For those thinking that the Federal Reserve’s move to essentially cut the interest rate to zero last month would be a boon to those in the new vehicle market due to anticipated rise in low-interest and zero-percent loans, March was a disappointing month.
The average interest rate for a new vehicle loan rose slightly in March, according to Edmunds.com. The annual percentage rate on new financed vehicles averaged 5.8% in March, compared to 5.6% in February.
However, there was a bright spot for the buyers with excellent credit, Edmunds data reveals that the share of sales with 0% finance deals rose slightly in March, constituting 4.7% of new vehicle purchases compared to 3.6% in February.
“Automakers reacted quickly to the coronavirus crisis with attractive incentive offers and payment programs, but these unfortunately appeared to fall on deaf ears,” said Jessica Caldwell, executive director of insights at Edmunds.
“Consumers were understandably distracted by the rapidly changing news cycle and changes to everyday life created by shelter-in-place orders, and March sales took a blow.”
March sales are expected to drop as much as 40%, depending upon which forecast you examine — those results will come later today. However, a quick look at sales in the world’s largest market, China, saw that sales dropped 89% in February, the country’s first month fully impacted by the outbreak.
Automakers have already started providing ways to help keeps sales afloat as much as possible with some new lending programs; however, much of the focus of their finance units appears to be on helping those with vehicles already stay in those vehicles. That said, it appears with those with bad credit seem to be a little more welcome at new car dealerships these days.
Edmunds experts note that the share of sales with APRs of 10% or higher saw a lift in March, constituting 12.8% of sales compared to 10.7% in February. Loan term lengths also increased in March, surpassing 70 months for the first time on record.
According to Edmunds data, the share of borrowers who had a 73- to 84-month loan term rose to 35.3% in March, compared to 32.8% in February.
“Vehicle purchases made in March — particularly the second half — were likely need-based,” said Caldwell. “These shoppers might not have necessarily qualified for zero percent finance offers but still needed a car in spite of everything else going on in the world.”