As Americans dive deeper into the holiday shopping season, many consumers were tempted with Black Friday new-car deals promoting 0-percent financing.
However, buyers shouldn’t get too comfortable with interest-free deals again as they continue to evaporate from dealerships’ toolboxes to sell new cars. Automotive News (subscription required) said Wednesday that the return will be short-lived and the deals will likely dry up by the end of 2018.
Jeremy Acevedo, Edmunds’ manager of industry analysis, said interest-free financing is an expensive way for automakers to sell new cars, but it’s effective with consumers. He added the industry is still in search of ways to maintain healthy sales levels, but 0-percent financing is not a long-term strategy.
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Rising benchmark rates from the Federal Reserve have made such deals nearly inexistent after almost two decades of their prominence. General Motors first adopted 0-percent financing in the wake of the September 11 terrorist attacks as part of its “Keep America Rolling” campaign. The Fed has continued to dial up the benchmark rate in the past 18 months, and consumers saw three rate hikes this year alone. Higher rates increase the price of auto loans and other financed purchases for buyers.
Without the holiday deals, the trade journal reported that buyers will see higher monthly payments and increased finance amounts. But the real shock will likely come to buyers who haven’t shopped for a new car in the past five years. They’ll find a 47-percent increase interest rates on average since the last time they stepped foot in a dealership.
Just 5.5 percent of new auto loans in the month of November featured the increasingly rare 0-percent financing incentive—the lowest point for the month since 2005.
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