Any economists here?

judypilot

judypilot

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Judy Parrish
I just bought a new vehicle, and for the second time in my life, got an interest-free loan. Interest-free loans are fabulous because you're paying off the loan in dollars of ever-decreasing value, especially when, as now, inflation is high. The thing I don't understand is, what's in it for the finance company? How are they making money on this?

About the only thing I can come up with is that I got the loan because I have excellent credit, so they know that at least they'll be getting their money every month. But that still doesn't make sense to me as, by the time I pay the loan off, the payment will be worth substantially less. In fact, by the time the first payment is due, at current rates of inflation, it will be worth about $6.40 less than if I'd had to make the payment the day I bought the vehicle. I figure only an economist can clarify this for me.

Sort of a funny story: The first time I got such a loan, I was ready to make a down payment (I was tired because buying a car seems to take hours and it was late and I was starving). The finance guy said, "Why would you want to make a down payment on an interest-free loan?" I looked at him for a minute and said, "I wouldn't."

This time, the finance guy asked if I wanted to make a down payment. I said, "Why would I?"
 
I suspect that they make their interest on those that don't pay it off before the deadline to avoid the interest. Typically, there is a deadline that if you don't pay it off, they add back in all the interest.
 
PaulS said:
The interest is already built into the sales price. Money is cheap right now and has been for a while, that will start changing.
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That's my take. 0% financing came about shortly after 9/11 as car buying dropped off a cliff after the attacks, so car companies had to sweeten the pot to keep the metal moving. They soon found that many customers, especially those with good credit, came to like and expect 0% financing. So, it's baked into the price of the cars. Who pays extra? Those who default on the loan and/or don't qualify for 0% financing.

I bought a truck in 2001, it had 0% financing. The finance guy said that due to my good credit, I could finance the sales tax and registration as well. Cool, I replied, does Ford want to give me some more money that I can put against my mortgage? The dude gave me a funny look...
 
If you notice those 0% interest offers are on certain cars only, of course the most desirable ones will charge over MSRP and likely no discount on the interest.

Usually I think those 0% offers are financed from the financial arm of that automotive maker, they have a production line and need to keep inventory moving, otherwise dealers go under, salesman quit, and it screws everything up. 0% is a last push in a bad economic situation for them and quite effective. Profit is better than a loss any day.
 
midwestpa24 said:
Bingo. Pay 5% now, or pay 5% later. Or whatever the going rate is these days.
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I'll tell you though, I bought a new '13 Acura TL for the wife back in 2013. I got what I thought was a good price and the dealer asked me if I wanted to finance. I asked him what the rate was, he told me 0.9% and a $1,500 rebate. I scratched my head, told him that I would pay cash if he gave the rebate. He told me no dice, you only get the rebate if you finance, but I could repay in a 3 months if I didn't want the loan. So I took the loan, ended up keeping it for the term as the stock market was paying way more than 0.9%. Still scratching my head at that one.
 
Also consider, they sell a lot of cars this way that they wouldn't have sold otherwise. Not that it happens as much now, but it does with some models, cars sitting on a lot are depreciating in value and tying up resources.
 
PaulS said:
The interest is already built into the sales price. Money is cheap right now and has been for a while, that will start changing.
Click to expand...

^ This

Some of the zero interest rate promotions have a discount options for paying cash. Dealerships don't like that as they often get a cut from the loan. No loan, no cut.
 
Something to be careful with small or no down payment loans on cars is that, except for the likely very temporary situation we're in today, vehicles lose a lot of value as soon as you drive them off the lot. You can easily end up upside down on a car loan without at least a 10-15% down payment (plus the any sales taxes or fees you've rolled into the loan). If it gets totaled in an accident, you'll need to make up the difference to pay off the loan, unless you also pay for gap insurance to cover that delta.
 
mandm said:
If you notice those 0% interest offers are on certain cars only, of course the most desirable ones will charge over MSRP and likely no discount on the interest.
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Correct. When I bought my Ram, there was 0% financing available on the 1500s. Not for the 2500s and up. Basically, it's something that they do, mostly on the lower end/less desirable vehicles, to encourage people to buy.
 
