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Too many people are buying cars using financial products they do not understand

timharford.com

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Re: Too many people are buying cars using financial products they do not understand

#21

Post by maxerickson »

djmobley wrote: post #11
maxerickson wrote: post #8

Earlier quoted context omitted.

No one buys a car expecting the value to go up so the vehicle market probably won't unravel in a collapse (vehicle debt is also about 1/10 the size of the mortgage market).

At the high-end of the market, lots of people do, in fact, buy cars expecting them to appreciate in value. Manufacturers are increasingly offering limited edition cars to cater to this kind of investment.

Millions of new vehicles are sold/leased each month.

What's your "lots" in that context?

Re: Too many people are buying cars using financial products they do not understand

#22

Post by leeoniya »

endianswap wrote: post #20
evilDagmar wrote: post #15

I was under the impression that the whole point of auto-financing was to get even even more money out of the consumer. When I bought my last car, I just bought it outright (because it wasn't particularly expensive) which appeared to baffle the dealership. I was actually a little concerned that the dealership told me it was the largest check they'd ever seen (for ~$14k). Getting people to sign off on a contract they d…

That seems insane that it'd be the biggest check they've seen. I've bought an 80k BMW and an 80k Jaguar outright, and they both shrugged at me paying by check. BMW let me use a personal check, Jaguar wanted a bank check (easy enough). Edit: A normal down payment for a luxury car of any brand can easily be 20k up front.

did you get the impression that the parent purchased a new luxury car at a dealership in Beverly Hills? :/

Re: Too many people are buying cars using financial products they do not understand

#23

Post by DanBC »

loeg wrote: post #10
dazc wrote: post #6

People are buying cars they can't really afford because the monthly payments seem to be affordable. I think they know it's an expensive way to have a nice car but the alternative (because they don't have the capital) may be buying an old banger or having no car at all.

The article seems to be talking about short term (2-3 year) interest-only leases. There's a middle ground your comment hasn't mentioned. Instead of leasing or buying a used car, consumers can finance a new car (e.g. 5 year loan). It requires slightly higher monthly payments to cover the principal, and you can't switch cars as frequently, but you have ownership of the car (and freedom from payments) after the loan end…

> Instead of leasing or buying a used car, consumers can finance a new car (e.g. 5 year loan). It requires slightly higher monthly payments to cover the principal, and you can't switch cars as frequently, but you have ownership of the car (and freedom from payments) after the loan ends.

Yes, and it's important to know that hire-purchase has existed in the UK for years as a method to buy cars, and this new product hasn't, and there's some confusion from the public about the type of product they're buying.

Re: Too many people are buying cars using financial products they do not understand

#24

Post by GuiA »

endianswap wrote: post #20
evilDagmar wrote: post #15

I was under the impression that the whole point of auto-financing was to get even even more money out of the consumer. When I bought my last car, I just bought it outright (because it wasn't particularly expensive) which appeared to baffle the dealership. I was actually a little concerned that the dealership told me it was the largest check they'd ever seen (for ~$14k). Getting people to sign off on a contract they d…

That seems insane that it'd be the biggest check they've seen. I've bought an 80k BMW and an 80k Jaguar outright, and they both shrugged at me paying by check. BMW let me use a personal check, Jaguar wanted a bank check (easy enough). Edit: A normal down payment for a luxury car of any brand can easily be 20k up front.

You went to a BMW/Jaguar dealership, whereas OP most probably went to a smaller dealership aimed at a less affluent population.

Re: Too many people are buying cars using financial products they do not understand

#25

Post by nostromo »

evilDagmar wrote: post #15

I was under the impression that the whole point of auto-financing was to get even even more money out of the consumer. When I bought my last car, I just bought it outright (because it wasn't particularly expensive) which appeared to baffle the dealership. I was actually a little concerned that the dealership told me it was the largest check they'd ever seen (for ~$14k). Getting people to sign off on a contract they d…

I used to buy cars with cash. But right now car loans are so cheap, if you have good credit, it may make more sense to take the loan and keep the cash invested.

I think my current rate is 2% or so... an unthinkable rate not so many years ago.

