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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

#271

Post by davidshepherd7 »

kcanini wrote: post #113
MikeTaylor wrote: post #49

The two-step plan for effortlessly being better off than you otherwise would be (I won't say getting rich): 1. Buy the cheapest car you're OK with. 2. But the best house you can afford. This is simple. Cars (especially new cars) depreciate super-fast; and houses have appreciated at crazy rates at least for the last few decades. Don't put your money in a fancy car.

I thought house prices were relatively flat, on a long-term, inflation-adjusted basis. https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index

It depends on the country, in the UK (which this article is about) prices have been increasing above inflation for years.

http://landregistry.data.gov.uk/app/ukhpi/explore

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

#272

Post by aianus »

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.

It wasn't anything like this when I went shopping for a car at Audi and MB last year.

I was expecting some discount for paying cash since the interest rates were all less than 2% (which barely covers inflation). However they were completely indifferent to whether I paid cash or financed so I financed.

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

#273

Post by dpeck »

lithos wrote: post #74
dpeck wrote: post #36

Earlier quoted context omitted.

had a similar thing happen a few years ago when buying out my car at the end of a lease (normally a bad idea, but worked out due to specific circumstance). The person I was dealing with was baffled, kept wanting to have me fill out a loan app. He either didn't want to or couldn't understand what was going on. At the end of it I told them I had the certified check as previously agreed for the full amount due on the ve…

They get a second commission if you're on the right loan.

Definitely a case of the cliched bit about hard for someone to understand something, when their salary depends on not understanding it

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

#274

Post by TrickyRick »

pzh wrote: post #226
Pica_soO wrote: post #221

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.

I thought full insurance would be an unwaivable requirement in those cases of leasing. How could they be in debt for accidents?

Perhaps the insurance only covers the current car value, not all future interest payments and as such there is still quite a bit left even after insurance claims.

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

#275

Post by TrickyRick »

jacquesm wrote: post #17

This goes for many things outside of cars. Insurances, Mortgates, student debt, lottery tickets, consumer debt, credit cards and so on. In general people are sitting ducks when it comes to being fleeced by parties with a plan. I always wonder why schools don't even teach the beginnings of finance to everybody. You'd almost think there is a reason why it explicitly is not being taught.

> I always wonder why schools don't even teach the beginnings of finance to everybody. You'd almost think there is a reason why it explicitly is not being taught.

This! It's crazy the advantage you get from knowing some basic personal finance and economics. Whenever someone younger asks for advice about what to learn to get ahead my two answers are personal finance and programming.

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

#276

Post by TrickyRick »

cynicalbastard wrote: post #67
pedrocr wrote: post #32

Earlier quoted context omitted.

>if you're expecting an asset like a 918 or 911RS or R to go up in price, you'd be stupid to not leverage your cash at a low interest rate and put the rest of it to work somewhere else This only makes sense if your bank thinks it will go up in price and will lend you the money at low rates based on the car itself as collateral. If you're getting the money at low rates based on other collateral (like you suggest above…

uh, no, the bank will loan you the money no matter what, as long as they think you can pay it back or you can put up collateral to forfeit in case of default. they're not in the speculation game, they're in the loan making game.

But the interest is lower the more stable the leveraged assets. I get a lower interest if I mortgage my house compared to if I borrow with stocks as leverage, which in turn is lower than a car loan which in turn has lower interest than a loan with no leverage, even if I have a solid income and a stable employment.

Banks are actually very much in the speculation game, which is why different people get different interest rates for the same loan, they speculate that the person with the lower interest has a better chance of paying back the loan. See also the financial crisis of '08

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

#277

Post by TrickyRick »

maxerickson wrote: post #38
DanBC wrote: post #28

Earlier quoted context omitted.

http://www.porsche.com/uk/accessoriesandservice/financialser... > Porsche Financial Services - a trading name of Volkswagen Financial Services [VWFS], with finance provided by VWFS - offer different finance plans across the Porsche model range. To find the right plan for you from a selection including Personal Contract Plan, Lease Purchase, Hire Purchase and Contract Hire, simply explore the options below or contact…

The 918 is a $850,000 super car. That Porsche finances a bunch of more affordable cars doesn't provide much evidence about how many people finance $500,000+ vehicles.

Additionally, if you're in the market to buy a $850,000 car as an investment then you probably have better assets to use as leverage (Property, stocks, etc) which are less prone to suddenly becoming worthless, as a car would be in the event of a major accident.

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

#278

Post by TrickyRick »

tanderson92 wrote: post #191
taeric wrote: post #189

Earlier 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.

Same as with Nespresso machines, the machine is cheap (Probably sold at a loss but I have no numbers on that) because over a lifetime the customer will buy grossly overpriced capsules which will make the money back and more. Game consoles work the same way early in the cycle.

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

#279

Post by Consultant32452 »

coldtea wrote: post #268
Consultant32452 wrote: post #264

Earlier quoted context omitted.

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.

Things like the interest rate you qualify for are unique to the buyer. How can a print ad in the newspaper know the interest rate the buyer will qualify for? How can a print ad in a newspaper know what the purchaser of a car is going to trade in? There's not even a customer yet.

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

#280

Post by TrickyRick »

bsamuels wrote: post #53
loeg wrote: post #10

Earlier quoted context omitted.

The article seems to be talking about short term (2-3 year) interest-only leases. There's a middle ground your comment hasn't mentioned. Instead of leasing or buying a used car, consumers can finance a new car (e.g. 5 year loan). It requires slightly higher monthly payments to cover the principal, and you can't switch cars as frequently, but you have ownership of the car (and freedom from payments) after the loan end…

how does road salting affect the value of leasing versus financing a used car?

I guess the idea is that salt wears more on the car and as such the leasing option would be better since the second-hand value is guaranteed.

However I think car finance companies are clever enough to include this in their calculations and the second-hand value you get for a car in France is not the same as in Sweden where roads are commonly salted.

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