How are you going to spend your stimulus money?

Just catching up on this thread, so catching up on the "why is zero percent financing bad?" posts from a page ago.

They short answer is that there is a cost to your zero percent interest rate. You obviously will never find a bank that would offer you a no-interest loan of any term, because they would lose money. That should make more people think about what is going on.

When your dealer makes you that financing deal, it is because they are marking up the price of the car enough to more than offset the cost of the loan, and in practice, they earn even more profit that way. Those deals are all made possible by the manufacturer. The car manufacturers have financing divisions, or their own internal banks. They are able to offer a loan that they will lose money on, because they offset it by marking up the cars to way offset the cost they eat on the loan. The dealers like it, because they are incentivized to sell the car that way -- the manufacturer shares the financing profit with the dealer to get them to make those sales.

Most people can't afford the car and walk in shopping for a monthly payment. That is what the dealer is taking advantage of. They muddle the loan with the car sale itself, and the buyer doesn't pay attention to what their real cost ends up being. From the dealer end, it's usually not that complicated. The manufacturer's invoice price (what the manufacturer charges the dealer for the car) has incentives attached to it, which the dealer conceivably can pass along to the buyer to make the sale. At its simplest, most buyers don't understand they have a choice between a cash-back rebate OR a finance incentive. So let's say you have pinpointed what the dealer's invoice price really is, you are then negotiating for the percentage of the dealer incentive you keep. For their part, the dealer has a minimum profit margin they are trying to make. Everything beyond that is gravy. And it's much easier for them to realize that gravy with the complicated financing deal.

I have never financed a car, but if I was going to, I'd insist on negotiating the sale price completely separately from the loan. I am not sure how successful I could be at that given how dealerships are set up and the BS they would drag me through. I'd know, though, that if I get my sale price -- assuming I can get the car while leaving the smallest amount of meat on the bone for the dealer -- the loan on the car is going to come with a cost. I'd expect it to be whatever the going bank loan rate is for the type of loan I got. I assume I'd probably have to go to someone else (a bank) for the loan to have any chance of success buying a car that way, but I don't know.

I don't like financing things even when it makes financial sense; but that is more about my personality. With interest rates being kept so artificially low to spur on people taking on debt, it's certainly valid if you choose to finance a car, even if you are able to pay in cash. In real terms (not nominal), you are very often going to pay less for the car (again in real dollars, not nominally) if you finance it -- courtesy of the Federal Reserve making anyone who has the gall to try to save money pay for you to go into debt. But in nominal terms, you are deluding yourself if you think you are getting a zero percent interest rate and getting as good a price as you could have gotten taking a standard cash-back rebate and whatever other dealer incentives were available in an all cash deal.

 

One of the most frequent robocalls I get is for extended car warranties. Some company is trying like hell to get me coverage for my Chevy Impala, never mind that I've never owned any Chevy.