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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

#301

Post by pedrocr »

cynicalbastard wrote: post #298
pedrocr wrote: post #294

Earlier quoted context omitted.

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.

>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.

Are you or are you not saying that if the car appreciates you should use a loan to buy it? That's what I read from this sentence at least:

>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

What I'm saying that unless you can get that value appreciation to make the loan cheaper it doesn't matter.

Say you have 200k$ in cash and are considering buying two different cars both costing that amount. One appreciates and after 5 years is worth 300k$, the other depreciates and after 5 years is worth 50k$. Say you also have a bunch of other assets (a house, a boat, etc) that you can use as collateral to borrow the 200k$ at 10% over 5 years. If you take the loan after 5 years you've paid 250k$ for the car, doesn't matter which one. If you don't take the loan you pay 200k$ up front for the car, doesn't matter which one. The decision to take the loan would only be more attractive in the appreciating in value car if you could convince the bank to also use the car as collateral, reducing the risk of the loan, and giving you a lower than 10% rate.

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

#302

Post by tanderson92 »

taeric wrote: post #297
tanderson92 wrote: post #293

Earlier quoted context omitted.

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.

I give up.

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

#303

Post by sokoloff »

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.

> why wouldn't you get a 0% finance deal over paying in full?

I have a 0%, 60 month loan on my LEAF. Having such a loan requires me to carry collision insurance, so I treat the insurance company's profit on my insurance as the financing charge that I'm paying every month. (I otherwise wouldn't carry collision, but of course collision insurance is worth something, so I am only "really" paying the spread between that value and its cost.)

About halfway through the loan (when the imputed financing charge interest goes up because the loan balance went down), I'll probably pay it off and drop collision.

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

#304

Post by sokoloff »

SilasX wrote: post #133
kemiller2002 wrote: post #127

Earlier quoted context omitted.

Yes, I don't know exactly how he convinced them of it, but it was pretty much the "That's how things are done in the U.S."

In fairness, the system has gotten to the point that logic no longer seems to apply. Others have reported dealers offering a price discount for using their 0% financing. That's not how it's supposed to work. I'm losing my ability to say "obviously they can't mean that ".

That is literally how my financing of the LEAF went with NMAC (Nissan finance arm). There was an ~$1000 incentive from NMAC iff I financed through them at 0% for 36, 48, or 60 months.

Uh, OK. I checked the paperwork carefully and it was mathematically as-stated.

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

#305

Post by Wh1zz »

kaybe wrote: post #154
TomMarius wrote: post #136

Earlier quoted context omitted.

It's normal in Europe. I've never paid the sticker price for a car.

Buying anything above, say, 100€? Smile, say 'discount?' and they will through in something for free or give a few percent off. And that's before any kind of negotiation (unless you count asking nicely as negotiation). And I mean anything. I've done it in many places. Is there anywhere where that does not work?

can you expand on the "anything"? I'm having doubts that I can negotiate the price of eg. a TV bought in a hypermarket (Walmart, to give a US example) ?

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

#306

Post by SilasX »

sokoloff wrote: post #304
SilasX wrote: post #133

Earlier quoted context omitted.

In fairness, the system has gotten to the point that logic no longer seems to apply. Others have reported dealers offering a price discount for using their 0% financing. That's not how it's supposed to work. I'm losing my ability to say "obviously they can't mean that ".

That is literally how my financing of the LEAF went with NMAC (Nissan finance arm). There was an ~$1000 incentive from NMAC iff I financed through them at 0% for 36, 48, or 60 months. Uh, OK. I checked the paperwork carefully and it was mathematically as-stated.

I'd balk at the claim, but, as above, it's consistent with the other reports.

Did you find evidence of the hypothesis that it's a kind a "tripwire" to get you to accidentally miss a month and trigger enormous penalties?

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

#307

Post by sokoloff »

SilasX wrote: post #306
sokoloff wrote: post #304

Earlier quoted context omitted.

That is literally how my financing of the LEAF went with NMAC (Nissan finance arm). There was an ~$1000 incentive from NMAC iff I financed through them at 0% for 36, 48, or 60 months. Uh, OK. I checked the paperwork carefully and it was mathematically as-stated.

I'd balk at the claim, but, as above, it's consistent with the other reports. Did you find evidence of the hypothesis that it's a kind a "tripwire" to get you to accidentally miss a month and trigger enormous penalties?

No evidence of that and in fact, one of my first payments was late as I was setting up auto-billing and there was nothing more than a letter in the mail reminding me.

I'm still baffled as to why/how they decide to run programs like this. Maybe it gets them information about when I contemplate selling the car (as I'd maybe have to ask the payoff amount)?

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

#308

Post by drkstr »

sokoloff wrote: post #307
SilasX wrote: post #306

Earlier quoted context omitted.

I'd balk at the claim, but, as above, it's consistent with the other reports. Did you find evidence of the hypothesis that it's a kind a "tripwire" to get you to accidentally miss a month and trigger enormous penalties?

No evidence of that and in fact, one of my first payments was late as I was setting up auto-billing and there was nothing more than a letter in the mail reminding me. I'm still baffled as to why/how they decide to run programs like this. Maybe it gets them information about when I contemplate selling the car (as I'd maybe have to ask the payoff amount)?

They could potentially come out ahead, if the small loss on the financial asset is less than the margin on the MSRP of a sold vehicle, vs nilch on an unsold one.

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

#309

Post by hammock »

pmorici wrote: post #265
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 fo…

This sounds like the old four-square sales strategy that actually works AGAINST the buyer.

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

#310

Post by pythonaut_16 »

sokoloff wrote: post #304
SilasX wrote: post #133

Earlier quoted context omitted.

In fairness, the system has gotten to the point that logic no longer seems to apply. Others have reported dealers offering a price discount for using their 0% financing. That's not how it's supposed to work. I'm losing my ability to say "obviously they can't mean that ".

That is literally how my financing of the LEAF went with NMAC (Nissan finance arm). There was an ~$1000 incentive from NMAC iff I financed through them at 0% for 36, 48, or 60 months. Uh, OK. I checked the paperwork carefully and it was mathematically as-stated.

When it comes to PHEV and electrics there are sometimes other factors at play as well. Sometimes these vehicles are used as a source of carbon credits and sometimes they're used by a manufacturer to offset their less fuel efficient cars in order to comply with various fuel economy regulations.
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