PaulS said:
I'll tell you though, I bought a new '13 Acura TL for the wife back in 2013. I got what I thought was a good price and the dealer asked me if I wanted to finance. I asked him what the rate was, he told me 0.9% and a $1,500 rebate. I scratched my head, told him that I would pay cash if he gave the rebate. He told me no dice, you only get the rebate if you finance, but I could repay in a 3 months if I didn't want the loan. So I took the loan, ended up keeping it for the term as the stock market was paying way more than 0.9%. Still scratching my head at that one.
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I got something like that once. No rebate involved though. Shopping for a small pickup. Sign on the truck said $9995 or something like that. Super good deal, it was a new, last years model. I walked in and told the first salesman I saw, I want that truck. He started ‘selling’ me on it, take a test drive and all that jazz. I said no, I want it, let’s get the paper work done. Went to the sales manager and said I’m paying cash, write it up. He said no, that price is only if you finance it. I said let me see the contract. No prepayment penalty except that they had to make at least $50 dollars in finance charges. I timed the payments to the penny and paid it off exactly to the day they had made their 50 bucks.
 
judypilot said:
I just bought a new vehicle, and for the second time in my life, got an interest-free loan. Interest-free loans are fabulous because you're paying off the loan in dollars of ever-decreasing value, especially when, as now, inflation is high. The thing I don't understand is, what's in it for the finance company? How are they making money on this?

About the only thing I can come up with is that I got the loan because I have excellent credit, so they know that at least they'll be getting their money every month. But that still doesn't make sense to me as, by the time I pay the loan off, the payment will be worth substantially less. In fact, by the time the first payment is due, at current rates of inflation, it will be worth about $6.40 less than if I'd had to make the payment the day I bought the vehicle. I figure only an economist can clarify this for me.

Sort of a funny story: The first time I got such a loan, I was ready to make a down payment (I was tired because buying a car seems to take hours and it was late and I was starving). The finance guy said, "Why would you want to make a down payment on an interest-free loan?" I looked at him for a minute and said, "I wouldn't."

This time, the finance guy asked if I wanted to make a down payment. I said, "Why would I?"
Click to expand...

This isn't really an economics question, its a business development question, but I'll give it a try.

At the end of the day, an interest free loan is a function of buying out the interest on the front end of the loan and building it into the car price (if you are old enough to have shopped in a pre 2008 housing market, think "points" on a mortgage to buy down the interest rate). Right now, this is an appealing benefit for dealers and manufacturers to offer because its so cheap and because everyone is talking about inflation (so it works to sell cars).

In addition, it offers 3 other benefits.

1) Individuals who finance through a dealer (rather than pay cash or use their bank or credit union) are more likely to trade in after a few years. This offers dealers 70%(my estimate) of the used car inventory generation of a lease, without carrying the depreciation risk of a lease (which is high right now due to radical changes in sales prices, as a % of MSRP, over the last 12 months).

2) It allows the car manufacturer (or manufacturer controlled bank) to maintain the contact list of the new car buyers over the life of the loan. Having your address and phone number 2 months after a new car purchase is not very valuable (few buy another new car 2 months after a new car purchase), but having that contact info updated and available 3 years after purchase is rather valuable. (This contributes to the likelihood of trading in, direct marketing works).

3) Last, because dealers are not offering incentives, this "limited time only 0% loan" creates a sense of urgency for the buyer to buy now rather than continue to wait for car prices to "normalize", this is of particular concern with any manufacturer that is not Toyota or Subaru, because Toyota is on track to produce more cars in Jan 2022 than they did in Jan 2019 or 2021 (and Subaru is not far behind), while other manufacturers are still fighting with shortages and factory stoppages due to supply chain issues.
 
