Are the wheels about to fall of car finance?
Discussion
I'm an ignoramus when it comes to car finance, only having used HP once. I am expecting to be in the market for a car by late summer. I came on this thread hoping to come out the other end educated and with a clear idea of what's good for me and what's bad.
I could go for a £28k new car on finance or buy a 10k car outright.
I've considered bangernomics, but I've had that for most of my life. The thread has convinced me to go for a classic, around £6k, keeping the balance for repairs.
So it was, from my point of view, worth reading a dozen or so pages.
If only everyone had agreed on the basics though.
Thanks.
I could go for a £28k new car on finance or buy a 10k car outright.
I've considered bangernomics, but I've had that for most of my life. The thread has convinced me to go for a classic, around £6k, keeping the balance for repairs.
So it was, from my point of view, worth reading a dozen or so pages.
If only everyone had agreed on the basics though.
Thanks.
daemon said:
Surely thats the same with PCP? Its not your problem if the market drops - just hand the car back at the end of term. Simples.
The difference being the amortised cost of a PCP versus a lease is much higher - in general. The idea of a PCP is that by the end of the term you have positive equity over and above your balloon payment to act as a deposit on your next car, or reduce the overall cost of paying off the finance and immediately selling the current one. If the market drops and that positive equity disappears it's the consumer who suffers from that risk coming to a realisation, however on a lease that risk is mitigated up front and the consumer doesn't have to concern themselves with keeping an eye on the market.It absolutely is your problem should the market drop.
Edited by IrateNinja on Tuesday 28th March 09:26
Derek Smith said:
I've considered bangernomics, but I've had that for most of my life. The thread has convinced me to go for a classic, around £6k, keeping the balance for repairs.
In the past I've come to similar conclusions. I tried a VX220 for £8k (modern classic perhaps?) and a 944 S2 for £5k. Both enjoyable in their own ways.I'm tempted to go back again to this once my current lease car ends.
Good luck with your classic car.
- think I'll start a thread on this.....
RSK21 said:
Unlike PH where 99% of folk are of course financial wunderkinds of epic proportion.
f
k me these threads are beyond tiresome Even the State is recognising the extent and danger of the problem and enacting changes as quickly as they can. The days of unfettered and wholly out of step lending in the car market as we know it are being brought to a close. As mooted earlier there is even the plausible possibility of PPI2 in relation to what has been going on.
DonkeyApple said:
Why? Just because facts are 'tiresome' doesn't mean they aren't pertinent. The sheer number and frequency of these threads shows the problem. Expecting the less favourable side of the debate to be silent isn't very clever.
Even the State is recognising the extent and danger of the problem and enacting changes as quickly as they can. The days of unfettered and wholly out of step lending in the car market as we know it are being brought to a close. As mooted earlier there is even the plausible possibility of PPI2 in relation to what has been going on.
The facts aren't tiresome they're important. Even the State is recognising the extent and danger of the problem and enacting changes as quickly as they can. The days of unfettered and wholly out of step lending in the car market as we know it are being brought to a close. As mooted earlier there is even the plausible possibility of PPI2 in relation to what has been going on.
They're also, in my opinion, misunderstood by many on both sides of the debate.
The attitudes expressed by some are extremely tiresome.
Therefore the threads rarely hold up as being of any use as sensible debate and dwindle away into a combination of self justification and self affirmation.
IrateNinja said:
daemon said:
Surely thats the same with PCP? Its not your problem if the market drops - just hand the car back at the end of term. Simples.
The difference being the amortised cost of a PCP versus a lease is much higher - in general. The idea of a PCP is that by the end of the term you have positive equity over and above your balloon payment to act as a deposit on your next car, or reduce the overall cost of paying off the finance and immediately selling the current one. If the market drops and that positive equity disappears it's the consumer who suffers from that risk coming to a realisation, however on a lease that risk is mitigated up front and the consumer doesn't have to concern themselves with keeping an eye on the market.It absolutely is your problem should the market drop.
Edited by IrateNinja on Tuesday 28th March 09:26
Its only "your" problem if you are of the misapprehension that there WILL be equity there at the end of term. Nowhere on the paperwork for a PCP does it say that there will be.
Therefore any shortfall is the finance companys problem.
Edited by daemon on Tuesday 28th March 09:47
RDMcG said:
In the US the wheels are really coming off. Shares of Hertz have tumbled and Ford also. There is too much sub prime borrowing and used car prices are dropping very quickly. I think this will be quite a big story in the coming months.
