Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

timharford.com

Post reply on HN
Print view View original

71–80 of 330 posts

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

#71

Post by taeric »

tanderson92 wrote: post #68
taeric wrote: post #64

Earlier quoted context omitted.

Again, they bundled it with other loans. Now, it probably isn't as bad as it initially sounds. But, it is more complicated.

Again, yes that partially diversifies away credit risk. But you're still losing money if you compare to the risk free rate, which is the 5 year treasury on a 5 year loan. Let me just repeat that such a loan is being offered below the risk free rate! It's impossible for bundling to add yield, only decrease credit risk.

On that loan, yes. But just like nobody would buy magic cards if they knew all of them would be commons, adding just a few rare high value cards will pull the rate that people will pay for the others up. But only as a bundle.

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

#72

Post by vonmoltke »

DanBC wrote: post #35
selectodude wrote: post #18

Earlier quoted context omitted.

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.

Perhaps not in the UK, but in many parts of the US the leased (low-end) 3-series or C200 is the car if the so-called $30,000 millionaire (i.e., people living a lifestyle they can't actually afford by renting all the trappings).

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

#73

Post by charlesdm »

aquark wrote: post #47
charlesdm wrote: post #29

Earlier quoted context omitted.

If cost of debt borrow money / finance

More strictly: (investment returns - tax payable) (unless your debt is tax deductible ... most car loans aren't)

If it's a company car it is.

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

#74

Post by lithos »

dpeck wrote: post #36
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 ve…

They get a second commission if you're on the right loan.

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

#75

Post by lithos »

benevol wrote: post #58
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…

It's feature, not a bug. Remember the sub-prime mortgage crisis? People were made to buy homes they couldn't actually afford. It's the American way of doing capitalism, and people should have gotten used to it by now.

Car loans are actually getting featured on Bloomberg for having similar risk last month.

Though there were assurances that the same thing wouldn't happen since loan issuers were reining themselves in, that cars were far more liquid than a house, and easier to seize on a failed loan. Of course if it's already in the news, it's too late to act.

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

#76

Post by pasquinelli »

dazc wrote: post #7
jordanb wrote: post #5

So I guess the whole car thing is probably going to be this cycle's mortgage bubble? Considering car sales are falling off a cliff I guess we're in 2007 right now.

Only if people start losing their jobs in high numbers.

People might lose their job if their car gets repossessed.

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

#77

Post by sunstone »

I bought a prius recently and where they were hoping to make the money was on the extended warranty. I demurred on that so I got a 3 year 0% lease.

In addition when you consider the prius' high gas mileage, low maintenance, high lifetime (over 500k miles) and high resale value it's a great deal if you're planning on driving quite a bit.

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

#78

Post by majormajor »

rootsudo wrote: post #40
nvarsj wrote: post #31

Earlier quoted context omitted.

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 yo…

If you don't get your loan through the dealer, it's the same as buying in cash from their perspective.

So in that case, I'll take my 2% external-bank-loan and drop off the check at the dealer all day long.

Cuts your sticker-price negotiation ability a bit since they lose another place to fiddle with the numbers and make money on the backend, but ultimately the end result will be about the same, and it's much less headache to have the financing lined up regardless of which dealer you choose.

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

#79

Post by repiret »

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.

Speaking specifically to Toyota's 0% deals, I bought a Toyota a couple years ago, and at that time there was a cash back incentive that was mutually exclusive with 0% financing. This car was pricey enough that 0% was still a better deal, but for most of what Toyota sells it's a worse deal.

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

#80

Post by tcoppi »

repiret wrote: post #79
nvarsj wrote: post #31

Earlier quoted context omitted.

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.

Speaking specifically to Toyota's 0% deals, I bought a Toyota a couple years ago, and at that time there was a cash back incentive that was mutually exclusive with 0% financing. This car was pricey enough that 0% was still a better deal, but for most of what Toyota sells it's a worse deal.

Most automakers do something similar now. Regular financing is so cheap now it almost always makes sense to get the cash back deals from the manufacturer rather than get the 0% financing.
Post reply on HN