Zero-percent finance deals are becoming harder for car shoppers to find, according to new analysis from Edmunds.
Continue Reading Below
With interest rates on the rise and automakers turning to cash incentives, zero-percent finance deals dropped to their lowest level since July 2005 last month, Edmunds said. Promotional offers of 0% annual percentage rates (APRs) accounted for 6.92% of all new-vehicle sales in July, down from 11.34% in the same month last year.
The decline in 0% offers bucks the seasonal trend, as automakers typical dangle no-interest loans in the summer to boost sales of outgoing model-year vehicles.
“This appears to mark the end of a fairly long-lived tradition for the industry,” Jeremy Acevedo, Edmunds’ manager of industry analysis, said in a news release. “While inventory isn’t at the alarming level it was at this stage last year, how automakers navigate their model-year selldown will be critical through the rest of the year as the market contracts and prices continue to rise.”
Edmunds added that July’s scarcity of zero-percent finance offers helped keep interest rates near record highs. The average rate for a new vehicle was 5.74%, sharply higher than a year-ago average of 4.77%. That’s the largest year-over-year increase through the first seven months of 2018, Edmunds said.
The Federal Reserve has gradually hiked short-term interest rates to counter rising inflation, a move that increases borrowing costs for consumers. Sticker prices have also climbed amid declining market share for passenger cars. Strong sales of sport-utility vehicles and pickup trucks have driven average prices higher.
In order to keep monthly payments in check, car buyers have put more money down and taken out longer-term loans. The average down payment in July was $3,970, up from $3,621 in the year-ago month. Average loan terms fell slightly to 68.75 months from 69.45 months. Five years ago, the average loan was 65.58 months.
Most major automakers reported a decline in July sales. Ford said its monthly sales were down 3.1%, while Honda logged an 8.2% drop. Fiat Chrysler’s sales rose 6% on strong results for Jeep and Ram. The month followed a blockbuster June for auto sales and included one less selling day compared to July 2017.