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Supposedly, I'll be talking soon with the dealer about the financing terms surrounding the Alfa we ordered for my wife (which is supposed to ship from Italy soon, apparently). I'll be curious to see how that ends up. When we were first talking with the dealer, they were offering a promotional 1.9% rate. In the end, it should be stupidly low.
 
They must have a really great profit margin on the car. In the end it's the same as giving you a discount, but they are more likely to sell the car if they make it easier for you to buy it. I got $28K interest free for 5 years on my last car.
 
PaulS said:
The interest is already built into the sales price. Money is cheap right now and has been for a while, that will start changing.
Click to expand...

That doesn't make sense, they give you the price of the car before they know how you'll pay for it, so it's the same with 0%, higher rate, or cash. That would mean it's just the price.

My take is that 0% gets you to buy their car, so they're ok giving you the loan.
 
The manufacturers sales division pays the finance arm a certain amount per contract in lieu of paying customers a rebate or a dealer incentive. They calculate the average loan length, not term and decide what the dollar amount is to the finance side. Normally you’d see 0% or $XXXX in rebates, now not much in the way of rebates. Dealers aren’t generally a fan, because the get very little finance income on 0%, it’s based on the dollar amount financed, but a $20,000 loan might pay $75-150. Using a bank, that same loan might generate between $200-600.
 
bflynn said:
That doesn't make sense, they give you the price of the car before they know how you'll pay for it, so it's the same with 0%, higher rate, or cash. That would mean it's just the price.

My take is that 0% gets you to buy their car, so they're ok giving you the loan.
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Which ultimately means it's built into the price of the car. Not everyone gets 0%, and nobody will pay cash when they'll give you 0% financing. So they can assume if they're offering 0% financing that they'll make that much or more.

I used to say the sales pitch for a Ford Taurus was "It's a car. For a man who needs... a car." A lot of other cars (most of which are the ones that fall into the category of ones that would get the 0% offers) are in that category. There's a lot of competition, and other than the die hard "I only buy [brand]" people, people aren't likely to be hugely brand loyal so something else has to entice them.

As you move up the chain, whether it's into heavier duty pickup trucks, luxury cars, etc., you move out of that realm that people "need" and so then it becomes more a question of what financing you care to offer. My Ram I ended up not financing through Chrysler, the dealer got me better terms through another company.
 
bflynn said:
That doesn't make sense, they give you the price of the car before they know how you'll pay for it, so it's the same with 0%, higher rate, or cash. That would mean it's just the price.

My take is that 0% gets you to buy their car, so they're ok giving you the loan.
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Cash purchases for new vehicles are rare. So the manufacturers can make this assumption to apply to all.
 
Another big part of the equation (which is often overlooked) is the people tend to buy “more car”when it is financed. Much easier to swallow a high monthly payment than a high sales price.

Instead of buying a 10k car that meets your needs, you buy a 50k car which you can afford by making monthly payments. You end up spending way more on a car than you really should.
 
All the above, it's an incentive. I bought my last vehicle with 1.99% from my local bank. At the time, a good rate, and there were no rebates or incentives on the truck I bought, so after negotiating the price with the dealer, he was all set to negotiate financing. When I gave him my bank rate, he stopped smiling, and just said, "Yeah, I can't beat that".

Sometimes they used to offer either/or. So either some large amount off the price OR zero percent.

One thing not mentioned above is that a car sitting on the lot represents a cost to the dealer and manufacturer. That's why they have incentives. The value of that car goes down every day, everything else being equal, as it gets older. So when you buy it at zero percent interest, you're locking that price in, and they're getting their money back. The money you'll give them reduces in value with inflation, but in past years that hasn't been all that much. What they really don't want are cars left that are over a model year old. Then, if I understand right, those things end up being sold as fleet vehicles at much lower prices...or that's how it used to work. Consumers don't want to buy a year-1 car.
 