It will be interesting to watch - there really needs to be some sort of re-alignment in the car market as per circa 2007 / 2008.As was commented earlier - and having checked BMW Approved Used - if you were to buy a £30K ish used 5 series on a PCP deal, theres now £10,000+ of interest in there. Mental.
nct001 said:
CYMR0 said:
johnnnnnnyy said:
Thats the game of chess we all play in the second hand market, risk buying a used year car enjoy another 5/7 years from it with a potential bills of £2000 - £4000 along the way with a few days faffing, or change your car when the warranty runs out every 3 years at a cost of £20,000 - £30,000 each time (if looking at more expensive metal) suddenly the used car doesn't look so expensive to run, cos changing twice in that same period could be as much as £60,000! (yes worst extreme). Same story adding up those big lease payments over 6 years.
If something is losing £20-30k in five years then the price is going to be something in the region of £50k new.If you buy a three-year-old car that was £50k new (let's say, a Jag XJ for £24k) then it'll lose the thick end of £20k in depreciation over the next six years. Let's call it £18k - £6k trade-in would be decent for this car at 9 years old: https://www.cargiant.co.uk/car/jaguar/xj/YT14EOH
Let's take the mid-point of your estimate on the repair bills - £3k.
So your cost of ownership over three years, against something that might lose £60k in six years if bought new - is £21k. That makes your overall cost of a used car £350 per month all in. That gives you a £286/month lease budget on a 9+35. While it won't get you a brand new XJ, it would get you a brand new E Class. I don't think someone who leases is crazy for choosing the convenience of a brand new E-Class that never gets over three years old vs. what will eventually be an eight-year-old Jag.
You drive back from work one day tot up your investments and assets and realise that you are into seven figures (or there about) and frankly whether you own or lease a car is totally irrelevant to your life and finances and if you are so petty to be bothered if you own or lease your car you are probably missing the big picture and a pedant probably with no money.
Also I pointed out, he's quoting like for like ish numbers but not like for like class of car. Way off.
Edited by johnnnnnnyy on Tuesday 28th March 10:00
RDMcG said:
In the US the wheels are really coming off. Shares of Hertz have tumbled and Ford also. There is too much sub prime borrowing and used car prices are dropping very quickly. I think this will be quite a big story in the coming months.
What will be key is understanding the differences (if any) between the lending market for cars in the US and here in the EU. I don't know what those are as I don't know how the US have been operating. In the EU the risk of client defaults building to a level that is a systemic risk is almost non existent. The debt packages have a short life so few buyers would end up in a position of default. The risk lies at the manufacturers as a regulatory clamp down in how the debt is sold will at best remove enormous profit marketing from them and at worse result in a decline in unit sales. As rates rise they will struggle anyway as their consumers spend a fixed amount per month and the more of that amount goes on interest the less money there is to purchase goods. One important thing to note from a Britain centric perspective is that almost all the manufacturers and the specialist lenders are based outside of the U.K. so arguably it isn't our problem if the value of sales decline. We are actually very well insulated from that risk. We are only at risk to a decline in the number of units sold as that would lead to a decline in employment and wages on the distribution and sales side. Arguably, PPI2 on car debt would be very good for U.K. plc as it would be the pulling of wealth back from outside of the U.K. And placing it into the hands of rampant consumers. Plus, post Brexit forcing car vendors to dislocate from the lending business would also be very good for U.K. plc.
The true risk in the U.K. of car debt is less tangible and forms part of the overall problem of excessive consumption and declining savings. It's a problem of excessive retail debt as a whole and not specific to car purchases.
johnnnnnnyy said:
This guy realised he fluffed up the figures, mine was an example of 6 years buying, he calculated his lease figures over 3 years. Also I pointed out, he's quoting like for like ish numbers but not like for like class of car. Way off.
The figures were wrong, but I corrected them. (I divided the total cost by 60 instead of 72, so I was only understating the cost by about 1/6th, not half). And the point wasn't to show that you would be like-for-like but rather that in years 3 to 6 you'd be driving around in a new prestige car with lower running costs, versus an ageing, more prestigious car with higher running costs.Edited by johnnnnnnyy on Tuesday 28th March 10:00
The cost of a £50k car (new price), bought at three years and kept for six, should be roughly equivalent to a lease on a new £25k car. That's before tax and fuel but does allow an extra repair budget. My big point was that your post read as though you were aruging that people were splashing £25k in depreciation to avoid £3k in repair bills. While it's not cheaper to lease a new car, it's nothing like the 8:1 that those numbers suggest.
daemon said:
Surely thats the same with PCP? Its not your problem if the market drops - just hand the car back at the end of term. Simples.
