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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

#231

Post by Pica_soO »

buro9 wrote: post #228
pzh wrote: post #226

Earlier quoted context omitted.

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.

Most people dont know, but insurances regularly wriggle themselves out of anti-debt-insurance that are usually sold with leasing contracts.

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

#232

Post by pbhjpbhj »

ryan-c wrote: post #185
brianwawok wrote: post #145

Earlier quoted context omitted.

Literally, the only things you negotiate in the US are cars and houses. Not groceries nor clothes nor millions of other things. Perhaps a few minor things here or there.. but we pretty much just stick to the basics.

Mattresses are negotiable. I offered to pay cash and they took like 40% off the price. I was kind of dumbfounded.

Did they put it through the books. They may be able to sign it off as damaged goods and pocket the cash hiding the sale from revenue and upstream managers.

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

#233

Post by intended »

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…

>I think most people know what they are getting into but now they have the opportunity to drive a new car they would never have been able to afford otherwise any concerns are put to the back of their mind.

You can't make this argument when people have a commission based incentive to sell cars.

As demonstrated in the article, even MBA students have trouble choosing the cheapest mortgage.

Having a mixed structure like this, its no wonder that the author calls for

> What auto finance needs — what most consumer finance needs — is for key information to be made simple and salient. Competition cannot work if consumers struggle to understand what they’re being sold and what it will cost. The car market’s heady mix of prestige products and bewildering finance will resist efforts at reform.

And finally, its not a secret that most consumers don't know what they are getting into, or what their rights and recourses are.

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

#234

Post by pbhjpbhj »

metaphor wrote: post #230
briandear wrote: post #218

Earlier quoted context omitted.

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?

In UK it's normal to do a "standing order" which you set up either at the bank counter or more usually through your online banking. Other methods have transaction charges whilst this does not, you can do one-time transfers this way too.

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

#235

Post by ownagefool »

losteric wrote: post #182
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?

Exploiting ignorance is legally fair game, that doesn't make it ethical. At this point dealers are basically just selling consumers to banks. I would blame the consumers if they could take their contracts home, consult with family, financial experts, etc. But, have you ever been in a sales room? Most people are pressured to sign ASAP and dealers generally refuse to print out contracts until after they're signed.

Not in the UK. A contract has to both be fair and understood in order for it to be valid. The thing is, given all the finance agreements I've had in the UK tell me what the total cost will be ( generally over double the cost of the product ) I'm not really sure these products aren't to be reasonbly understood and it woukd seem like laziness or greed eould be the biggest driver.

The exception to the rule here would be payday loans which have some horrible outcomes shouls you fail to pay them back on the agreed date. These were being legislated for the last I heard, so I'm not sure if they still exist.

The other game in the UK is targeting the poor with silly rates of interest in the knowledge that many of them simply won't pay. Technically they're high risk loans and thus somewhat valid but there is an argument that the likes of brighthouse shouldn't exist and that people without jobs shouldn't really be given finance to buy a tv at over double the retail cost.

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

#236

Post by chii »

intended wrote: post #233
dazc wrote: post #200

Earlier 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…

>I think most people know what they are getting into but now they have the opportunity to drive a new car they would never have been able to afford otherwise any concerns are put to the back of their mind. You can't make this argument when people have a commission based incentive to sell cars. As demonstrated in the article, even MBA students have trouble choosing the cheapest mortgage. Having a mixed structure like…

> not a secret that most consumers don't know what they are getting into, or what their rights and recourses are.

which is exactly why consumer protection must exist, and that anything attempting to take advantage of the less sophistication regular consumers have must be stopped, or heavily regulated.

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

#237

Post by digi_owl »

tyfon wrote: post #91
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…

Same thing here in Norway. When I bought my last car, I negotiated the price down quite a bit and got upgrades/winter tires etc for the same price. When all was said and done and he asked how I wanted to finance it, I pulled out my direct debit and he went pale. I had to argue for another half an hour to keep all the negotiated stuff while paying for it outright, it was silly.

Either that was a cheap car or you have some serious income...

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

#238

Post by justincormack »

kayoone wrote: post #224
jychang wrote: post #211

Earlier 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.

The UK is not debt averse. It also has the highest new car purchases in the EU due to the availability of car credit

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

#239

Post by alltakendamned »

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.

Also illegal in many euro countries. Which country was this in?

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

#240

Post by tobylane »

justincormack wrote: post #238
kayoone wrote: post #224

Earlier quoted context omitted.

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.

The UK is not debt averse. It also has the highest new car purchases in the EU due to the availability of car credit

That's a new phenomenon, I've heard it described as a new thing in the last 9 months and an upcoming bubble.
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