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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

#291

Post by taeric »

TrickyRick wrote: post #278
tanderson92 wrote: post #191

Earlier quoted context omitted.

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.

What do folks buy as additions to their car? I could see an argument for taking it to dealer's shop. They certainly do what they can to lock out other mechanics.

Would be curious on numbers to know how successful that is.

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

#292

Post by taeric »

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.

A loss leader has lock in. How does that relate to cars?

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

#293

Post by tanderson92 »

taeric wrote: post #292
tanderson92 wrote: post #191

Earlier quoted context omitted.

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.

A loss leader has lock in. How does that relate to cars?

I did not state that what the car companies are doing is offering the loan as a loss leader; I am saying it is a related concept. I was offering it to help in understanding that companies make tradeoff decisions of this kind. Please don't take my comment as making a direct equivalence between the two.

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

#294

Post by pedrocr »

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.

You're arguing that the price of the car going up or down makes a difference for the decision if you should use a loan or not to buy it. That only makes sense if the loan is based on the car value. If the loan is based on other collateral the price fluctuations of the car are irrelevant to the price of the loan and don't enter the decision at all.

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

#295

Post by skookumchuck »

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.

> But, have you ever been in a sales room?

Yup.

> Most people are pressured to sign ASAP and dealers generally refuse to print out contracts until after they're signed.

I refuse to sign until I see a printed copy. Just remember that the dealers want that sale a lot more than you do. If they aren't being reasonable, get up and walk away. They'll change their tune very quickly.

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

#296

Post by branchless »

onion2k wrote: post #269
branchless wrote: post #153

Earlier quoted context omitted.

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 peopl…

You've completely missed my point. The ability to borrow sets the price. This is how prices on goods are set, not by how much it costs plus a "fair profit".

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

#297

Post by taeric »

tanderson92 wrote: post #293
taeric wrote: post #292

Earlier quoted context omitted.

A loss leader has lock in. How does that relate to cars?

I did not state that what the car companies are doing is offering the loan as a loss leader; I am saying it is a related concept. I was offering it to help in understanding that companies make tradeoff decisions of this kind. Please don't take my comment as making a direct equivalence between the two.

Even directionally, I don't see how it is similar. I could see it being like door buster sales.

Indeed, I mainly expect that is what they are. Convinces people to get in the market for a car, but then actually get something else.

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

#298

Post by cynicalbastard »

pedrocr wrote: post #294
cynicalbastard wrote: post #67

Earlier quoted context omitted.

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.

You're arguing that the price of the car going up or down makes a difference for the decision if you should use a loan or not to buy it. That only makes sense if the loan is based on the car value. If the loan is based on other collateral the price fluctuations of the car are irrelevant to the price of the loan and don't enter the decision at all.

> You're arguing that the price of the car going up or down makes a difference for the decision if you should use a loan or not to buy it.

no i'm not. i said condition B is often present in condition A, and that given A, you'd be stupid not to do B.

NOT that A necessitates B or vice versa. that's something you just made up out of thin air.

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

#299

Post by bhaak »

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.

But for such things the Germans invented the 500 euro bill.

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

#300

Post by NTDF9 »

lacampbell wrote: post #157

The idea of not paying cash for a car is insane to me. A could justify a loan for a house, or even an education. But a car?! I just don't even understand this mindset.

I got it at a time when I was just out of college with only $6000 in my account...so yeah, people like me need financing.
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