Are the wheels about to fall of car finance?
Discussion
DonkeyApple said:
Elysium said:
I'm not sure. I bought a car in 2006 with a 6% APR PCP deal. The rate was the same for my last car in 2014.
The base rate and economy were in massively different places when I made these purchases, but personal loans and car finance have stayed quite constant.
Except they haven't when you look at the figures as % premium over say Libor. The cost has blown exponentially since 2006. The base rate and economy were in massively different places when I made these purchases, but personal loans and car finance have stayed quite constant.
As rates rise the forward yield curve will push up those institutional costs and they will be passed on with the premium. The worse the borrower the higher that premium will be and the more debts they are going to have that are rising in costs.
Manufacturers' lending arms may attempt to swallow some of the initial rises so as to compete over sales but their whole business model has become beholden to the massive yield premiums of conning their customers into paying 6% for secured borrowing plus knowing that 2/3 years later they'll be able to rinse them again.
If you honestly look at this in the cold light of day just who on Earth, in their right mind would pay 6% for collateralised personal debt?!!!!
It's coming up to 30 years since we've been at this point in the rate cycle in the U.K. so many consumers have never experienced the reality of free market forces on consumers.
It bears no similarities to the events of 2008 when central government intervened and slammed rates to zero, printed billions of pounds and stopped the banks from foreclosing. Look at all the actions of de-leveraging consumer and residential property debt that have been being taken over the last few years the plan is very, very clear: When rates rise there is no intent for central government to intervene. Market forces will be permitted to take their natural course and clear out the weak to make way for the young and new.
What the last few years have shown me, is that government will try an economic trick in the book to keep things going for a little while longer, no matter if it is damaging in the long term, and no matter how many people get hurt.
There is no desire to normalise things in the UK.
So I expect they will keep the cheap debt going until they can't possibly go on any further.
There is no desire to normalise things in the UK.
So I expect they will keep the cheap debt going until they can't possibly go on any further.
GrizzlyBear said:
What the last few years have shown me, is that government will try an economic trick in the book to keep things going for a little while longer, no matter if it is damaging in the long term, and no matter how many people get hurt.
There is no desire to normalise things in the UK.
So I expect they will keep the cheap debt going until they can't possibly go on any further.
If that is the case why are they putting so many actions in place to curb consumer debt? This is the first Govt since the 70s to actually do so. There is no desire to normalise things in the UK.
So I expect they will keep the cheap debt going until they can't possibly go on any further.
They have brought in stricter suitability tests for mortgages, directly assaulted high leverage BTLs, put a big review on zero finance deals and the like and then only this week started on credit cards.
Even so, no one has ever forced anyone to borrow and spend. Each individual has personally chosen to do so of their own volition.
Banks are planning to put the brakes on credit card lending after a borrowing binge last year, Bank of England figures show.
Lenders told a quarterly survey by the Bank that they had tightened credit scoring criteria for cards and other unsecured loans in the first three months of this year.
They said they plan to tighten lending further in the second quarter - with more lenders planning to rein in credit over the period than at any time since the end of 2008 during the financial crisis, the report found.
The figures come as rising inflation and stalling wage growth stoke fears of a squeeze on living standards and a slowdown in the consumer boom that has kept the economy in robust health since last year's Brexit vote.
Part of the boom had been fuelled by a strong expansion in consumer lending.
Lenders told a quarterly survey by the Bank that they had tightened credit scoring criteria for cards and other unsecured loans in the first three months of this year.
They said they plan to tighten lending further in the second quarter - with more lenders planning to rein in credit over the period than at any time since the end of 2008 during the financial crisis, the report found.
The figures come as rising inflation and stalling wage growth stoke fears of a squeeze on living standards and a slowdown in the consumer boom that has kept the economy in robust health since last year's Brexit vote.
Part of the boom had been fuelled by a strong expansion in consumer lending.
It's amazing what the threat of reviewing the credit card practice of deliberate defaults can achieve. The thought of excess regulation due to continual abuse of the process really focuses the minds of the compliance department on suitability guidelines. 
Car debt is rapidly standing out as the last consumer debt w
kathon to be brought under control and seeing as where the biggest finance arms are generally located it would not surprise me if any 'review' is being held back to assist in the Brexit fiasco.
