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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

#241

Post by gambiting »

digi_owl wrote: post #237
tyfon wrote: post #91

Earlier quoted context omitted.

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...

Is buying a new car with cash really that weird? Not to mention that he could have obtained the money elsewhere at a lower rate(say a 5% loan from a bank vs 8% on dealer organised finance) - in which case as far as the dealer is concerned,he's paying in cash from his own account.

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

#242

Post by gambiting »

jychang wrote: post #211
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…

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…

UK absolutely has car leases, probably half of my friends are on proper car leases where they don't own the car at the end and they don't have any equity in it.

I'm personally on PCP which is basically like a lease except that I have an option to purchase the car at the end for an amount agreed at the beginning of the contract.

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

#243

Post by IanCal »

djaychela wrote: post #215
maxerickson wrote: post #8

Earlier quoted context omitted.

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.

Possibly You & Yours? There was a section on PCP a couple of weeks ago, might get repeated early in the morning. Although it sounds like there was a report on it so maybe a few people have done articles

http://www.bbc.co.uk/programmes/b08q31ct (about 33 min, towards the end of the show)

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

#244

Post by badestrand »

skookumchuck wrote: post #175
coldtea wrote: post #168

Earlier quoted context omitted.

> 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…

> What I do expect and find important, and should be legally binding, is that no business should be allowed to hide the actual impact of purchases behind legalese and long-winded "financial product" descriptions, and then put the blame on the customer for not "reading through it". And in general, as I pointed out here, such contracts tend to be invalid in court. However, signing a piece of paper in plain english cert…

> A legal doctrine where one can not bother reading contracts and yet get them decided in favor of ones imaginary terms doesn't sound like a workable system.

Having to agree to dozens of pages of contract every day just to do seemingly ordinary things like using websites or ordering stuff online doesn't sound like a workable system either.

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

#245

Post by ubernostrum »

valuearb wrote: post #86
benevol wrote: post #58

Earlier quoted context omitted.

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.

You have it backwards. Buyers demanded the ability to buy homes they couldn't afford, the government required Fannie Mae, Freddie Mac and banks to finance them and the US Government guaranteed some of the loans. The buyer behavior was rational, at least on the surface, because homes almost always appreciate over long periods and were appreciating like crazy during the bubble. We are pattern matching monkeys, all of u…

This is an interesting spin, in that it absolves a mortgage industry which did everything short of drag people in off the street and hold guns to their heads to try to issue more loans. Omitting that, when a major source of the massive drive to issue loans was the popularity of mortgage-backed securities as an investment vehicle and the incredible demand for such securities, is... well, it does make one question your understanding of the problem, or if you do understand it perhaps the motives behind your choice of framing.

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

#246

Post by rythie »

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).

That's not the point. The problem is when the person loses their job. A downturn in the economy would lead to job losses and wave of defaults on vehicle repayments.

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

#247

Post by JshWright »

alltakendamned wrote: post #239
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.

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

His username is likely a big hint there...

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

#248

Post by legolas2412 »

Retric wrote: post #103
takeda wrote: post #98

Earlier quoted context omitted.

I bought 0% Apr from Toyota. It's not really 0% though, because (at least in my case if I would pay cash, I would get $1,000 off). So this is equivalent of paying $1,000 of interest up front, just masked to look like there is no interest.

It's a little worse than that as you pay generally pay some form of sales tax on the purchase price not your interest payments.

Plus the 1000 if invested would probably be say 1150 after five years.

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

#249

Post by CamTin »

mynameishere wrote: post #115
ghufran_syed wrote: post #112

I feel like there is a natural tension between adults having the right to make their own decisions, and 'protecting' them from making bad decisions. Maybe what we need is a two-part market for financial services, a tightly regulated one where only regulator-approved, simple products can be sold, and one with much looser regulation, but that only those consumers willing to take a financial literacy exam are eligible f…

interest-only home mortgages are almost always a bad choice for most consumers Just for future reference, if anyone lets you make an infinitely leveraged 500,000 dollar bet that you can walk away from at any time, you take that bet.

On the other hand, if someone offers to let you make an infinitely leveraged 500,000 dollar bet that you can walk away from at any time provided you are OK with the consequence of being unable to access another mortgage loan or to rent (because of outstanding housing debt), then probably don't take that bet.

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

#250

Post by coldtea »

DannyBee wrote: post #210
coldtea wrote: post #168

Earlier quoted context omitted.

> 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…

"At the very least, they should be explicitly, and in common, everyday language, give something like: "The average buyer that used this financing option ended up paying X% above the base price". " All this does is increase the number of documents. Seriously. How do you think it got to be so many documents, where half are disclaimers and "plain english" warnings/etc for the consumer. They usually don't hide the actual…

>All this does is increase the number of documents.

Perhaps you didn't get what I said.

That information should be displayed (by law) with prominent letters as big as the base price, under any sign/ad/etc which shows the latter.

Not to be buried in another document.

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