definitely spoken with people and come across examples of very generous offers being made by credit unions. Now, most of these offers, people will find them through dealerships. So you go to buy a car, And the same dealership that sells them their car will also arrange their financing. That's not always the best path to take. In fact, we generally give people advice from a personal finance perspective here that you're better off shopping around with banks, with credit unions on your own for a loan before you go and buy a car.
Before you step into the dealership and see what financing offers they have to offer you, but for right now, given the unusual market that we are in, the most generous offers do appear to be coming from car manufacturers, financing arms, as well as credit unions, and the offers are being made through the dealerships.
Are they really that desperate to sell cars?
They are. So in many states, people are still under stay-at-home orders, right? You're only leaving your house if you need to go out for some type of necessity, groceries, pharmacy, etc. So if people are home, they're not going car shopping inside dealerships. And there have been some early signs that demand for car purchases has fallen, or at least did fall significantly in March as the pandemic was gaining ground. And also what we have been seeing is some data that shows that in the last half of April, as these incentives that we're discussing really started being offered in larger numbers, the demand for car purchases did rise.
But is everyone able to take advantage of these deals?
No, most of these deals are available for the most credit worthy customers. So good credit scores in most cases are needed to tap into these deals. In addition, the deals are available to people who really in the grand scheme of things have not, from a financial perspective,
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