To me, it's quite clear they are forcibly protecting enough consumers so that this time they can let the others burn in a free market? Or reigning it in and taking the tax hit of a slow down in spending to stave off the otherwise rapid halt that will come.
Car debt is rapidly standing out as the last consumer debt w
kathon to be brought under control and seeing as where the biggest finance arms are generally located it would not surprise me if any 'review' is being held back to assist in the Brexit fiasco. To me, it's quite clear they are forcibly protecting enough consumers so that this time they can let the others burn in a free market? Or reigning it in and taking the tax hit of a slow down in spending to stave off the otherwise rapid halt that will come.
Nickbrapp said:
That's why I live in a cardboard box not a house, couldn't have a 6 figs mortage debt hanging over me, can't afford it so don't have it
But that's different? Say someone on minimum wage, they won't be able to get a mortgage but can get a brand new BMW on finance and scrape together the funds to pay for it. Theres a huge difference in my opinion Nickbrapp said:
Mr Tidy said:
Maybe it is time for people to face up to reality - if they can't afford it, they can't have it! 
That's why I live in a cardboard box not a house, couldn't have a 6 figs mortage debt hanging over me, can't afford it so don't have it You're lucky. We lived for three months in a paper bag in a septic tank. We used to have to get up at six in the morning, clean the paper bag, eat a crust of stale bread, go to work down the mill for fourteen hours a day week in week out, for sixpence a week. When we got home, out Dad would thrash us to sleep with his belt!
Sorry couldn't resist quoting the Monty Python sketch
HedgeyGedgey said:
But that's different? Say someone on minimum wage, they won't be able to get a mortgage but can get a brand new BMW on finance and scrape together the funds to pay for it. Theres a huge difference in my opinion
There's no difference. The only reason people say there's a difference is so they can maintain their superiority complex over people who have non-mortgage debt. It's very bizarre.
BigLion said:
Part of the boom had been fuelled by a strong expansion in consumer lending.
Most of the boom, I might argue.And you know what financed about 25% of the expansion in consumer spending? PPI fines payed by banks.
Wonder what will happen when that gravy trains stops (soon)...
MrBarry123 said:
There's no difference. The only reason people say there's a difference is so they can maintain their superiority complex over people who have non-mortgage debt. It's very bizarre.
Not really. PCP/lease is the housing equivalent of renting the biggest, flashest pad you can "afford".
MrBarry123 said:
There's no difference. The only reason people say there's a difference is so they can maintain their superiority complex over people who have non-mortgage debt. It's very bizarre.
Person A is spending £800 per month on rent. But has saved a deposit for a house by doing some bangernomics, they take out a mortgage for £250,000 and are now spending around the same £ per month, but on an appreciating asset, not handing it over to a landlord
Person B is spending £800 per month in rent, but instead of saving for a deposit, has taken out a £300 per month PCP on a white Audi A3 (why not get some stereotypes in their.) This is only going to lose them money, but they have a nice car.
These two scenarios are clearly different. In 10 years time, person A could have over 100k in equity in their house, potentially a lot more. Their "borrowing" was an investment and had made them money. Person B Has spend £96,000 on rent, and £36,000 on finance payments, a total of £132,000 that has either gone into someone else pocket, or into financing the depreciation on a new car.
Bill said:
Not really.
PCP/lease is the housing equivalent of renting the biggest, flashest pad you can "afford".
Leasing a new Panda for £100/month to get you to and from work everyday is the equivalent of a rail/bus season ticket. Everything else is shades of grey, and just a choice of how each individual prioritises different benefits.PCP/lease is the housing equivalent of renting the biggest, flashest pad you can "afford".
Mr Tidy said:
Maybe it is time for people to face up to reality - if they can't afford it, they can't have it!
It's never happened in the history of civilisation. And it never will. It is simply human nature of the crowd to over consume. This is exactly why all societies have had some form of regulation to prevent the inevitable. From the religious acts against usuary to peer contempt and finally specific regulatory bodies.
But the Governments of the West knowingly began removing these important regulations so as to increase consumer borrowing and therefor spending which leads to faux feelings of wealth and 'happiness' while massively increasing tax incomes to the State and inflating asset values such as properties which then amplifies the feelings of wealth so increases consumption further.
