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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

#41

Post by [deleted] »

dpeck wrote: post #36
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 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…

[deleted]

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

#42

Post by thearn4 »

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.

Yep, my 2012 Civic was bought on 1% financing. Paid off now, still runs great, and I kept the would-be total payment in cash in retirement accounts.

Probably could have done better on a used car, but for once I wanted to be the one to run something into the ground. Still waiting on that.

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

#43

Post by barrkel »

I think it may be easy to buy a relatively bad PCP deal, because of the difficulty in comparing like for like when there's a lot of variables in the deal. But I'm not sure that PCP is often a bad deal compared with outright purchase (whether on finance or not), because it creates a lot of certainty, particularly with good gap insurance, and doesn't require a lot of capital.

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

#44

Post by jacquesm »

blibble wrote: post #34
nvarsj wrote: post #31

Earlier quoted context omitted.

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.

it's just another form of competition right? all car firms offer lower and lower loans rates to try to get you to buy their product, and eventually the rate reaches 0%

It's mostly a function of the general interest rates.

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

#45

Post by ethbro »

> What auto finance needs — what most consumer finance needs — is for key information to be made simple and salient. Competition cannot work if consumers struggle to understand what they’re being sold and what it will cost.

And if you agree with that, then let me tell you a story about the healthcare industry...

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

#46

Post by jacquesm »

endianswap wrote: post #20
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 seems insane that it'd be the biggest check they've seen. I've bought an 80k BMW and an 80k Jaguar outright, and they both shrugged at me paying by check. BMW let me use a personal check, Jaguar wanted a bank check (easy enough). Edit: A normal down payment for a luxury car of any brand can easily be 20k up front.

> Jaguar wanted a bank check

In case it wouldn't start the next morning ;)

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

#47

Post by aquark »

charlesdm wrote: post #29
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.

If cost of debt borrow money / finance

More strictly: (investment returns - tax payable)

(unless your debt is tax deductible ... most car loans aren't)

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

#48

Post by Spooky23 »

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…

My wife did that before we were married, except with cash.

The GM asked where she stripped.

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

#49

Post by MikeTaylor »

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.

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

#50

Post by taeric »

fegu wrote: post #37
charlesdm wrote: post #29

Earlier quoted context omitted.

If cost of debt borrow money / finance

There is a lot more to this than a simple equation. Otherwise we would all borrow as much as we could (about 2% and somewhat predictable) and put it all in the stock market (avg 7,5 % but volatile).

To be fair, I think the equation doesn't get that much more complicated, typically. Add in fees and you go a long way to showing why this won't work. Add in a floor function for operating expenses money you need on hand, and you show most of the rest.
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