Do 0% APR Loans Still WOW Car Shoppers?

KEYINSIGHTSREPORT

New Vehicle Loans

Do 0% APR Loans Still WOW Car Shoppers?

What is 0% APR?

Zero percent APR is an interest-free loan subsidized by automakers. It is typically extended to buyers with excellent credit as a purchase incentive. About ten percent of buyers who financed a new vehicle through a dealer or manufacturer program in 2014 received a 0% APR loan.

0% APR Saves $3,554 Over an Average Loan

Total Cost of Interest When

The Average New

Financing $28k Over 67 Months

$8.7k

Vehicle Loan...

$7.7k $6.8k

Amount: $28,000 APR: 4.31%

Term: 67 Months

$5.9k $5.0k $4.1k $3.3k

$2.4k

Interest Paid: $3,554

$1.6k

$$00 $0.8k

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% APR

Do 0% APR Offers Bring Out the Buyers?

For automakers 0% APR offers have been an effective method for increasing market share, but the boost is generally short lived. Once shoppers are accustomed to zero percent offers, it loses its appeal to drive shoppers into dealerships.

New Vehicle Loans at 0%

0% APR offered as part of the Employee Pricing Plus Incentive Program (Domestic Automakers)

0% APR offered by Toyota following major recall campaign

25% 20%

15%

10%

5%

0%

Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

KEYINSIGHTSREPORT

New Vehicle Loans

Do 0% APR Loans Still WOW Car Shoppers?

How Have Interest Rates Changed?

20%

On average, today's car 18%

buyers pay a much

lower interest rate on

16%

their car loan than they

14%

did a decade ago.

12%

% of Loans

Because credit is

10%

cheaper and more

widely available, zero

8%

percent financing isn't as 6%

attractive as it once

4%

was...

2%

New Car Loan Distribution

2014

2004

0%

Loan Offers vs. Lease Deals

APR Range

Leasing is a growing trend among buyers. However, shoppers that elect to finance are fundamentally different from shoppers that lease. Zero percent APR offers appeal to buy-and-hold shoppers committed to long-term ownership. For many shoppers, though, leasing brings an economical, non-committal and nohassle approach to vehicle ownership. Leasing has surged in recent years, and that momentum will likely hold strong despite cheaper car loans.

30% 27%

New Vehicle Sales that

25%

are Leased 20%

16%

Percent of 15%

11%

13% 14% Loans at 0% 10%

8%

8% 8%

9% 9% 10% 9%

5%

4%

0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Where are the 0% APR Deals ?

Vans

19%

Non Lux Cars 11%

Non Lux SUV 10%

Truck 4% Lux 3%

0% APR Loans by Vehicle Type in 2014

e.g. 19% of financed van purchases carried a 0% APR

KY 16.7% AK 1.6%

WI 16.0% HI 4.5% States w/

Most and

IL 14.2% LA 5.1% Least

Loans at

NE 13.9% GA 5.3% 0% APR

in 2014

IA 13.7% FL 5.3%

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