Black Friday spurs short-term interest rate decline
Zero-percent financing deals reappeared for Black Friday, but they wont last long, according to Edmunds.
Holiday deals in November temporarily brought 0 percent financing deals -- which had all but dried up in the month earlier -- back to showroom floors, but that relief for customers will likely subside by year end, said Jeremy Acevedo, Edmunds manager of industry analysis.
"Its an expensive endeavor for automakers but one that will help move the market share needle," Acevedo told Automotive News. "The auto industry is trying to figure out what will work for them to maintain healthy levels of demand and trying to see what kind of deals resonate with shoppers."
Black Friday deals
Despite the rise from months earlier, 0 percent financing -- at 5.5 percent of new-vehicle loans -- was at its lowest November level since 2005, Edmunds said.
The resurgence of 0 percent financing for Black Friday deals pulled down the average interest rate on new-vehicle loans from the month earlier, but rates still grew year over year and will likely continue to rise.
At about 6 percent, the average new-vehicle interest rate in November dipped only slightly from Octobers 6.21 percent average. But, it remains high compared with a year earlier when the average new-vehicle interest rate was 4.81 percent.
According to Acevedo, customers who returned to market this November and last bought in November 2013 could potentially face a 47 percent increase in their interest rate.
Federal Reserve rate rises
Interest rates on auto loans have been on the incline for four consecutive months, according to Edmunds, and tend to rise and fall with the rate set by the Federal Reserve. The Fed has increased its benchmark interest rate, the federal funds rate, three times this year. November marks the second consecutive month that the average interest rate on a new-vehicle loan has grown more than 1 percentage point, a trend that should continue for at least the next few months, said Acevedo.
With holiday deals behind them, consumers are likely starting to feel payment pain. The average amount financed for new vehicles rose 1.4 percent -- or $444 -- year over year, and monthly payments increased 5.2 percent -- or $27. Loan terms remained relatively flat at 69 months.
"I dont know theres a lot more room that term lengths can grow," Acevedo said. "Managing shopper affordability and managing risk is what a lot of manufacturers are trying to toe the line on right now."