Auto Dealers Offer 7-Year Loans as Coronavirus Dampens Sales
May 13th, 2020 @ 6:15 PM by Amber Nelson
U.S. auto dealers are making longer loans than ever with huge incentives in order to lure in reluctant buyers during the COVID-19 crisis.
Car sales fell 80% below their expected levels in March as shelter-in-place went into effect in many parts of the country. To woo buyers back, dealers have been offering 0% interest loans and extending loan terms to seven years to keep payments low. Edmunds reported that 26% of all new car loans in April were no-interest deals.
“To be honest, I’ve never really seen incentives like these,” said Jessica Caldwell, head of industry analysis at Edmunds. “Auto companies are really faced with the challenge of pulling out all the stops to try to capture the small market that is actually willing to buy cars — because we know that it’s not a large one right now.”
The coronavirus shutdowns have put the breaks on car-buying as millions of potential buyers have lost jobs and income, disqualifying them from loans. Another significant segment of buyers are afraid to make big purchases during this period of economic uncertainty.
At the same time, a record number of Americans owe more on their current auto loans than their vehicles are worth, according to Edmunds. In April, 44% of new car sales with a trade-in came with negative equity, up from 40% in March and just 33% a year earlier.
“At first glance, the numbers are certainly alarming, but there are some potential upsides for shoppers with negative equity who purchased a vehicle in April compared to those who did so just a year ago,” said Ivan Drury, Edmunds’ senior manager of insights. “Automakers are offering some of the most generous incentives we’ve seen in decades to generate demand during the pandemic, and consumers stuck in high-interest loans might be able to make these work to their advantage.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.