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Comment by jaas | Hacker News Reader

I think the answer is that low-interest car loans often come from a finance arm of the auto maker. I once got a 0% loan from Volkswagen to buy a Volkswagen. Seems like a way for them to sell more cars to people with good credit who will almost certainly pay back the loan.

I don't have any particular insight into this industry beyond my own personal experience though, so there's a non-trivial chance that I'm wrong with regards to the general case.

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> I think the answer is that low-interest car loans often come from a finance arm of the auto maker.

Exactly. Most auto makers would actually be better described as financing companies that happen to build autos on the side. Particularly when you look at their financials and realize that all of the actual profits are coming from financing and that actual vehicle sales are often a net loss if taken by themselves.

0.9% exists to get people into cars (aka, volume) who otherwise might not come through the door + add origination fees + attract the type of people who are likely to incur late payment fees. I would guess at a macro-level, the effective rate is much higher and more than offsets the 1.5% difference between safe treasuries. Lots of people buy based on "what would it take you to get into this car" monthly payments rather than TCO, so if you're a cash buyer and can safely arbitrage the interest rate difference, you're probably the exception.

I suspect the local sales guy pockets any loan origination fees; the automaker is just paying that as commission for the actuarial likelihood that the people who finance will default at a rate that still makes it profitable when taking into account the benefits of maintaining low inventory in a given model year.

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