Ted said:
Correct. When I bought my Ram, there was 0% financing available on the 1500s. Not for the 2500s and up. Basically, it's something that they do, mostly on the lower end/less desirable vehicles, to encourage people to buy.
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I don't think this would qualify as a lower-end vehicle. But I could be wrong.
 
I finance for 90 days before to receive a 2K rebate in a Ford Truck that was not available if I paid cash…I had to keep it at least 90 days. At the time I asked a finance guy how many people end up actually doing it and was told it was rare and most people ended up with the loan. Rates were in the 4-6% for me and higher for others…I paid it off as planned.
 
I was prepared to pay cash, but why? Why pay it off in today's dollars, which are very likely worth more than tomorrow's?

I think we got a pretty good price, in the context of the cost of new vehicles nowadays; we did shop around, and it's a seller's market right now so I knew we were going to pay. I take the point about a $10K car that meets your needs, but nowadays, $10K doesn't get you much car. And I am allergic to buying used vehicles. I know that a lot of people will think I'm stupid because of this, because vehicles lose their value, etc. etc. However, I tend to run vehicles for 15 years or more (the one I sold that this one replaced was 16 years old; the previous car I got rid of had 14 years, the one before that 16 years, my main car right now is 7 years old and I consider it barely broken in--you get the picture), so I don't care if the value decreases--I'm more concerned about maintenance and if I buy new, I know exactly what the maintenance history has been. I can afford it, so it's worth it to me, especially for the field vehicles, which get hard use and which I desperately need to NOT leave me stranded in some remote area.
 
judypilot said:
I don't think this would qualify as a lower-end vehicle. But I could be wrong.
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Yeah, I suppose "lower end" is overstating it some. But definitely stops when you get to vehicles that are luxury or necessary beyond daily drivers (like 3/4 and 1-ton trucks).
 
They also put 0% on the stuff that needs to move. At one time, Jeep sold the GC like hotcakes, they were everywhere. These days, I don't see many, they don't seem to be the "in" SUV, so Jeep needs to move them out. I'd bet there are no 0% deals on the Wrangler, they sell everyone they get in at MSRP and above.
 
Ted said:
Yeah, I suppose "lower end" is overstating it some. But definitely stops when you get to vehicles that are luxury or necessary beyond daily drivers (like 3/4 and 1-ton trucks).
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Taken out of context, "lower end" may not be a correct description of a RAM 1500, but it is appropriate when comparing it to a 2500 or bigger, as you did originally.
 
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Alright this question is right up my alley, so... allow me to nerd out for a minute.

I remember from my corporate finance classes my professor railing on this point: there is no such thing as an interest free loan. It’s just that there’s a bunch of ways they can shift payments around to make it possible to advertise that the loan is interest free. Here are a couple that come up off the top of my head:

1). Charge an oversized origination fee: Let’s say the loan value is $100k and the market interest rate would otherwise be 10%. Let’s assume that the interest paid would therefore be $10k (it would be more than that due to the math involved, but let’s keep it simple). Instead of charging interest over the course of the loan, the finance company advertises 0% interest, and charges a $10k origination fee. All that is is the interest paid up front.

2). Charge an oversized payoff / termination fee - basically exactly the same as the above, but pcharged when the loan is paid off.

3). Lend more than the loan is really worth: let’s say pricing is such that the thing you’re buying requires a $100k loan. But prices are rising fast and the finance company can work with the seller of the product to raise prices and then lend against those higher values. So they write you a $110k loan at 0% interest.

There are a thousand ways to move these payments around and done in combination - a little origination fee, a dash of termination fee, sprinkling in a little bit of overselling the loan value, etc, they can combine to really make it feel like the loan is, in fact, 0%. But it’s not. The reality is that the lender is borrowing the money they are lending to you, and that money they are borrowing definitely has interest. They are not taking that money, incurring that interest cost, and then giving it to you for free. They’re just structuring the payments to make it feel like it’s free.

if you want to get real smart on this, study up on the concept of “yield-to-maturity”, it’s the math that addresses all the ways payments can be used to mask interest, essentially allowing you to calculate the effective interest rate when the rate itself is “zero”.