Yes, but your £20k lease car might be priced on a lease on the assumption that it'll make £14k in two years' time, but the PCP would only guarantee you £11k. So if the value at three years old is any less than £14k, then you're better off with leasing. If it's more than £14k you walk away with a big chunk of equity on PCP - between £11k and £14k you still have equity, but that equity is less than the extra you've put into the monthly payments over and above the lease cost.(The above ignores the cost of funding but there's no reason to think that should favour one model or another).
I can see the pros and cons, it works for a lot of people, for me though it is an inordinate amount of money to have a new car sat depreciating and costing me £300 plus a month, plus the other costs.
I know a guy that whent from a Focus Sport (1.6 with a body kit), to a Fiesta Ecoboost Red, to an ST, to Another ST and then decided he had a bad back and needed an Auto, each time the Ford dealer, over the three years this took eagerly put him in a new car "Only another £27.90 a month" he told me like it was a fantastic Idea, he is now in the hole to the tune of thirty grand.
He doesn't earn huge amounts but now has that debt round his neck for a good few years, I dont think this is typical but I think it is perhaps more common nowadays than we perhaps think, if you are on an average salary with the typical outgoings and living expenses, you cant really have a brand new car every 8 months, of course the finance houses love enslaving people like this, that is there job, why they exist.
I am not against all these finance plans but like gambling, you need to be disciplined and realistic, I could "afford" to lease/PCP pretty much anything but I know bills will come up, I will want to go on holiday etc, so perhaps really, I cant truly afford it and we all need to have that internal voice that speak when we are about to sign away the next three years for a shiny thing.
I think these deals work best when the money isnt an issue, or when the purchaser goes for something modest and has say a Fiat 500 for £140 a month and keeps it for the term, thus avoiding all the hassle from old cars and having a fixed payment, the problems arise when people go for that Evoque they cant quite afford but that is entirely their prerogative and it isnt for ever.
Think I am saying, just apply common sense and leave some slack in the budget.
I know a guy that whent from a Focus Sport (1.6 with a body kit), to a Fiesta Ecoboost Red, to an ST, to Another ST and then decided he had a bad back and needed an Auto, each time the Ford dealer, over the three years this took eagerly put him in a new car "Only another £27.90 a month" he told me like it was a fantastic Idea, he is now in the hole to the tune of thirty grand.
He doesn't earn huge amounts but now has that debt round his neck for a good few years, I dont think this is typical but I think it is perhaps more common nowadays than we perhaps think, if you are on an average salary with the typical outgoings and living expenses, you cant really have a brand new car every 8 months, of course the finance houses love enslaving people like this, that is there job, why they exist.
I am not against all these finance plans but like gambling, you need to be disciplined and realistic, I could "afford" to lease/PCP pretty much anything but I know bills will come up, I will want to go on holiday etc, so perhaps really, I cant truly afford it and we all need to have that internal voice that speak when we are about to sign away the next three years for a shiny thing.
I think these deals work best when the money isnt an issue, or when the purchaser goes for something modest and has say a Fiat 500 for £140 a month and keeps it for the term, thus avoiding all the hassle from old cars and having a fixed payment, the problems arise when people go for that Evoque they cant quite afford but that is entirely their prerogative and it isnt for ever.
Think I am saying, just apply common sense and leave some slack in the budget.
I've obviously never done it but presumably, if you went to various sellers for a car, when offering a PCP or any other kind of finance deal they would tell you clearly the cash price and the APR of the loan. Then you could compare any deal with any other while deciding if it's a cash price and APR you are comfortable with.
herewego said:
I've obviously never done it but presumably, if you went to various sellers for a car, when offering a PCP or any other kind of finance deal they would tell you clearly the cash price and the APR of the loan. Then you could compare any deal with any other while deciding if it's a cash price and APR you are comfortable with.
They should and, if you know what you're doing, you'd be mad not to. However, I've had salespeople tell me that "APR doesn't matter" when asking me to take an extra year to pay back a loan compared to what my bank was offering at the same monthly payment, although that was a long time ago. There's a powerful incentive for salespeople, and "hungry" buyers for that matter, to focus on the monthly payment instead of the true cost, or indeed even the relative cost compared to other deals in the market.CYMR0 said:
They should and, if you know what you're doing, you'd be mad not to. However, I've had salespeople tell me that "APR doesn't matter" when asking me to take an extra year to pay back a loan compared to what my bank was offering at the same monthly payment, although that was a long time ago. There's a powerful incentive for salespeople, and "hungry" buyers for that matter, to focus on the monthly payment instead of the true cost, or indeed even the relative cost compared to other deals in the market.
