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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

#261

Post by meeker »

nvarsj wrote: post #31
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.

When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.

Many of the 0% financing also have a "or $750 cash-back" offer as part of it.

I turned down a 0% offer and took the cash. I then went to a Credit Union and got a loan at 2%. The interest paid over the life of the loan totaled less than the $750 upfront.

The finance person at the dealership wasn't too happy once he realized I can do math.

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

#262

Post by NicoJuicy »

briandear wrote: post #218
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.

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

Limiting cash transfers isn't only about terrorism, it's about limiting possibilities for using your "black money". Governement doesn't want to lose income, are they ;)

Stimulating digital payments is another method

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

#263

Post by posterboy »

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…

You defend the leeching practices of financiers by the claim that the law already demands obvious hints in contracts, but consequently pretend that there was no obligation to educate. This is a contradiction.

> but most people are going to blame you for not making yourself competent

Shouldn't it go both ways? Businesses might be confident with your assertion and might rely on it to do business. But blame is the wrong attitude if you go in holding that opinion it's fraud. If you let someone sign a contract although you are sure they didn't read it, that's fraud. Simple as that. Why do I get weird looks when I actually start reading a contract I am about to sign?

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

#264

Post by Consultant32452 »

coldtea wrote: post #250
DannyBee wrote: post #210

Earlier quoted context omitted.

"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.

How can a person making an ad know how long a buyer's loan term will be or what interest rate they will qualify for? How would you know the value of any potential trade ins?

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

#265

Post by pmorici »

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…

That's absolutely true. There are three main ways the dealer can make money on a deal. They are; New car price, Trade in value, and Financing terms. As a consumer you should always negotiate each of those items separately. What dealers like to do is move their profit between the three to make it look like they are negotiating when all they are doing is moving the bottom line costs from one line item to another.

So for example they might quote you a price on the car that they know is below average asking price from dealers in the area and give you a typical good interest rate on the loan but then way low ball you on your trade-in.

To avoid getting a bad deal I always do the following before setting foot on the dealers lot.

1. Go to CarMax or similar place ahead of time and get a quote for how much they would buy your car for.

2. Be ready to pay for the car in cash or have a loan pre-approval lined up from a secondary source for financing outside of the dealership.

3. Know what the car you are looking at sells for in your area.

4. If you are buying a new car, shop towards the end of the month. Manufacturers offer incentives to dealers based on the number of cars they sell per month. So say a dealer needs to sell 50 cars a month to get the incentives which are $500 bucks per car. If they are at 48 cars sold with two days left to go in the month they are a lot more likely to sell you a car at a lower price and get to 50 so they don't lose out on the incentive payments for the 48 cars they have already sold.

Once you are at the dealer make sure you negotiate each of the 3 parts of the deal separately. First agree on the price of the car. Then entertain their offer of a loan and for your trade-in if they are as good as or better than the alternatives take them other wise turn them down.

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

#266

Post by Consultant32452 »

brianwawok wrote: post #145
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.

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.

That depends on how broadly you define negotiating. For example, price matching and acceptance of competitor coupons are both forms of negotiating. But you're right, even for retailers that offer price matching or competitor coupons, the vast majority of purchases don't involve any form of negotiating.

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

#267

Post by [deleted] »

jedmeyers wrote: post #177
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.

Healthcare. If you ended up paying from pocket.

[deleted]

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

#268

Post by coldtea »

Consultant32452 wrote: post #264
coldtea wrote: post #250

Earlier quoted context omitted.

> 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.

How can a person making an ad know how long a buyer's loan term will be or what interest rate they will qualify for? How would you know the value of any potential trade ins?

The same way they know the price -- which can also change.

They note the currently (and for the mid-term future) values.

It's 2017, it's not like ads are written in stone and can't be altered when the facts change.

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

#269

Post by onion2k »

branchless wrote: post #153
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…

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.

I think you're underestimating how poor most people are. 60% of Americans wouldn't be able to cover an unexpected bill of $500[1]. Most people just don't have any money saved, or money left at the end of the month to save any. This isn't about young people buying nice cars; it's about the majority of people buying any car. Clearly cheap credit adds to the problem, but if the ability to borrow disappeared overnight a lot of people would have tremendous difficulties.

[1] http://money.cnn.com/2017/01/12/pf/americans-lack-of-savings...

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

#270

Post by Consultant32452 »

PuffinBlue wrote: post #19

Maybe I didn't understand the deal I bought a car with, or maybe it's an unusual deal, but I'm happy with it. My car costs me a set amount per month that I can afford, an amount that is actually equal to the monthly depreciation it would face anyway (on average) over a three year period (including the initial low value deposit I paid, this is still true). Even if I bought it outright, which I couldn't afford to do, I…

You're not just paying the depreciation, you're basically getting a loan for the (depreciation value + profit). And the average interest rate on that loan is 14% APR. This interest rate doesn't have to be disclosed to you though, because it's not "technically" a loan. There's a reason why auto dealers advertise leasing so much, it's the most profitable business for them. Leasing is the most expensive way possible to drive a car.

https://www.youtube.com/watch?v=t1NaDucAXIg

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