Are the wheels about to fall of car finance?

Are the wheels about to fall of car finance?

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Discussion

Sheepshanks

32,531 posts

118 months

Wednesday 29th March 2017
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Mandat said:
mikey P 500 said:
Also how do people go about modifications on PCP or leased cars or even using them on track days, as both are common, but surely must be a grey area when it's not really your car. This would be large part of what keeps me from PCP or leasing.
The car is really yours under a PCP, in much the same way as with HP.

If you decide at the outset of a PCP that you want to keep the car at the end by paying the final balloon payment, then you are free to do what you want with the car, in the same way if you had bought it on HP or even outright with cash.

Substantially modding a car that you will want to hand back at the end of the term will be a different matter, as there will be return T&C's to consider.
Be careful there - I had a VW salesman (who was ex-MB, so had been around a bit) tell me that I owned the car under PCP. He looked gobsmacked when I pointed to the bit in the agreement that says VWFS own the car until the final payment is made.

And regarding mods, I think it was on a here where a SEAT Cupra owner took his car to the dealer for warranty work and then got a call saying SEAT finance were cancelling the finance and reguiring immediate payment in full as he'd modified the car.

NickCQ

5,392 posts

95 months

Wednesday 29th March 2017
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DonkeyApple said:
It is very similar in London. Up until a few years ago I was a partner in a niche lending business where we made bridging loans to to people who were spending their bonuses ahead of earning them. People on £200k+ basics but spending 2-3 times that living la vida loca. And if that wasn't crazy enough the number who were unable to collateralise was amazing.
As you say, totally crazy.

stongle

5,910 posts

161 months

Wednesday 29th March 2017
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RBH58 said:
Gee....the world has been in a "Creative Credit" fueled bubble most of my life and certainly the last 45 years of it. Dodgy debt had been held as "assets" on bank balance sheets for years and a lot of it got transferred to Governments in the 2008 GFC. There are no chairs left when the music stops next time. It's over. It's "global financial system reset" time when GFC2 happens.

When will GFC2 happen? Consider this. Deutsche Bank alone is currently sitting on a derivatives (the stuff that caused GFC1) exposure of 42 trillion euro. It's market cap is about 16 billion euro. It's leveraged over 2,600 times its market cap on "investments" that are basically a confidence trick. If it fails, nobody can bail it out, It's debt will be 14 times Germany's GDP and 5 times Europe's. This will make Lehman Bros. look like a mere blip. And God knows what's hiding on the murky balance sheets of the Chinese banking industry....but I bet it wouldn't stand up to Western GAAP (as dodgy as that is).

So enjoy yourselves now, 'cause basically we're all f#cked.

Edited by RBH58 on Wednesday 29th March 01:56


Edited by RBH58 on Wednesday 29th March 01:58


Edited by RBH58 on Wednesday 29th March 05:35
Absolute tosh, their actual leverage ratio is about 3.5% so just less than 30 times leverage (which is still sh*tty on the global scale but nothing like the nonsense in your post).

Much of the 42tr in notional is hedges against positions (34tr is rates) or pass through in a synthetic PB model.

Of the derivative notional, they have to pay both initial and variation margin to cover theoretical losses on their positions. Your mate is an idiot.

Their loan book on the other hand, could and probably will become a problem (actually all Eurozone banks have this problem). Post GFC prudential regulations are making banks sign up to greater solvency measures. One of the most onerous will be IFRS9 which increases the required capital to be held against non-performing loans or LLPs (Loan Loss Provisions) - it does lots of other nasty things to banks particularly stressing their AFS buffers (if Italian Banks were held to the same standards as UK banks BBREXIT volatility could have finished them off - I digress).

In the event that regulatory intervention is made against auto loans or there is a re-alignment in the Mark to Market of the collateral (cars financed) - the loans are going to go bad. The loans are onward used as collateral so the effect ripples up the banking chain. IFRS9 requires banks to crystalise the full non-performing loan against capital (rather than the 12month expected loss). This will hit at the same time as all the "bad" shipping loans and peripheral debt tanking.

Why people are blaming banks for the creation of leverage is beyond me, its Government policy to engage in Monetary Policy - the banks are just the on/off ramp into the real economy. If you look at the Eurozone - its very visible that post GFC banking regulations is fighting monetary policy / NIRP. Central bank action is just being eaten up by increased bank risk cost. If you break the BASEL accords down further and the European implementation you actually see that the banks are required to support public sector debt burden - so who's robbing who?

