How do banks offer auto loans at 5%

Discussion in 'Economics' started by bond_trad3r, May 12, 2009.

  1. Is there a kick back from the dealerships?

    It seems to me that the rate should be more than a mortgage and less than a credit card. Yet, the rate on car loans seem to be equal to mortgages rates for people with excellent credit.

    So what's the hidden variable influencing rates?
  2. GTS


    Auto loans are much shorter in duration than mortgages - that's the difference.
  3. They still seem on the low side. Or is it just the fare market rate derived from supply and demand.
  4. sjfan


    (1) the securitization market for auto ABS is not nearly as dried up as the one for home equity
    (2) it's a lot easier to repossess a car than to foreclose on a house
    (3) it's a lot easier to sell a repossed car than it is to sell a foreclosed house.

    As usual, credit analysis on a bond is a combination of default risk, and recovery expectation.