That's one of the key problems in the industry. Can you name another market place in the U.K. where financial products are allowed to be sold by individuals with no credible training, are rewarded by direct commission and have almost no regulatory oversight? We all know how retail finance works and that it is merely a tool to facilitate elevated sales transactions but tied retail debt vending will be coming to an end at some point in the near future as it is wholly out of step with the rest of the retail financial industry. The big question is whether the independent debt vendor will be allowed to sit on the premisis or operate at arms length.
J4CKO said:
I can see the pros and cons, it works for a lot of people, for me though it is an inordinate amount of money to have a new car sat depreciating and costing me £300 plus a month, plus the other costs.
I know a guy that whent from a Focus Sport (1.6 with a body kit), to a Fiesta Ecoboost Red, to an ST, to Another ST and then decided he had a bad back and needed an Auto, each time the Ford dealer, over the three years this took eagerly put him in a new car "Only another £27.90 a month" he told me like it was a fantastic Idea, he is now in the hole to the tune of thirty grand.
He doesn't earn huge amounts but now has that debt round his neck for a good few years, I dont think this is typical but I think it is perhaps more common nowadays than we perhaps think, if you are on an average salary with the typical outgoings and living expenses, you cant really have a brand new car every 8 months, of course the finance houses love enslaving people like this, that is there job, why they exist.
I am not against all these finance plans but like gambling, you need to be disciplined and realistic, I could "afford" to
lease/PCP pretty much anything but I know bills will come up, I will want to go on holiday etc, so perhaps really, I cant truly afford it and we all need to have that internal voice that speak when we are about to sign away the next three years for a shiny thing.
I think these deals work best when the money isnt an issue, or when the purchaser goes for something modest and has say a Fiat 500 for £140 a month and keeps it for the term, thus avoiding all the hassle from old cars and having a fixed payment, the problems arise when people go for that Evoque they cant quite afford but that is entirely their prerogative and it isnt for ever.
Think I am saying, just apply common sense and leave some slack in the budget.
In car retail it's all about monthly figures. What can you afford a month. I know a guy that whent from a Focus Sport (1.6 with a body kit), to a Fiesta Ecoboost Red, to an ST, to Another ST and then decided he had a bad back and needed an Auto, each time the Ford dealer, over the three years this took eagerly put him in a new car "Only another £27.90 a month" he told me like it was a fantastic Idea, he is now in the hole to the tune of thirty grand.
He doesn't earn huge amounts but now has that debt round his neck for a good few years, I dont think this is typical but I think it is perhaps more common nowadays than we perhaps think, if you are on an average salary with the typical outgoings and living expenses, you cant really have a brand new car every 8 months, of course the finance houses love enslaving people like this, that is there job, why they exist.
I am not against all these finance plans but like gambling, you need to be disciplined and realistic, I could "afford" to
lease/PCP pretty much anything but I know bills will come up, I will want to go on holiday etc, so perhaps really, I cant truly afford it and we all need to have that internal voice that speak when we are about to sign away the next three years for a shiny thing.
I think these deals work best when the money isnt an issue, or when the purchaser goes for something modest and has say a Fiat 500 for £140 a month and keeps it for the term, thus avoiding all the hassle from old cars and having a fixed payment, the problems arise when people go for that Evoque they cant quite afford but that is entirely their prerogative and it isnt for ever.
Think I am saying, just apply common sense and leave some slack in the budget.
It's huge misselling. It makes me wonder when the arse will finally go legal/PPI
My 20 year old nephew liked my leased Leon Cupra so much, he went and leased one as well.
£320 per month, which he "can afford".
He's on minimum wage, lives with his parents and takes home less than £1k a month I believe.
"He can afford it"
I am very pro-lease for my circumstances, but the above shows how things have changed, at his age I probably earned a little bit more than him, but drove around in a £1k Ford Cortina.
The other thing is at the end of the 24 months, what does he do? Start again I assume, doesn't want to lose face with his mates or get something lesser. So he will lease for years and years.
£320 per month, which he "can afford".
He's on minimum wage, lives with his parents and takes home less than £1k a month I believe.
"He can afford it"
I am very pro-lease for my circumstances, but the above shows how things have changed, at his age I probably earned a little bit more than him, but drove around in a £1k Ford Cortina.
The other thing is at the end of the 24 months, what does he do? Start again I assume, doesn't want to lose face with his mates or get something lesser. So he will lease for years and years.
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