The BoE (as usual) is sensible in its analysis of the problems. It really isn't a debt servicing problem (yet). Even if rates were to rise (difficult to see significant rises given the current weighting of the UK economy), defaults are unlikely to be a problem. The problem becomes the wider macro issue of re-marking loan books and the implications to bank risk costs (which always make it to the end user). I don't think there is enough political will to do this yet or certainly not in the next 2 years (how and when we crack down on consumer credit is going to have fairly significant impact to the German economy - this is a geopolitical card to play).


stuckmojo

2,955 posts

187 months

Wednesday 29th March 2017
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J4CKO said:
bagusbagus said:
not only the wheels are about to fall off wink
Thanks to all the wise Pensioner Decisions the housing market is about to hit some very very rough times even if the Media says it will blossom...This country has no resources whatsoever, and everything is based on housing bubble.
I have sold and cashed in on 3 of my properties which I had and currently fixing up my own house to put it on market in a couple of weeks.

Jokes on you all, if st hits the fan I'm out of this dump till the market hits rock bottom and I can re-buy.
Meanwhile... Keep working hard all your life away and Keep buying your depreciating metal boxes and wk over them while having nothing to show for in the end. A 500pound reliable used car with fresh Mot does the same job and you can DIY fix almost anything on a car for close to nothing + You don't have any liability!, It's very hard anyways to impress someone with your car unless you have a Lambo/ferrari because everyone has a 20-30k new/newish car on lease/pcp so what's the point? no1 really cares... biggrin

I will keep putting in my money in property instead of throwing it away on new cars / £5 convenience lunches from tesco /latest iphones and 80inch tv's on creditcards, oh wait I haven't even had a creditcard before... so in maybe 10years I can retire while most of the population will still be deep in debt over a stupid things such as brand new shiny cars on lease every 2years.
In part I agree, but £500 reliable car ? living the dream there mate, do you eat value beans from the can by the light of a candle as well, do you shop in the charity shop sales ?

You can live frugally and efficiently but with half decent stuff and not feel the need to stick it to the rest of humanity.
I think the top poster is right about the housing bubble and cashing out now if he's leveraged. (then he goes on to say that he's putting his money in property which is what has caused the bubble in the first place...)

Agree on the "living the dream" comment too. Sounds like the typical boomer who says that young people can't afford houses because they buy Starbucks' latte and have iPhones.

The car market is closely tied to the housing bubble. One goes, the other goes too. See 2008. See GMAC.

Lefty

16,132 posts

201 months

Wednesday 29th March 2017
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patch5674 said:
I am slightly curious as to how many people on this thread actually read the article I posted ( I appreciate it was behind a paywall and the mods deleted my copying and pasting of it).
I did, our company has corporate access. It's an excellent article, very interesting.

Granfondo

12,241 posts

205 months

Wednesday 29th March 2017
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Bill said:
daemon said:
Bill said:
Protesteth much?!? wink

Obviously it isn't the only way, but you'll forgive me being concerned that a significant proportion of mine and my kids' generation will approach retirement without a pot to piss in and expect those of us that do to pick up the bill.
Why, if you were retired by that stage anyway would you be expected to pay for someone elses upkeep?

Lots of hand wringing on this thread...
Er, really? If I'm retired by then then any effects will be reduced for me personally, but there's still the knock on to my kids and society as a while.

Anyway, why are you so bothered? You're? using PCP sensibly in which case we're not talking about you, no?

Or not...
Haven't the savers being paying for the 08 credit crunch ever since through interest rate reductions?

DonkeyApple

54,929 posts

168 months

Wednesday 29th March 2017
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ashleyman said:
DonkeyApple said:
ashleyman said:
Exactly. Although £5k isn't a lot of money when it comes to the business I guess he's trying to help us keep cash in hand instead of being down on funds.

It's 0% and the purchase price doesn't change at all if it's done on finance scheme. Not sure about credit cards as I don't have one not even a personal one.
[b]Luckily the place that offers the 0% Finance is selling it for the same price as everywhere else. I could get it on Amazon cheaper but I have a feeling it would be Grey goods which I don't want.

Just thought it was interesting how an accountant was pushing finance when most in this thread seems to think it's a bad thing. [/b]

What you'd want to check is whether you can buy it for less without their 'house' 0% scheme as obviously the real cost of funding is being hidden from you.
The big difference is that in your case it's using leverage to generate an elevated return which is completely different from consumer debt which is just spending money today that you haven't yet earned.

The company you wish to buy from may just have a lower price if you aren't using their finance. It's always worth asking.


ritch

513 posts

186 months

Wednesday 29th March 2017
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gizlaroc said:
I have been one of the biggest advocates of financing cars, and still am, however, the PCP deals are bordering on a scam and mis selling imho, especially on used cars where the APR is sky high.