One final thought: car buying is a little unique in that if you pay cash it’s not actually clear that you get a better price. This is not my are of expertise, but from what I understand this is because there are so many other benefits to the dealer for them to get you to finance, and not all of these are perfectly represented in prices, fees, or interest rates. For instance: you’re more likely to incur other financing fees in the future, you’re more likely to trade-in your car in the future, you’re more likely to get underwater on your car which makes you easier to sell on the next one to “get you out of” your loan, you’re more likely to use their shop for repairs, you’re more likely to maintain a relationship with that dealer which makes it easier to market and sell to you, you’re more likely to come online and advertise that you got 0% interest and do free marketing for them (hah!), etc etc etc, so when we talk about lifetime value of a customer to the dealer, all these other things come into play making it possible to actually sell a financed car at a lower price (or conversely, to not bother to discount a paid-in-cash car).
 
AA5Bman said:
One final thought: car buying is a little unique in that if you pay cash it’s not actually clear that you get a better price. This is not my are of expertise, but from what I understand this is because there are so many other benefits to the dealer for them to get you to finance, and not all of these are perfectly represented in prices, fees, or interest rates. For instance: you’re more likely to incur other financing fees in the future, you’re more likely to trade-in your car in the future, you’re more likely to get underwater on your car which makes you easier to sell on the next one to “get you out of” your loan, you’re more likely to use their shop for repairs, you’re more likely to maintain a relationship with that dealer which makes it easier to market and sell to you, you’re more likely to come online and advertise that you got 0% interest and do free marketing for them (hah!), etc etc etc, so when we talk about lifetime value of a customer to the dealer, all these other things come into play making it possible to actually sell a financed car at a lower price (or conversely, to not bother to discount a paid-in-cash car).
Click to expand...

Definitely agree with new cars. For used cars, cash is king and financing is a pain. But new car dealers seem to live off of financing.
 
I've never been offered a zero interest loan for a car. But I don't buy expensive cars either. Mine are all small and Japanese.
 
judypilot said:
I don't think this would qualify as a lower-end vehicle. But I could be wrong.
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It’s not usually based on price, it’s based on marketing strategies. In Ted’s case a $70k 1/2 ton truck got .0%, but a $45k 3/4 ton wouldn’t qualify. Demand was higher than supply on 3/4 trucks.
 
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AA5Bman said:
Alright this question is right up my alley, so... allow me to nerd out for a minute.

I remember from my corporate finance classes my professor railing on this point: there is no such thing as an interest free loan. It’s just that there’s a bunch of ways they can shift payments around to make it possible to advertise that the loan is interest free. Here are a couple that come up off the top of my head:

1). Charge an oversized origination fee: Let’s say the loan value is $100k and the market interest rate would otherwise be 10%. Let’s assume that the interest paid would therefore be $10k (it would be more than that due to the math involved, but let’s keep it simple). Instead of charging interest over the course of the loan, the finance company advertises 0% interest, and charges a $10k origination fee. All that is is the interest paid up front.

2). Charge an oversized payoff / termination fee - basically exactly the same as the above, but pcharged when the loan is paid off.

3). Lend more than the loan is really worth: let’s say pricing is such that the thing you’re buying requires a $100k loan. But prices are rising fast and the finance company can work with the seller of the product to raise prices and then lend against those higher values. So they write you a $110k loan at 0% interest.

