Fade of Zero-Percent Financing Makes Leasing More Appealing

Rising interest rates pushing buyers toward leases.

by on Sep.14, 2018

Zero-percent financing deals are increasingly difficult to find these days, pushing some into leasing.

Car shoppers are always looking for a deal, and often they’re excited by the prospect of zero percent financing; however, those deals are getting tougher and tougher to find.

The percentage of sales with zero percent finance deals has been cut in half in the last two years — dropping from 14.6% of transactions in August of 2016, to 10.4% last August to just 7.4% this August, according to Edmunds.

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This drop during the last three Augusts sparks interest because zero percent financing deals usually abound in August and September.

“August truly represents the month that we would have expected to see a turnaround in this trend if one was imminent,” said Jeremy Acevedo, Edmunds’ manager of industry analysis. “Moving forward, shoppers will likely need to do a bit more digging to find other ways to save on a new vehicle because it looks like zero percent finance deals are going the way of the dodo.”

(August auto sales turn in better-than-expected results. Click Here for the story.)

Not only is it getting tougher to find a good zero-percent deal, interest rates in general are on the rise. Edmunds analysts note the annual percentage rate on new financed vehicles averaged 5.8% in August 2018 compared to 4.9% in August 2017 and 3.9% in August 2013. Inventory levels have also hit a record low not seen since 2016, which Edmunds experts say is creating less of a need for automakers and dealers to pile on costlier incentives.

The Hyundai Sonata is one of the best deals going, according to U.S. News' best buy list.

“Automakers have done a decent job this year at aligning inventory with demand, so there’s no need for dealers to have a fire sale,” Acevedo said. “Manufacturers seem to be more comfortable with a longer selldown period that leverages targeted incentives, instead of an aggressive ‘everything must go now’ mentality.”

These two factors – fewer zero-percent deals and rising interest rates – have buyers looking hard for deals and pushing many toward leasing new vehicles as a way to get that lower monthly payment shoppers typically desire.

(Click Here for more about car buyers paying more, on time as lenders raise risk threshold.)

“Interest rates are inching up, so we’re seeing fewer and fewer zero-percent financing deals,” says Jamie Page Deaton, executive editor of U.S. News Best Cars. “However, we are seeing an uptick in lease deals, which often have lower monthly payments than most financing deals. A great lease deal can make it easier to fit a highly ranked car or SUV into your budget.”

Mazda is offering 1.9% financing on the new Miata for 72 months.

U.S. News produces a monthly list of best deals and for September, and of the seven offered, five include leasing offers. The best deal, according to the magazine, is available on the Hyundai Sonata, which can be had for 0% financing for 60 months $1,000 cash back; $3,500 cash back; lease for $199 per month for 36 months with $2,199 due at signing.

There are no other zero-percent offers listed among its best deals. Other deals include a Lease for $219 per month for 36 months with $2,999 due at signing on the Dodge Durango; a Subaru Forester lease for $249 per month for 36 months with $1,749 due at signing; and a lease for $399 per month for 36 months on the Mercedes-Benz C-Class with $4,247 due at signing.

(New vehicle costs expected to rise under new NAFTA deal. Click Here for the story.)

While leases are looking good, the Jaguar F-Pace gives you options: 1.9% financing for 36 months $1,000 bonus cash or lease it for $489 per month for 36 months with $4,495 due at signing. With the end of summer near, Mazda’s looking to make one last push on the Miata with 1.9% financing for 72 months.

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