The Ford 0% APR financing for 72 months is extremely attractive. One question about it is how many of the borrowers will pay the entire balance.
While many people who finance cars for long period do not fall into the subprime category, enough do to make these loans dangerous for the companies that fund them. According to Bloomberg:
Rising delinquencies come as a warning sign that more loans may end up in default down the road, said John McElravey, an analyst at the bank (Wells Fargo). What may be most troubling, however, is that the default rate is already climbing, up to 12.3 percent in January from 11.3 the prior month. That is the highest rate since 2010, the data show.
Securities backed by auto loans are structured to absorb a portion of anticipated defaults, but concerns have mounted over the last year that cumulative losses on auto loan securitizations may end up exceeding initial estimates, thanks to declining underwriting standards.
To put the loans in perspective, they will be paid through 2022. According to Carfax:
Don’t be fooled into thinking depreciation slows much after the first year. The fact is, new cars continue to lose value for four more years, averaging a decline of 15-25 percent per year. On average, a new car will lose 60 percent of its total value over the first five years of its life.