But what everyone on the planet knows is that all excess consumer debt actually achieves is to transfer what little wealth the masses have into the hands of the few. No access to consumer debt and the wealth divide widens as the poor but diligent cannot advance socially. Too much debt and the same.
For 30 years we have suffered a consumer debt spiral and the current knobs in charge are actually the only people since the late 70s to be reigning back access to consumer debt to beneficial levels and forcing the over leveraged to deleverage.
They've forced workers to have pensions as the majority have long preferred to use their income which should have been invested to provide an income once they are de-employed to finance consumption instead. They've deleveraged the housing market and directly attacked the over leveraged speculators to get them out. They are forcing reviews of consumer lending practices from the farce of zero deals and nothing to pay for 6 month scams and now forcing credit cards to tighten up and stop the practice of deliberately encouraging Morlocks into the highly profitable debt default spiral.
Another interesting reason for pulling in the debt consumers is that as rates do rise, each rise is going to be a pay rise for the largest and wealthiest demographic, the cash rich Boomers whose spending power is going to be increasing.
Rising rates will deliver a seismic change to the retail landscape as the consumers of the last 20 years continue to fall away into debt poverty and the non debt consumers see their purchasing power increasing.
The key will be in trying to predict how this changeover will manifest itself in the high streets and among the global retailers. Being able to understand how those with actual money consume goods will be essential in a society which for living memory has focussed on serving consumers who have no money.
The car landscape will be among the most visual change we will see in that changeover. But on the whole it will be an extremely exciting economic period and one full of fantastic opportunities.
Bill said:
MrBarry123 said:
There's no difference. The only reason people say there's a difference is so they can maintain their superiority complex over people who have non-mortgage debt. It's very bizarre.
Not really. PCP/lease is the housing equivalent of renting the biggest, flashest pad you can "afford".
Jefferson Steelflex said:
Out of interest, what is the view of financing a car on 0% PCP deals, such as Ford are doing right now? Does the lack of interest make a difference?
That's the point. There obviously is still interest but under the wheeze of the 'zero deal' you don't know what the rate is. And if you can hide the true rate from the consumer then do you think they will be charging less or more? 
Ford are still booking a finance related profit to their accounts it's just being booked in a different place.
The key is to look at what happens to your retail debt contract after you've signed it. It is packaged up into a book and sold on for profit. To maximise your profit on the sale of the debt book you need the highest average rate possible. You'd think that a book of zero rate deals would therefore be unsellable as it would have zero yeiled to the investor but in reality they have a higher than average yield. All you need to do is ask where that actual yield is coming from and who is paying for it.
They also serve as a powerful tool to ensure you don't use external finance or funds for your transaction.
Edited by DonkeyApple on Friday 14th April 10:32
jimmy156 said:
There is a difference though.
Person A is spending £800 per month on rent. But has saved a deposit for a house by doing some bangernomics, they take out a mortgage for £250,000 and are now spending around the same £ per month, but on an appreciating asset, not handing it over to a landlord
Person B is spending £800 per month in rent, but instead of saving for a deposit, has taken out a £300 per month PCP on a white Audi A3 (why not get some stereotypes in their.) This is only going to lose them money, but they have a nice car.
These two scenarios are clearly different. In 10 years time, person A could have over 100k in equity in their house, potentially a lot more. Their "borrowing" was an investment and had made them money. Person B Has spend £96,000 on rent, and £36,000 on finance payments, a total of £132,000 that has either gone into someone else pocket, or into financing the depreciation on a new car.
There is no certainty the property will appreciatePerson A is spending £800 per month on rent. But has saved a deposit for a house by doing some bangernomics, they take out a mortgage for £250,000 and are now spending around the same £ per month, but on an appreciating asset, not handing it over to a landlord
Person B is spending £800 per month in rent, but instead of saving for a deposit, has taken out a £300 per month PCP on a white Audi A3 (why not get some stereotypes in their.) This is only going to lose them money, but they have a nice car.
These two scenarios are clearly different. In 10 years time, person A could have over 100k in equity in their house, potentially a lot more. Their "borrowing" was an investment and had made them money. Person B Has spend £96,000 on rent, and £36,000 on finance payments, a total of £132,000 that has either gone into someone else pocket, or into financing the depreciation on a new car.
They are taking on a tonne of interest and paying it to a bank instead of cash to a landlord
Large buying fees and selling hassle
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