Countdown to zero: Automakers dial back 0 percent interest loans

Fiat Dealership
Fiat Dealership (Image courtesy of brownpau / CC BY 2.0 / MGN)

If you’ve been counting on a zero-percent interest rate to help finance your next new car, it may be time to lock in the deal before it’s too late. According to a report by Automotive News, rising benchmark rates from the Federal Reserve and a drop in customer adoption may cause zero-percent financing deals to fall by the wayside sooner rather than later.

Data from Edmunds showed that in July, zero-percent financing dipped to its lowest monthly level since July 2005 at just 6.9 percent of sales. The promotions, which were first adopted by General Motors directly following the September 11, 2001, attacks in its “Keep America Rolling” campaign and subsequently spread across the industry, are becoming difficult for automakers to justify financially.

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The Federal Reserve has implemented five benchmark interest rate increases in the past 18 months, including two in the last year. This makes justifying the cost of a 0 percent deal less feasible for carmakers, as even a 1 percent interest rate increase on a $30,000 vehicle adds $800 to the cost the company must absorb.

Though many brands have already sworn off the practice, Cadillac, Mazda, Lincoln, and Subaru still offered the deal on many of their vehicles, including the 2018 Mazda CX-5 and Mazda3 for 60 months. Cadillac and Lincoln both apply the deal to almost all of their vehicles, while Subaru’s Legacy, Impreza and Forester models all get the designation to help clear out 2018 models.

As consumers continue to buy new vehicles on longer terms with increased interest rates, the average cost of interest on a new vehicle has jumped dramatically. In the second quarter of 2018, the average new vehicle had a loan with an interest cost of $5,477, an increase of 21 percent (or $943) from just a year ago.

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