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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

#31

Post by nvarsj »

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.

When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full?

I think the main benefit of paying upfront is to buy a used car.

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

#32

Post by pedrocr »

cynicalbastard wrote: post #16
selectodude wrote: post #12

Earlier quoted context omitted.

Yeah, nobody is financing Porsche 918s.

yes they are. rich people get loans to buy expensive things instead of giving up the cash, often collateralized by their other toys/stock/trust fund/whatever. rich people also overspend, over-leverage, and overindulge just like everyone else. the difference is they call up their banker and accountant instead of filling out a form at the dealership. if you're expecting an asset like a 918 or 911RS or R to go up in pri…

>if you're expecting an asset like a 918 or 911RS or R to go up in price, you'd be stupid to not leverage your cash at a low interest rate and put the rest of it to work somewhere else

This only makes sense if your bank thinks it will go up in price and will lend you the money at low rates based on the car itself as collateral. If you're getting the money at low rates based on other collateral (like you suggest above) it makes no difference if the car value goes up or down. If you think you can make more return on your other investments than the loan rate you leverage, the rise or fall of the value of the car is irrelevant.

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

#33

Post by icantdrive55 »

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've been looking for a new car for a relative. This guy comes over. I said, o.k., I'll be polite, and give him a chance.

Within 30 minutes:

"No one pays cash anymore."

"No one work on their vechicles anymore. It's right to the dealership for Maintence."

"My prices are spot on with Blue Book for 100 miles."

He saw I had a Blue Book, and he has the nerve to tell me he's competive. All his prices were at least 5 grand higher than a one year old BB.

His boss owned all the dealerships in Petaluma, or most.

His manager came over, and said how's he doing. I just said, "Oh, he's great. Really honest guy."

I walked out, thinking anyone who lets a customer with 18 grand walk off a used car lot, should be fired.

On the severance check, "Work on Closing"

Or, the market is so hot, he's getting over BB for his used cars?

(I see so many new cars lately. I don't know how peopke pull it off. Plus--maybe it's just me, but these used cars (2013-2016) just look like a sensor away from being stuck in the side of the road, and they all look alike.)

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

#34

Post by blibble »

nvarsj wrote: post #31
nostromo wrote: post #25

Earlier quoted context omitted.

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.

When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.

it's just another form of competition right?

all car firms offer lower and lower loans rates to try to get you to buy their product, and eventually the rate reaches 0%

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

#35

Post by DanBC »

selectodude wrote: post #18
cynicalbastard wrote: post #16

Earlier quoted context omitted.

yes they are. rich people get loans to buy expensive things instead of giving up the cash, often collateralized by their other toys/stock/trust fund/whatever. rich people also overspend, over-leverage, and overindulge just like everyone else. the difference is they call up their banker and accountant instead of filling out a form at the dealership. if you're expecting an asset like a 918 or 911RS or R to go up in pri…

I'm plenty of aware of how people with assets are able to use them as collateral to borrow money, but this article has nothing to do with that kind of financing. It's about 72mo high interest loans on cheaper downmarket cars marketed to people who used to buy old junkers.

From the article:

> Graham Hill, of the National Association of Commercial Finance Brokers, told the FT recently that using a PCP, drivers could pay less for a new BMW or Mercedes than for a second-hand Ford Focus. Or, as Bob the Dinosaur might put it, “they just make you sign papers!”

People don't tend to think of BMW or Mercedes as cheaper down markets cars.

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

#36

Post by dpeck »

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…

had a similar thing happen a few years ago when buying out my car at the end of a lease (normally a bad idea, but worked out due to specific circumstance). The person I was dealing with was baffled, kept wanting to have me fill out a loan app. He either didn't want to or couldn't understand what was going on.

At the end of it I told them I had the certified check as previously agreed for the full amount due on the vehicle, handed it to him and told them I was walking out the door in 10 minutes and they could call the police and report it stolen if they wanted to. It was unexpectedly difficult to close up a seemingly simple transaction with pre-agreed upon terms.

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

#37

Post by fegu »

charlesdm wrote: post #29
nostromo wrote: post #25

Earlier quoted context omitted.

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

There is a lot more to this than a simple equation. Otherwise we would all borrow as much as we could (about 2% and somewhat predictable) and put it all in the stock market (avg 7,5 % but volatile).

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

#38

Post by maxerickson »

DanBC wrote: post #28
selectodude wrote: post #12

Earlier quoted context omitted.

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…

The 918 is a $850,000 super car.

That Porsche finances a bunch of more affordable cars doesn't provide much evidence about how many people finance $500,000+ vehicles.

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

#39

Post by cjrp »

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…

My understanding is GAP insurance only comes into play if the car is written off (and makes up the difference between what the car was worth and what the insurer pays out). I didn't think it was designed to cover any shortfall in the hand back price?

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

#40

Post by rootsudo »

nvarsj wrote: post #31
nostromo wrote: post #25

Earlier quoted context omitted.

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.

When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.

They make money in the markup of the car. A car MSRP or what it's sold far is far more then what it's cost to manufacture.

Some dealerships like GM, used to also have a bank. GMAC. Ford w/ FMC.

A car that's sold for 12-14K, has a general margin of 10-15%. Some as low as 5%, but still.

The 0/1% is also hard to obtain, needing to have good credit and possibly sizable downpayment, but don't worry they have options if you sign at the dotted line.

The fact that you think they make no money on 0/1%, is you falling for the marketing.

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