My aunt lectures at a nursing and hospital-school. Many of her pupils are stuck in the "Car"-Deal. They all leased or lend a expensive car to show off, got into accidents or expensive repairs, could not pay off the accumulating debt, and now are basically indentured in debt-slavery to the car industry with half of their monthly paycheck.
Too many people are buying cars using financial products they do not understand
221–230 of 330 posts
Re: Too many people are buying cars using financial products they do not understand
#222I'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…
Another notable difference is that the car companies take all the risk when it comes to the second hand value. If more and more new cars are sold with similar contract lengths (Which is true in Sweden at least) that will cause a decline in the second hand value. Sounds like a familiar situation but with cars instead of houses
Re: Too many people are buying cars using financial products they do not understand
#223Earlier quoted context omitted.
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…
At least in Sweden (and I imagine the UK is somewhat similar) leasing for private citizens have only just started taking off. It's been available for companies for some time but I imagine that the low interest rates has made it viable for individuals as well.
Re: Too many people are buying cars using financial products they do not understand
#224Earlier quoted context omitted.
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…
The US industry has always been on the forefront of trying to convince people that they can afford stuff they actually can't and came up with a lot of creative ways to do this. The best example of course is the recent housing crisis.
I'd say europeans in general are more debt and risk averse, this even shows in the lack of credit card adoption in places like germany.
Re: Too many people are buying cars using financial products they do not understand
#225Earlier quoted context omitted.
I guess my cynicism has just grown to the point that I feel some industries have settled on never taking a known loss. That is, this seems like it is the easy answer, and is certainly what folks would do in the small. At large, though, I feel like they are able to have other options. (I fully ack that just because I feel it, does not mean it is the case.)
I explained how they're not really taking a loss, since it increases their profits overall. Companies make these decisions frequently; a closely related concept is a loss leader.
Thanks to both you and taeric for keeping the exchange civil.
Re: Too many people are buying cars using financial products they do not understand
#226My aunt lectures at a nursing and hospital-school. Many of her pupils are stuck in the "Car"-Deal. They all leased or lend a expensive car to show off, got into accidents or expensive repairs, could not pay off the accumulating debt, and now are basically indentured in debt-slavery to the car industry with half of their monthly paycheck.
I thought full insurance would be an unwaivable requirement in those cases of leasing. How could they be in debt for accidents?
Re: Too many people are buying cars using financial products they do not understand
#227Earlier quoted context omitted.
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…
The US industry has always been on the forefront of trying to convince people that they can afford stuff they actually can't and came up with a lot of creative ways to do this. The best example of course is the recent housing crisis. I'd say europeans in general are more debt and risk averse, this even shows in the lack of credit card adoption in places like germany.
> I'd say europeans in general are more debt and risk averse, this even shows in the lack of credit card adoption in places like germany.
Anecdotally, it's also much harder to get approved for credit in Germany. While in Canada, I had banks offering me credit cards with insane limits ($5,000+ for someone in their 20's who finished university but without a job).
In Germany, it was difficult to even get a credit card, and the only card I was approved for has a 2,000 EUR limit. This is with a SCHUFA score of "very low risk", so it's not like I have bad credit.
I would say the lack of credit card usage in Germany is multifaceted:
1. Germany has a high utilization of cash for transactions because cash can't be traced easily. Germans are typically very mindful of their privacy and thus choose not to use Debit/Credit cards for most transactions.
2. Ease of online payments. I can pay via Vorkasse (SEPA transfer), direct debit (SEPA-Mandat), or instant methods such as SOFORT Überweisung.
It's easy to buy airline tickets without a credit card. However some companies do require a credit card to rent a car (e.g. Sixt).
So a credit card isn't really necessary if all you want to do is buy things online.
Re: Too many people are buying cars using financial products they do not understand
#228My aunt lectures at a nursing and hospital-school. Many of her pupils are stuck in the "Car"-Deal. They all leased or lend a expensive car to show off, got into accidents or expensive repairs, could not pay off the accumulating debt, and now are basically indentured in debt-slavery to the car industry with half of their monthly paycheck.
I thought full insurance would be an unwaivable requirement in those cases of leasing. How could they be in debt for accidents?
In the UK a new car purchase/lease requires comprehensive insurance for the duration of the lease. Only after the lease has expired and you've purchased could you opt for 3rd party, fire and theft insurance.
The maximum exposure during the period of a lease is whatever the excess on the policy is.
The GP comment can't be applicable to the UK.
Re: Too many people are buying cars using financial products they do not understand
#229Earlier 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?
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Re: Too many people are buying cars using financial products they do not understand
#230Earlier 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.
In France that would be illegal-- cash can't be used for transactions over €1000 because they're afraid of terrorism apparently.
Interesting. Was trying to think of something common that could exceed 1000 euros and monthly rent came to mind. I'm guessing mom-and-pop landlords expect check and/or money order as typical payment method, or wire transfer?