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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

#151

Post by StavrosK »

dboreham wrote: post #124
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.

Just bought a car that I could have paid for cash but they offered me zero % financing over three years, with zero down.

When you guys say "cash", do you mean "not credit"? Because my dealership did not seem to appreciate it at all when I gave them 30,000 euros in stacks of 50 euro notes.

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

#152

Post by [deleted] »

StavrosK wrote: post #151
dboreham wrote: post #124

Earlier quoted context omitted.

Just bought a car that I could have paid for cash but they offered me zero % financing over three years, with zero down.

When you guys say "cash", do you mean "not credit"? Because my dealership did not seem to appreciate it at all when I gave them 30,000 euros in stacks of 50 euro notes.

[deleted]

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

#153

Post by branchless »

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 the same thing in the UK. They were desperate for me not to pay up front so they could try and sell me some other finance product that would cost me more / enable me to spend more without understanding the true cost.

This kind of credit for cars / housing / uni / whatever is just not helping people afford things they would otherwise defer buying. It's predatory. It's pushing up the price of items. It has no place in our society. It should be tightly controlled. Finance is pulling forward demand to get tomorrow's bonuses today and to hell with the consequences tomorrow.

If we want a better world we have to regulate debt issuance. Yes some kids from poor backgrounds can't buy a nice car even though they are doing a law degree at Harvard and will be able to cover it no problem in 3 years time. The flip side of the coin is far more damaging.

We should stamp out these cockroaches.

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

#154

Post by kaybe »

TomMarius wrote: post #136
eru wrote: post #120

Earlier quoted context omitted.

Why does buying a car in America involve so much (or even any!) negotiation at all? I guess it's a form of price discrimination? I just tried to figure out (via Google) whether it's common in eg Germany---but what I found what mostly only about negotiations for used cars.

It's normal in Europe. I've never paid the sticker price for a car.

Buying anything above, say, 100€? Smile, say 'discount?' and they will through in something for free or give a few percent off.

And that's before any kind of negotiation (unless you count asking nicely as negotiation). And I mean anything. I've done it in many places. Is there anywhere where that does not work?

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

#155

Post by ncallaway »

StavrosK wrote: post #151
dboreham wrote: post #124

Earlier quoted context omitted.

Just bought a car that I could have paid for cash but they offered me zero % financing over three years, with zero down.

When you guys say "cash", do you mean "not credit"? Because my dealership did not seem to appreciate it at all when I gave them 30,000 euros in stacks of 50 euro notes.

Yea, often when people say "cash" they're just referring to an instant asset transfer (cash, check, eft, etc). Usually I would expect a transaction in a dealership be a check or some kind of electric transaction.

Sounds fun to pull out a large stack of actual cash, though.

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

#156

Post by ilyagr »

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 tried to buy a Mazda car outright. I was told that it would be 2000 dollars more expensive unless I finance.

I then asked if I can get the loan and immediately pay it off, and the dealership became sad. Apparently, Mazda financing gives them the 2000 dollars, but if the customer pays off the loan in less than 6 months, the dealership losses the money (on other states, they'd probably have an early repayment fee on the loan, but that's illegal in California).

So, I took the loan, paid off all but a thousand dollars, and now feel silly paying off the remainder over 6 months.

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

#158

Post by StavrosK »

ncallaway wrote: post #155
StavrosK wrote: post #151

Earlier quoted context omitted.

When you guys say "cash", do you mean "not credit"? Because my dealership did not seem to appreciate it at all when I gave them 30,000 euros in stacks of 50 euro notes.

Yea, often when people say "cash" they're just referring to an instant asset transfer (cash, check, eft, etc). Usually I would expect a transaction in a dealership be a check or some kind of electric transaction. Sounds fun to pull out a large stack of actual cash, though.

It was fun for me. The salesman didn't seem to enjoy it, but, in my defense, I had told him I didn't want to wait a weekend for the SEPA transfer to reach their bank before I could get my new car.

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

#160

Post by rsynnott »

tnecniv wrote: post #143
forinti wrote: post #106

Which is why contracts should include warnings, as Senator Elizabeth Warren proposed. Dangerous equipment should have warnings so that you don't lose your fingers and financial tools should have warnings so that you don't lose your shirt. A decade ago I bought a Fiat (in Brazil) and was offered financing at 0,99% a month. This was worth it, as fixed income investments were paying more than 1% a month. Except that the…

> Which is why contracts should include warnings, as Senator Elizabeth Warren proposed. How would this work? Isn't the contract itself supposed to be the warning? Obviously contracts can contain a lot of legalese and potentially unenforceable language that makes them difficult for most people to interpret, but that language is also necessary to specify the contract at the level of detail the law requires. If you requ…

In Ireland, mortgage offers at least have to have plain-English warnings, illustrations of the numbers involved in paying it off, etc. Never got a PCP, but I assume it's similar. The problem is, people don't read them. To be useful, you'd arguably need to give the borrower an exam in what they're signing (which might be a good approach).

PCPs, in particular, are complex as far as consumer finance goes, and a lot of people seem to sign them thinking they're a normal loan. An analogy seem to be the (now thankfully almost obsolete) endowment mortgages, where you took out an interest-only mortgage coupled with an investment product which was theoretically meant to pay off the principal on maturity. These ran into difficulty when inflation dropped to practically zero for a decade, and lots of people who had them thought they just had repayment mortgages...

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