There are a thousand ways to move these payments around and done in combination - a little origination fee, a dash of termination fee, sprinkling in a little bit of overselling the loan value, etc, they can combine to really make it feel like the loan is, in fact, 0%. But it’s not. The reality is that the lender is borrowing the money they are lending to you, and that money they are borrowing definitely has interest. They are not taking that money, incurring that interest cost, and then giving it to you for free. They’re just structuring the payments to make it feel like it’s free.

if you want to get real smart on this, study up on the concept of “yield-to-maturity”, it’s the math that addresses all the ways payments can be used to mask interest, essentially allowing you to calculate the effective interest rate when the rate itself is “zero”.

One final thought: car buying is a little unique in that if you pay cash it’s not actually clear that you get a better price. This is not my are of expertise, but from what I understand this is because there are so many other benefits to the dealer for them to get you to finance, and not all of these are perfectly represented in prices, fees, or interest rates. For instance: you’re more likely to incur other financing fees in the future, you’re more likely to trade-in your car in the future, you’re more likely to get underwater on your car which makes you easier to sell on the next one to “get you out of” your loan, you’re more likely to use their shop for repairs, you’re more likely to maintain a relationship with that dealer which makes it easier to market and sell to you, you’re more likely to come online and advertise that you got 0% interest and do free marketing for them (hah!), etc etc etc, so when we talk about lifetime value of a customer to the dealer, all these other things come into play making it possible to actually sell a financed car at a lower price (or conversely, to not bother to discount a paid-in-cash car).
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So all of this makes sense except the price didn't change whether I paid cash outright (which was discussed) or got the loan. So in this situation, it still seems like I'm getting the better deal. I'm struggling to see how any of what you said could apply in this case. No, there are no fees for early payoff, which is always a concern, although with an interest-free loan, there's no reason to pay off early. The payments aren't burdensome.
 
Warlock said:
I finance for 90 days before to receive a 2K rebate in a Ford Truck that was not available if I paid cash…I had to keep it at least 90 days. At the time I asked a finance guy how many people end up actually doing it and was told it was rare and most people ended up with the loan. Rates were in the 4-6% for me and higher for others…I paid it off as planned.
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I did the same thing in 2008 when I bought my F-150. They had a 2K rebate that I got as long as I had the loan through them for 90 days (around 6% if I remember). Made the three payments and then refinanced at the local credit union for half that rate. Easy money.

Bill said:
They also put 0% on the stuff that needs to move. At one time, Jeep sold the GC like hotcakes, they were everywhere. These days, I don't see many, they don't seem to be the "in" SUV, so Jeep needs to move them out. I'd bet there are no 0% deals on the Wrangler, they sell everyone they get in at MSRP and above.
Click to expand...

The JGC got REALLY expensive compared to its competition over the years. They also started making the Dodge Durango which is now 90% the same vehicle, but longer and with a 3rd row . . . and it's generally cheaper to buy. Same engines, same transmission/AWD system. I believe the Jeep has some extra off-road modes and "Jeep" stuff, but it's mostly the same SUV. There are also a lot more AWD SUVs out there which make the JGC less competitive in the market. They are getting a facelift in 2022 along with an interior revamp to maximize the interior space which has been a knock on the previous generation), so that might bring them back into popularity.
 
judypilot said:
So all of this makes sense except the price didn't change whether I paid cash outright (which was discussed) or got the loan. So in this situation, it still seems like I'm getting the better deal. I'm struggling to see how any of what you said could apply in this case. No, there are no fees for early payoff, which is always a concern, although with an interest-free loan, there's no reason to pay off early. The payments aren't burdensome.
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That's the point. The price didn't change because they baked the interest rate (0%) into the price whether you finance or not. So they get their money up front if you get the loan, and they get their money up front if you don't. What started off was an incentive to get inventory moving at the expense of future loan revenue . . . but the market got used to the "0%" interest game, so when the demand for vehicles returned, they just kept the same interest rate but increased the dealer markup to maintain or increase profits. Consumer still thinks they are getting a "deal", but the dealer isn't giving away profit at all. I'm sure if you really pressed them on the price you could have possibly negotiated a lower purchase price with a cash sale, but in this current frenzied market they just as likely would have told you to pound sand.
 
