Financing - In a world of high interest rates

Ed Helms expressed it well: "I wish there was a way to know you were in the good old days before you actually left them." While no one would label any part of the COVID era as the "good old days," it's undeniable that the interest rates of that time were often taken for granted. Financing new equipment has become more challenging, especially when not too long ago, 0% for 48 months was a common offering at nearly every dealership. In this brief post, we'll delve into how low-rate financing operates, tips for securing the best financing deal, and our approach to financing in our store.

How it Works: It's crucial to understand how low-rate and 0% programs function. Low-rate financing is subsidized by the dealer to incentivize customers to make purchases. Dealers contribute a percentage of the sale to the finance company to offset the lower interest rate offered to the customer by the bank. Additionally, customers may incur a promotional fee (typically $125 to $150) and, in some states, a UCC filing fee ($50). The manufacturer negotiates all finance options directly with the bank underwriting the loan, leaving dealerships with limited influence over rates and terms for specific products.

For instance, consider a machine priced at $10,000 with 0% for 48 months. The dealer's cost, or buydown, is the percentage held back by the bank (currently around 7.75%). In this scenario, the dealer essentially "pays" the bank $775. To put this in perspective, credit card transactions typically range from 0.5% to 3%, with an average around 2.25%.

What it Means for the Consumer and how we're handling it: In essence, the fee is passed on to the consumer. Financing has become a point of negotiation between customers and dealerships. The challenge lies in pricing equipment with financing included. Our approach is to list everything on our website and in our store at a cash price. If you choose to finance, you'll do so at the cash price plus the cost of the selected financing. No additional finance fees are added to your total if the chosen financing doesn't have a buydown.

Summary: While we anticipate the return of "cheap" buydown fees, it seems they might be a while off. In the meantime, manufacturers occasionally offer specials on certain items and SKUs. Be sure to sign up for our email newsletter to receive promotions for "same as cash financing" when they become available!

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