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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

#311

Post by vldx »

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.

Eh, is this legal? Which EU country is that?

http://www.zerohedge.com/news/2017-01-27/europe-proposes-res...

EDIT: apologies, didn't saw see sibling comment; leaving the comment w/ the URL for reference on the directive details.

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

#312

Post by dwyerm »

wingspar wrote: post #173
ganoushoreilly wrote: post #104

Earlier quoted context omitted.

That's because their deal was hedging on the additional commission they'd gain from financing. It's rather screwy. Whenever I trade in a car I always negotiate price on the car alone first, then get a trade appraisal (usually have one in hand from Carmax prior) and if they start playing games I walk out. Past two cars, I walked out and got a call within an hour saying come back we'll do the deal.

I did similar with our last Honda. Came to the end and I asked if they would want me to sign an arbitration agreement. Told them I would, but not for free. A lot of people died for my right to sue them in court. I asked for and received an accessory they sell for $180... They were confused...

Thank you for that... but I think you sold your rights too cheaply. I walked away for the right to cross out the entire arbitration clause. They were mystified that I would even read the stuff on the back of the contract, let alone have a concern with it. They were offering me thousands of dollars off, but wouldn't budge on the clause.

I went to another dealer the next week that hadn't yet added that toxic language to their contracts.

I just consider myself fortunate that I still had the option of going with another dealer. I don't think it is possible to find a bank, phone, or internet provider without an MBA clause.

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

#313

Post by johnbrodie »

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.

First time I bought a mattress I wasn't aware of this. Second time, I got the bedframe, box spring, and mattress protector included, and still managed to knock ~ %20 off the price. I try to negotiate everything now, and have had some measure of success. I will admit that negotiating is mostly, to me, a fun game, rather than a way to save money.

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

#314

Post by kerbalspacepro »

bo1024 wrote: post #114
valuearb wrote: post #90

Earlier quoted context omitted.

These products sell because people want them. They want low payments. They want to flip houses for massive gains in short periods. The facilitators aren't fleecing them as much as just meeting their needs. Anyone who tells you that you can't afford that car or that home prices won't appreciate to the sky tomorrow isn't going to get your business. And my school and my kids school teaches basic finance. No one ever rem…

> The facilitators aren't fleecing them as much as just meeting their needs. That's a misleading statement, unless you replace "needs" with "wants".

I feel like the difference between "needs" and "wants" is an elementary distinction we make on a day-to-day basis. But when we're talking about firms and economics, the distinction does not exist except as labels for the amount of elasticity in demand something has.

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

#315

Post by taeric »

tanderson92 wrote: post #302
taeric wrote: post #297

Earlier quoted context omitted.

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.

I give up.

There is no need to "give up." My questions are not trying to prove you wrong, but to help educate me.

So, my specific question here is what makes it closely related to loss leaders? A concept which actually makes a lot of sense for me. If that was meant in the broadest of terms, then I understand. But "closely" does not imply "broadly" to me.

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

#316

Post by eru »

taeric wrote: post #130
eru wrote: post #119

Earlier quoted context omitted.

A student subscription to the Economist perhaps?

That my analogy is flawed is not exactly surprising or helpful. It is an analogy and only intended directionally. At best. You two seem to indicate it isn't good at even that. Which is a claim I'm interested in knowing more about.

Sorry, I didn't meant to indicate any of that. I just meant to say that you should be reading the Economist for this kind of stuff.

And if you can finagle to get the subscription on a student discount, it's definitely worth it. Full-prince subscription is debatable.

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

#317

Post by eru »

taeric wrote: post #315
tanderson92 wrote: post #302

Earlier quoted context omitted.

I give up.

There is no need to "give up." My questions are not trying to prove you wrong, but to help educate me. So, my specific question here is what makes it closely related to loss leaders? A concept which actually makes a lot of sense for me. If that was meant in the broadest of terms, then I understand. But "closely" does not imply "broadly" to me.

The problem is that you _seem_ to have a hard time grasping the very simple math involved.

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

#318

Post by taeric »

eru wrote: post #317
taeric wrote: post #315

Earlier quoted context omitted.

There is no need to "give up." My questions are not trying to prove you wrong, but to help educate me. So, my specific question here is what makes it closely related to loss leaders? A concept which actually makes a lot of sense for me. If that was meant in the broadest of terms, then I understand. But "closely" does not imply "broadly" to me.

The problem is that you _seem_ to have a hard time grasping the very simple math involved.

What math has been presented?

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

#319

Post by JauntTrooper »

thenewwazoo wrote: post #125
raquo wrote: post #118

Earlier quoted context omitted.

The financing rate is 0% because the MSRP of the car is slightly inflated. If you pay with cash, you get a cash incentive (e.g. $2000 off), if you pay by financing, you get a similar discount but in the form of a lower nominal interest rate. Jurisdictions with good legislation require dealers to also show the effective APR, which takes the cash discount into account and is almost always a more reasonable rate. --- Ap…

My experience hasn't matched what you've posited here. I bought a car a couple of years ago, and found that multiple dealers consistently quoted me the highest price for cash and 0% financing deals, and would only structure discounts into the price if I paid interest. A discount for cash was right out. Perhaps cash purchases may have gotten you a discount at some point in the past, but dealers appear lately to be com…

What is stopping you from agreeing to a loan and then paying it off in full a week later?

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

#320

Post by soylentcola »

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…

I recently did the same (albeit for $10k). Even after agreeing on everything, they kept asking "are you sure you don't want to finance just part of it? We can give you a really good rate!"

All I could do was patiently ask them "why would I do this? Is it not still more of a cost to me, even if a small one?" They acted really confused and upset but I understood that this was simply a sales tactic to make me feel as if I was making some sort of mistake by not paying some small amount of interest in addition to the cost of the car.

I eventually got a bit irritated as it was making things take a lot longer than they needed to. I just told them, "look, we already negotiated a price and I have the check written out right here. I have no need to finance a $10k car right now and I would like to just finish the sale."

They weren't quite as friendly after that but hey...it's an adversarial relationship and I'd been perfectly cordial up until that point. I was already paying $10k for a car they likely got for half as much as a trade-in anyway.

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