Re: Too many people are buying cars using financial products they do not understand

#26

Post by shados »

endianswap wrote: post #20
evilDagmar wrote: post #15

I was under the impression that the whole point of auto-financing was to get even even more money out of the consumer. When I bought my last car, I just bought it outright (because it wasn't particularly expensive) which appeared to baffle the dealership. I was actually a little concerned that the dealership told me it was the largest check they'd ever seen (for ~$14k). Getting people to sign off on a contract they d…

That seems insane that it'd be the biggest check they've seen. I've bought an 80k BMW and an 80k Jaguar outright, and they both shrugged at me paying by check. BMW let me use a personal check, Jaguar wanted a bank check (easy enough). Edit: A normal down payment for a luxury car of any brand can easily be 20k up front.

That heavily depends on where you go and the area. Not the same as a car, but when I went to get the check for the down payment on my home (which was 6 figures), I went to my bank which happened to be in a pretty upscale neighborhood were houses were significantly more expensive on average than what I was buying.

So when I asked the teller to give me a multi-hundred-thousand dollar check, they didn't even blink. "Please enter your pin number sir. There you go sir, have a nice day".

I assume this is very similar. A place selling BMWs is probably used to seeing newly minted millionaires on a daily basis.

Re: Too many people are buying cars using financial products they do not understand

#27

Post by usaphp »

loeg wrote: post #10
dazc wrote: post #6

People are buying cars they can't really afford because the monthly payments seem to be affordable. I think they know it's an expensive way to have a nice car but the alternative (because they don't have the capital) may be buying an old banger or having no car at all.

The article seems to be talking about short term (2-3 year) interest-only leases. There's a middle ground your comment hasn't mentioned. Instead of leasing or buying a used car, consumers can finance a new car (e.g. 5 year loan). It requires slightly higher monthly payments to cover the principal, and you can't switch cars as frequently, but you have ownership of the car (and freedom from payments) after the loan end…

But the main reason people get short term leases is so that they can switch cars often and drive a new car all the time. They don't want to deal with selling a car, fixing it, worrying about it losing value after accident, with short term lease you pay a premium for an option to drive a new car and less worry about things

Re: Too many people are buying cars using financial products they do not understand

#28

Post by DanBC »

selectodude wrote: post #12
djmobley wrote: post #11

Earlier quoted context omitted.

At the high-end of the market, lots of people do, in fact, buy cars expecting them to appreciate in value. Manufacturers are increasingly offering limited edition cars to cater to this kind of investment.

Yeah, nobody is financing Porsche 918s.

http://www.porsche.com/uk/accessoriesandservice/financialser...

> Porsche Financial Services - a trading name of Volkswagen Financial Services [VWFS], with finance provided by VWFS - offer different finance plans across the Porsche model range. To find the right plan for you from a selection including Personal Contract Plan, Lease Purchase, Hire Purchase and Contract Hire, simply explore the options below or contact your local Porsche Centre for an individual and personally tailored quote.

http://www.porscheawards.co.uk/carfinance

etc etc.

Re: Too many people are buying cars using financial products they do not understand

#29

Post by charlesdm »

nostromo wrote: post #25
evilDagmar wrote: post #15

I was under the impression that the whole point of auto-financing was to get even even more money out of the consumer. When I bought my last car, I just bought it outright (because it wasn't particularly expensive) which appeared to baffle the dealership. I was actually a little concerned that the dealership told me it was the largest check they'd ever seen (for ~$14k). Getting people to sign off on a contract they d…

I used to buy cars with cash. But right now car loans are so cheap, if you have good credit, it may make more sense to take the loan and keep the cash invested. I think my current rate is 2% or so... an unthinkable rate not so many years ago.

If cost of debt borrow money / finance

Re: Too many people are buying cars using financial products they do not understand

#30

Post by pmuk »

PuffinBlue wrote: post #19

Maybe I didn't understand the deal I bought a car with, or maybe it's an unusual deal, but I'm happy with it. My car costs me a set amount per month that I can afford, an amount that is actually equal to the monthly depreciation it would face anyway (on average) over a three year period (including the initial low value deposit I paid, this is still true). Even if I bought it outright, which I couldn't afford to do, I…

I agree. I helped my younger sister buy a car on a PCP recently, and I think they are actually a reasonable deal.

It is my understanding that finance company guarantees the future value (GMFV) and that the final payment is optional, e.g. you can always hand the car back at the end of the term if it is worth less the the balloon payment.

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