Will 0% Financing Be Around Again This Year?

[two_bit_score]

Back when interest rates were high and you got an opportunity’ to buy something at a ‘good cash price’ a lot of people put the CD’s up a collateral instead of getting a loan with the property as security.

You would pay usually 2% over what the bank was paying you on the CD but you had extreme flexibility in that what you were buying was not encumbered with a loan. Yes, it required some discipline but it was done, often.

 

[Hersheyfarm]

They are offering 0% for 60 months on SVL's at this time. Pretty tempting offer.

It costs about $3000 interest to do zero % on them.

 

[Hay Dude]

Yes and no. Kubota (and many car and truck companies) use low or zero % financing as a factory sales incentive. The list price remains the same but the reduced interest lowers buyer's payments so it's like they lowered the price. Sometimes there is also a rebate for cash buyers.

It is a sales gimmick to generate sales. But so is lowering the price. There's nothing wrong with that. It's how markets are supposed to work.

Agree.
I think the thing to also remember here is that some of us non-elites do NOT have $50,000+ to plunk down on equipment and financing is the ONLY option to keep working at jobs we have had for decades.
The “0% financing” just spreads the pain out over 36-72 months.
I usually opt for financing of some sort, then pay it off well short of the term of the loan, like when a higher paying job comes along.

 

[rScotty]

It costs about $3000 interest to do zero % on them.

If that were true - and I don't know if it is or not - but, if it were true then wouldn't the dealer be likely to lower the price for cash?

I negotiated on several Kubotas at several dealers and none of them offered a different price or any kind of incentives if I would go cash instead of 0% financing.

And if that's the case at every dealer, doesn't it mean that the 0% financing is effectively the same as cash price?

 

[jjp8182]

If that were true - and I don't know if it is or not - but, if it were true then wouldn't the dealer be likely to lower the price for cash?

I negotiated on several Kubotas at several dealers and none of them offered a different price or any kind of incentives if I would go cash instead of 0% financing.

And if that's the case at every dealer, doesn't it mean that the 0% financing is effectively the same as cash price?

Pretty much - which makes the 0% financing the better option since it means that the payments later in the loan period will effectively be of less value (assuming inflation is occurring).

.....and so a competent manufacturer would adjust the financed price accordingly to offset the inflation losses on loans it is issuing (in order to account for a forecasted inflation rate).

So personally even if I had the cash to buy heavy equipment outright I'd be more inclined to put the full amount (minus any down payment) in a financial asset that generated higher returns than the loan interest rate. ...of course that's assuming there is/was a loan provider willing/able to finance what I'm buying.

Granted it takes a bit of discipline not to spend money that's already be allocated to a long-term purchase, but if you have money earning you more value than you're going to lose in interest payments (after taxes on the investment gains) why get in the way of that????

 

[the old grind]

It means there is no cash discount, that's all. With nothing to compare price to otherwise what do we have to go on? I bot one tractor new. There WAS a lower price for cash ~11% of the final price.

Kubota doesn't have to compete with blue, red, and yellow on price. Orange and green loyalists just want their tractor and IMO aren't as likely to fuss over much but living with the payment. (got KTAC?)

If financing is truly free don't think the company isn't making a profit on the product.

 

[jjp8182]

It means there is no cash discount, that's all. With nothing to compare price to otherwise what do we have to go on? I bot one tractor new. There WAS a lower price for cash ~11% of the final price.

Kubota doesn't have to compete with blue, red, and yellow on price. Orange and green loyalists just want their tractor and IMO aren't as likely to fuss over much but living with the payment. (got KTAC?)

If financing is truly free don't think the company isn't making a profit on the product.

...and thankfully/hopefully they make enough to stay in business, but hopefully not so much as to just be gouging it's buyers.

Rather hard to know what the situation is for any company without digging into records (generally available for publicly traded companies & not so much so for privately held ones).

 

[Username Taken]

If that were true - and I don't know if it is or not - but, if it were true then wouldn't the dealer be likely to lower the price for cash?

I negotiated on several Kubotas at several dealers and none of them offered a different price or any kind of incentives if I would go cash instead of 0% financing.

And if that's the case at every dealer, doesn't it mean that the 0% financing is effectively the same as cash price?

The Dealer, unless he's an imbecile, should lower the price for cash.

The Company, Kubota in this case, makes the Dealer 'Co-Op' the cost of 0% financing. IOW, the Dealer has to kick in some of his profit in order to get the financing deal. Don't know the fine print but I suspect it's around a point (1 percent) or point and a half.

Money is a commodity. It is bought and sold like any other commodity.

