Expect no-interest deals, loan terms to fall in Q4

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Last month, 15 percent of deals had 0 percent interest compared with 15.2 percent in August 2015 and 14.9 percent in September 2015. Photo credit: DAVID PHILLIPS

Zero percent financing deals as a share of all new-vehicle sales rose last month, and loan terms reached their highest level since 2002. But if this year aligns with previous trends, the numbers are about to fall. Loan terms and no-interest deals will likely dip in the fourth quarter, Edmunds says.

September had the highest share of new-vehicle transactions with 0 percent financing since August 2015, Edmunds told Automotive News.

Last month, 15 percent of deals had 0 percent interest compared with 15.2 percent in August 2015 and 14.9 percent in September 2015.

The share of 0 percent financing transactions has climbed from the beginning of the year. The share ranged from 7.1 to 10.2 percent from January through July. The trend is similar to 2015, which also had highs in August and September.

“Generally, we see that type of trend [with] model year sell-down sales and end of summer sales,” said Jessica Caldwell, senior analyst and director of pricing and industry analysis at Edmunds.

During the last three months of the year, automakers typically shift incentives to leasing rather than to 0 percent financing offers, she said.

From October to December last year, the share of no-interest deals dipped to between 8.2 and 9.5 percent.

Typically, from January to July, there are fewer blanket deals. Automakers focus instead on targeted deals, such as 0 percent financing for 72 months or 0 percent financing on a specific model, for example.

“Early in the year [automakers are] more strategic, rather than trying to get rid of older product as fast as they can,” Caldwell said.

Loan-term high

September also had the highest average loan term, at 69.1 months, since Edmunds started keeping tabs in 2002. In September 2015, the average term was 68.4 months.

“We keep thinking it has to hit a cap, and it continues to grow,” Caldwell said.

When 0 percent financing deals increase, loan terms follow because customers don’t have to worry about paying interest.

This year will likely follow a similar pattern to 2015, with 0 percent deals decreasing through the last three months. With that, loan terms could shorten slightly.

In 2015, for example, the share of 0 percent financing in December was 9.2 percent, and the average new-vehicle loan term was 67.8 months. In August 2015, 0 percent financing hit a high for the year at 15.2 percent, and loan terms stretched to 68.2 months.

If the sales pace slows, Caldwell said, loan terms will likely remain long. “It really is the way consumers are handling the higher transaction prices,” she said.

When transaction price and amount financed jumps, long loan terms make sense, she said.

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Expect no-interest deals, loan terms to fall in Q4