You’ve likely seen commercials for Ford Credit’s new 7-year loan service for the 2013-2014 model year Ford Mavericks. In the spot, three young adults are getting the word out about the new program by putting the car up for sale online—and it’s a huge problem.
It’s no secret that Ford has been trying to reinvent itself as a brand and it’s certainly not the monochromatic, bland brand it used to be. The Blue Oval has been on an international buying spree in recent years scooping up companies like Aston Martin, Mazda, Volvo and SRT, but it has had mixed results. After spending $1.6 billion on Mazda, it was forced to take the automaker private in 2015, and that purchase has had its fair share of troubles. Ford has made massive investments in its U.S. plants to increase its production capacity, but it has had a rough time managing the plants. The company is now trying to put another plant on its books, and it’s
Ford is currently offering up to $36,000 on their brand new 2018 Ford F-150 full-size truck, and that money comes in a 7-year loan that Ford calls a “qualifying lease.” The catch? Ford is only offering the leases in Colorado, Oklahoma, and Texas, and it’s a whopping $1,500 per month for $36,000 of new truck. The justification for the high interest rate? They claim that since the “qualifying lease” is a seven year loan, the rate is “fair.” Sounds like a strong argument, except that the average 6-month car loan rate is about $1,300. That means the “qualifying lease” rate is roughly 50% higher than the average
Ford is a company. Damn, it’s in his name: Ford Motor Company. This means that at the end of the day they have to make a profit to keep the lights on. Well, and to build more great Ford GTs. However, business acumen and morality often collide. As a rule, one defeats the other. That’s why we’re here. Unfortunately, business has once again won out over morality (hello, Tesla). It’s time to examine why loans from U.S. auto companies can be predatory toward customers.
1. Vehicle financing 101
Maverick 2022 | Ford
First a few words on the fundamentals of finance. Like a house, a car is one of the biggest purchases you will make in your life. In this case, loans may be useful. They can also be harmful, but more on that later. A loan can make sense, as an expensive car is now broken down into manageable monthly payments. These payments can be further reduced by putting money into the purchase price of the car, thus reducing the amount you need to finance.
As a rule, your bank will offer you financing. They usually do this in exchange for a low interest rate on the loan, say 1-3%. Sometimes manufacturers do it too, like Ford. This is where the trouble begins. From a certain point of view, this may not be a good thing, as Ford, the manufacturer of your car, now has an interest in you using the credit for as long as possible. A compromise? A lower monthly rate to attract buyers to an already cheap car.
2. Ford 7-year credit offer
2022 Maverick Interior
According to Cars Direct, Ford offers you a loan with a term of 7 years and a maximum interest rate of 5.9% per year. This is a downright disgusting interest rate. A quick calculation shows that the American car manufacturer will provide you with about $4,500 in interest over those seven years. This isn’t even the first time an automaker has done this. There was a very similar offer for the new Mustang Mach E with the same staggering interest rate.
Not to mention the depreciation. The Maverick could be a sales success like the Mach E. Or its resale value could drop. In any case, with a segment average of about 20-40%, seven-year depreciation is not the best option. Based on this calculation, you will lose about $5,000 in the first year while paying Ford an interest rate of 5.9%. It is best to make a down payment and obtain financing from your local credit union. Some banks are bad, but not 5.9% per year.
3. Not a good idea
A little poetic omen. Justin Sullivan via Getty Images
This brings us to the issue of cases against morality and the devil’s advocate. Or, in this case, Ford’s lawyer. This is a sound business decision. The customer gets your truck on loan for the duration of their ownership and you, as a Ford company, can then take it back in exchange, have it labeled and resell it. Of course, this isn’t exactly moral. The absurdly high interest rate combined with the loss of value leaves the buyer with virtually no choice but to trade in the car. Although this is opinion-based, you should consider other alternatives to the Ford loan program, such as B. a loan from a local credit union.