According to this Bloomberg article, General Motors will begin offering no-interest car loans on certain pickup trucks and SUVs for as long as 6 years. I suppose that this indicates a certain amount of desperation to sell these gas-guzzlers, but what strikes me is the “no-interest” part of this story.
Surely most people understand that they’re not really getting a no-interest loan. In reality, they are paying an inflated price that includes the real vehicle price plus the loan interest amount. For loans extended to 6 years, the advertised price is just inflated by more. Even worse, no-interest loans are often only available on fully-equipped vehicles with many overpriced options.
When it comes to paying cash versus financing a vehicle, Phil Edmonston’s Lemon-Aid Guide explains the dealers’ preference for financing:
“Let’s clear up one myth right away: Dealers won’t treat you better if you pay cash. They want you to buy a fully-loaded vehicle and finance the whole deal. Paying cash is not advantageous to the dealer, since kickbacks on finance contracts represent an important part of the F&I division’s profits. Actually, barely 8 percent of new car buyers pay cash.”
Edmonston goes on to list hidden loan costs and an interesting scam. This scam begins after you purchase a car and leave your trade in. Then you’re told that your loan was rejected and your trade-in has been sold. You’re then forced accept higher payments to get the loan. This shows the importance of getting a signed agreement saying that financing has been approved. Or better still, save up and pay cash for your car.