SoonerAviator said:
I'm sure if you really pressed them on the price you could have possibly negotiated a lower purchase price with a cash sale, but in this current frenzied market they just as likely would have told you to pound sand.
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I'm not sure of that at all. When we've been in negotiations on car purchases, they have typically been more flexible if we're going to finance. The dealer makes quite a bit in the form of kickbacks from the lenders, from what I understand. Maybe it's different with 0% financing, I don't know -- nothing we've ever bought had that option.

Of course now we've stopped buying new vehicles entirely. I'll buy 2-3 year old, low mileage vehicles that are usually still under warranty, but have had that "new car" depreciation knocked off of them. No 0% financing there either, but we'll typically save anywhere from $15K on up on the purchase price and we're driving much nicer vehicles than we would be if we were buying new.
 
Loan costs are baked into cars in a similar manner as credit card fees are baked into retail prices. Nothing is for free. ;)

It's just a matter of scale.
 
DaleB said:
Of course now we've stopped buying new vehicles entirely. I'll buy 2-3 year old, low mileage vehicles that are usually still under warranty, but have had that "new car" depreciation knocked off of them. No 0% financing there either, but we'll typically save anywhere from $15K on up on the purchase price and we're driving much nicer vehicles than we would be if we were buying new.
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I shifted to buying used as well. The last new car I bought was around 2000 and I was looking at used, but the interest rates made buying new a better deal. Held onto that car for 13+ years. Current car I bought "certified used" with extra warranty built into the "certified used" program, and therefore the price.

I may break my process and buy new on the next one, but that's because I'm looking at getting an EV and I want one with newer tech and a good warranty for the battery. If I buy another ICE car I'll buy one used and let someone else take the initial depreciation hit.
 
judypilot said:
So all of this makes sense except the price didn't change whether I paid cash outright (which was discussed) or got the loan. So in this situation, it still seems like I'm getting the better deal. I'm struggling to see how any of what you said could apply in this case. No, there are no fees for early payoff, which is always a concern, although with an interest-free loan, there's no reason to pay off early. The payments aren't burdensome.
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I think the answer to this is that you kind of can't know what would have been the case if you had insisted on a cash purchase or what fees they're burying in other costs. Furthermore, it's not necessarily even in the purchase price or a value represented in a fee that's written on paper. For instance, it could be in the buyer's behavior: i.e. we know that people who borrow money for cars are more likely to splurge on higher-profit trim packages or options, or warranties, "underbody clear-coat" or other add-ons or whatever the case may be, and the higher revenue generated by those buyer behaviors is, essentially, our interest rate.

There are two big pieces of evidence that tell me they make money when they finance: the first is that they push financing in spite of 0%, and the second is that there is always a cost of capital - whether it's in an interest rate in the money that they borrow or even as esoteric as the market's expected ROE on their company stock. Dollars always have to be producing a return, and there's no way they're giving you those dollars and not making a return. Granted, where they are making that return may be difficult to pin down, but it's definitely there.
 
They did not push the financing at all and, in fact, I was talking about buying it outright until fairly far into the discussion, when I thought to ask about zero-interest loans. However, I convinced myself (sort of) that they're at least not losing too much money. If inflation continues as it is today (unlikely), the final total will be only $3000 less (in today's dollars) than if I had bought it outright. So I guess it's OK from their standpoint. However, it is, of course, advantageous for me. I can absorb the payments in my monthly income. I'd have had to sell some assets to buy it outright; now I can leave those alone to grow. So I still think it makes sense.

I do want to acknowledge an important point Jeff O. made, that if I total the car before the loan is paid off, I'm still on the hook for those payments. But the psychological pain of totaling a car is true no matter what. Imagine totaling the car right after buying it; so I'm not sure planning for a crash contingency is worth it (or even possible).
 
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