So if you do a 0% loan on a $40k tractor, the Dealer, I can PROMISE you, is kicking in at least $600.

It gets complicated and I can barely understand it myself, much less explain it. But that's the deal. You just happened to run into a Dealer that's not exceptionally bright. Or maybe just clueless.

Maybe this will help. Or not..... Keep in mind, Money in Japan isn't like it is here. While Banks pay us to keep our money in them, Japanese banks actually charge their customers. I think it's that way in Germany, too. It's complicated. And cultural.

Everything You Need to Know About Mortgage Discount Points

Want to understand what mortgage points are when seeking a loan? Better Money Habits can help determine if buying discount points makes sense for you.

bettermoneyhabits.bankofamerica.com

Why Negative Interest Rates Are Still Not Working in Japan

Japan's negative interest rate policy has failed to generate economic growth, but the central bank keeps trying to print up prosperity.

www.investopedia.com

 

[Username Taken]

It costs about $3000 interest to do zero % on them.

Maybe. Depends on Kubota's cost. Not retail.

The Prime Interest Rate in Japan is currently 1%

I'm sure KTAC qualifies for that rate. So if KTAC borrows money from the Japanese Treasury at 1% and sells (loans it out) it at 1.5% they're getting fat. But KTAC isn't worried about selling the money. They only want to break even on it, at most, in the case of a 0% interest loan.

They can also use that lower interest rate to entice customers. If they want to absorb some of that, they can easily absorb a couple points and make the Dealer absorb one.

A point typiclly lowers the loan rate by 0.25% So 4 points lowers your loan from 2% to 1% or, 1% to 0%

One point is is one percentage point of the loan. So if you wanted to lower your interest rate on a $50,000 loan from 2% to 1% it would cost you 4 points. $2,000

If the Company only needs 1% (4 points) to break even they can get the Dealer to kick in half while they absorb half. So on a $50k loan, the Dealer is on the hook for $1000. In theory. Theory only.

I'll take 0% interest all day every day. Not even worth thinking about.

 

[Hersheyfarm]

If that were true - and I don't know if it is or not - but, if it were true then wouldn't the dealer be likely to lower the price for cash?

I negotiated on several Kubotas at several dealers and none of them offered a different price or any kind of incentives if I would go cash instead of 0% financing.

And if that's the case at every dealer, doesn't it mean that the 0% financing is effectively the same as cash price?

The cash savings doesn’t come from dealer.

 

[Have tractor did travel]

Federal debt is $27 trillion. A 1% rise in interest rates will cost the Fed Govt (taxpayer) $270,000,000,000. The Federal Reserve will keep interest rates low because otherwise, the Federal deficit, already an astounding amount to contemplate, will increase astronomically. Why do we think the Fed Govt can continue to borrow without repercussions ? Anyway, to answer HappyOne's question - so long as interest rates are low (for sure in the intermediate term), companies, which can borrow at the lowest rates (prime), will avail of that (essentially) no cost asset, in order to pass on to their customer, in the most profitable manner. If that means 0% financing, then it'll be available next year.

 

[Fallon]

Banks and other lenders cannot offer 0% financing because they would lose money. A manufacturer can do so because they can absorb the costs and still make a profit on the sale.

They usually give a $1-2k cash discount. So the finance charges are baked into the base price from the start. Basically it's a shell game & they are still making the money.

 

[Herness]

They usually give a $1-2k cash discount. So the finance charges are baked into the base price from the start. Basically it's a shell game & they are still making the money.

100%. I tried both financing and loans and the second option is more for me. Last time i took a loan from Norskrefinansiering.no and had 0 troubles with it. The whole application process was also fast and easy without too much hustle and extra documents needed.

 

[Torvy]

Banks and other lenders cannot offer 0% financing because they would lose money. A manufacturer can do so because they can absorb the costs and still make a profit on the sale.

Not at all true, sort of. The bank offers some people 0% because they have great credit and balance the risk portfolio. Basically, the government forces lenders to lend deeper (to people with worse credit) than most banks wish. The government also regulates how much total risk banks can carry on the books. The only way for banks to do that is to offer 0% to people with great credit. A simplified version would be say the bank loans $5M to people with an average of 500 credit score, maybe those are at 15% (or whatever). Feds would not be happy, too risky. So, the bank also has another $5M loaned to people with 800 scores at zero. From a risk standpoint, the $10M with average of 650 score appeased the Feds and the bank can package some of the various loans on the secondary market and make a profit. These numbers are made up and it is much more complicated, but banks absolutely make money on zero %, just not on a loan for loan basis, it is all about bundling portfolios.

 

[Rockbadchild]

at over 5% inflation i would think higher interest rate is coming our way