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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

#211

Post by jychang »

dazc wrote: post #200
cperciva wrote: post #188

I'm not familiar with this particular structure, but it sounds like the sequence of cash flows are: 1. Customer receives car. 2. Customer pays monthly amount based on the prevailing interest rate and predicted depreciation of the car. 3. Customer returns car after X years, at which time the depreciated value of the car along with the payments they've made pays for the car they received X years earlier. Can someone ex…

The traditional way of financing a car purchase in the UK is a hire purchase agreement where a large deposit (usually half the value of the car) is paid upfront. This can be cash but is often covered by the part exchange value of the customer's existing car. At the end of the term the customer owns the car outright. And, from the outset, he has some equity in the car by means of the large deposit. The author of the a…

Is the lack of car leases a UK-only thing, then?

In the USA, car leases are extremely common. People understand that they have to return the car after the lease. Hell, even the common advice given is "buy a Toyota, lease a BMW" where the assumption is that consumers should buy reliable cars like Toyotas, whereas BMWs/Mercedes/etc that come with more reliability issues after the warranty period should merely be leased.

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

#212

Post by DannyBee »

cmurf wrote: post #135
skookumchuck wrote: post #131

Earlier quoted context omitted.

When I've bought mortgages, I was required by law to sign a document that says "I have read and understood these loan documents." I've seen many people in the newspaper complaining that they neither read nor understood the terms. At what point do you expect legally competent adults to pay attention to and take responsibility for what they're doing?

No non-lawyer is competent to understand all real estate transaction documents. But they might be competent enough to acquiesce to the grand stupidity of our culture [1] and hire a real estate attorney. Mine reviewed all the relevant documents and come to the closing, for a flat fee that I thought was rather reasonable, in particular compared to the hand cramp I got from all the ridiculous paper work I had to hand si…

"No non-lawyer is competent to understand all real estate transaction documents."

This is bullshit, they are not complicated legalese. Additionally, the vast majority of states require someone who can explain the documents to you be there at the closing.

Some require they even be lawyers. Even those that don't, have provision on what must happen. For example, in California, whoever is doing the closing will stop on each document, explain what the document is and what it says, and ask you if you have any questions, before proceeding to the next one.

I don't believe, when that happens, one can reasonably complain they didn't have a chance to understand the documents.

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

#213

Post by DannyBee »

cmurf wrote: post #176
skookumchuck wrote: post #139

Earlier quoted context omitted.

> No non-lawyer is competent to understand all real estate transaction documents. I understood them well enough. It isn't that hard. The misunderstandings people would complain about were not about subtleties or legal hare-splitting. It's also established legal doctrine that a contract written in ambiguous, confusing, or tricky language isn't going to hold up in court. Judges take a dim view of that. I also actually…

A house is, for most people, a very large transaction. Saying "it isn't that hard" considering attorney's specialize in real estate is like saying "reading x-rays isn't that hard". Had I not had an attorney present, it would have taken me all day, instead of 4 hours of reading stuff. It wasn't a matter of confidence in myself, it was a matter of having less than 100% trust in everyone else present.

" Saying "it isn't that hard" considering attorney's specialize in real estate"

Attorneys specialize in everything, the fact that attorneys specialize in real estate does not make every real estate transaction difficult, or require an attorney.

There are attorneys who specialize in speeding tickets. That does not make understanding the laws around speed limits difficult. If just means it's an area where attorneys believe they can make money by building a niche. That is not a measure of the complexity of that area, but of a large number of factors. (same with DUI)

In fact, attorneys specialize in real estate to handle the complicated things, which are not closings. So your point kind of goes against this argument you keep trying to make.

I'm also not at all sure what your analogy to x-rays is supposed to be proving. It seems very strange

x-rays have no context and to people not familiar with at least anatomy and a number of other things, and are subject to different opinions.

On the contrary, real estate contracts, which are usually boilerplate plain english, only require understanding english. They may take a while to read, but they don't require specialized training. They are generally not subject to different interpretations, that's precisely why they are written the way they are!

There is no equivalent for x-rays that could make laypeople competent.

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

#214

Post by jychang »

kaybe wrote: post #154
TomMarius wrote: post #136

Earlier quoted context omitted.

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?

> Is there anywhere where that does not work?

Your local Apple Store in the USA.

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

#215

Post by djaychela »

maxerickson wrote: post #8
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.

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).

Maybe not, but I heard a debt counsellor on Radio 4 the other morning who said that bankruptcies were going up hugely in the UK, and that the main cause of them was PCP - the interviewer was quite surprised by it, but the guy said it was (IIRC) an epidemic. Can't find the link for it (I have R4 on in the morning at 6am when I wake up, and not sure what day it was), but it was only a couple of weeks ago.

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

#216

Post by laythea »

losteric wrote: post #181
agentdrtran wrote: post #148

Earlier quoted context omitted.

car dealers are like the most common example of this since forever...

Car dealers used to profit from people's emotions and ignorance about the product. That's a reasonable exploitation of ignorance because car buyers should know about the car they're buying. Today, car dealers sell consumers to banks using cars as bait people. Exploiting people's ignorance of dense financial/legal contracts seems extremely abusive to me.

Off course you are right, but welcome to the real world. The only reason it was not done before, was that it was not feasible.

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

#217

Post by briandear »

coldtea wrote: post #168
skookumchuck wrote: post #131

Earlier quoted context omitted.

When I've bought mortgages, I was required by law to sign a document that says "I have read and understood these loan documents." I've seen many people in the newspaper complaining that they neither read nor understood the terms. At what point do you expect legally competent adults to pay attention to and take responsibility for what they're doing?

> At what point do you expect legally competent adults to pay attention to and take responsibility for what they're doing? At no point. I don't even consider it a matter of "responsibility". You can only take responsibility when things are clearly laid out. But what about the even more important responsibility to CLEARLY lay things out that should fall into businesses? What I do expect and find important, and should…

But ought personal responsibility matter? People willingly sign this stuff.

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

#218

Post by briandear »

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.

In France that would be illegal-- cash can't be used for transactions over €1000 because they're afraid of terrorism apparently.

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

#219

Post by LoSboccacc »

gozur88 wrote: post #208
rootsudo wrote: post #40

Earlier quoted context omitted.

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…

>Some dealerships like GM, used to also have a bank. GMAC. Ford w/ FMC. If you went by profitability, for many years it was probably more correct to describe GM and Ford as banks that had a side business in automobile manufacture.

That's also for tax dodging. Banks don't own money only lends it at risk, maker don't earn money keeping margin low, win win

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

#220

Post by raverbashing »

coldtea wrote: post #168
skookumchuck wrote: post #131

Earlier quoted context omitted.

When I've bought mortgages, I was required by law to sign a document that says "I have read and understood these loan documents." I've seen many people in the newspaper complaining that they neither read nor understood the terms. At what point do you expect legally competent adults to pay attention to and take responsibility for what they're doing?

> At what point do you expect legally competent adults to pay attention to and take responsibility for what they're doing? At no point. I don't even consider it a matter of "responsibility". You can only take responsibility when things are clearly laid out. But what about the even more important responsibility to CLEARLY lay things out that should fall into businesses? What I do expect and find important, and should…

This looks like people fumbling cryptocoin purchases (or getting them lost for some reason or another) and people answering with "ah you should have known better and done the right way"
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