I just borrowed £30k from Hitachi Capital Finance for 2.89% at £537 a month.
BMW wanted me to borrow from them at only £527 a month.
He said that ''We Guarantee your car will be worth £13000 at the end of the term."
I kept saying "No, you guarantee that if I want to keep my car at the end of the term I will have to give you an additional £13,000 for the privilege."
Considering this guy was selling finance it was scary the fact he simply didn't get what I was saying.

Currently people are paying the equivalent in extra interest to the balloon at the end, and that is why I think car finance will be the new PPI, it is bordering on mis selling.
Gizlaroc - is this car loan or personal loan? Also - did you have to contact Hitachi to get number for £30K as there online calculator limits it to £25K. Interested to know - considering something similar >£25K

BigLion

1,497 posts

98 months

Wednesday 29th March 2017
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RBH58 said:
BigLion said:
As soon as I read that paragraph about derivative exposure I knew you were talking out your arse - you obviously don't understand banking so best to keep wearing your tin foil hat and pretending you do!!!
So you are denying that this is true? This was pointed out to me by a friend who is an investment banker for a large international bank. It's sounds terrifying but strangely believable. And Deutsche Bank made no effort to conceal it on their 2016 Annual Report BTW. If it's only 25% as bad as "the smoke" would indicate, it's enough to bring on GFC2.

Oh and nobody knows how banking works. That's part of the problem.

Edited by RBH58 on Wednesday 29th March 08:07


Edited by RBH58 on Wednesday 29th March 10:22
I worked in investment banking - this has been done to death on the finance forum on here so suggest a search.

In relation to DB yes it's well known and also well know that its a completely irrelevant daily mail type headline number.

Why? Remember derivatives include swaps which hedge against risk. Also important to look how derivatives net off risk with each other at a group level - from memory the netting of postion reduced the figures from that stated in your post of 72 TRILLion to something like a relatively tiny 40 BILLion.

mwstewart

7,554 posts

187 months

Wednesday 29th March 2017
quotequote all
Sadly this was always going to happen and precisely why easy-to-access finance is never a good idea. I knew it had gone bonkers when cash buyers had a hard time trying to buy a car with it.

The funny thing was PHers were denigrated for suggesting buyers were getting in cars they really can't afford, when for the large majority I think we knew that was the truth.

neil1jnr

1,460 posts

154 months

Wednesday 29th March 2017
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48k said:
neil1jnr said:
And please note, with a PCP deal, you would only hand the car back at the end if you were in negative equity,
That's not strictly true is it.
No, but in reality it's the only logical time you would. You wouldn't just hand a car back if you are in positive equity would you, as you would just lose that equity.

If you broke even or in positive equity you would trade it in or sell it, unless you didn't want another car/hassle and didn't mind losing the equity.

MrBarry123

6,025 posts

120 months

Wednesday 29th March 2017
quotequote all
mwstewart said:
Sadly this was always going to happen and precisely why easy-to-access finance is never a good idea. I knew it had gone bonkers when cash buyers had a hard time trying to buy a car with it.

The funny thing was PHers were denigrated for suggesting buyers were getting in cars they really can't afford, when for the large majority I think we knew that was the truth.
I agree but criticised unfairly? No. The reason many PHers were criticised for voicing this opinion was because they made their point in such a way that made them appear arrogant and rude.

mwstewart

7,554 posts

187 months

Wednesday 29th March 2017
quotequote all
MrBarry123 said:
I agree but criticised unfairly? No. The reason many PHers were criticised for voicing this opinion was because they made their point in such a way that made them appear arrogant and rude.
OK, fair enough smile

48k

12,983 posts

147 months

Wednesday 29th March 2017
quotequote all
neil1jnr said:
48k said:
neil1jnr said:
And please note, with a PCP deal, you would only hand the car back at the end if you were in negative equity,
That's not strictly true is it.
No, but in reality it's the only logical time you would. You wouldn't just hand a car back if you are in positive equity would you, as you would just lose that equity.

If you broke even or in positive equity you would trade it in or sell it, unless you didn't want another car/hassle and didn't mind losing the equity.
(My bold) - in my head, trading the car in to pay off the optional final payment and using the equity as a deposit for a new PCP agreement is handing the car back. You're not keeping the car. You're handing it back. Probably just semantics.

Newc

1,846 posts

181 months

Wednesday 29th March 2017
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BigLion said:
Mr Lion

I know you've been advised to search the finance threads, but in the quest to defeat fake news, consider this:

You lend your mate Alan a fiver.

Your mate Bob lends you a fiver.

Is your net risk:
A a tenner
B zero
C some amount a bit more than zero that depends on how good you think Alan is for the cash

Bonus question: if the Daily Mail reported your financial position, which number would they use?

Tonsko

6,299 posts

214 months

Wednesday 29th March 2017
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C?

TA14

12,722 posts

257 months

Wednesday 29th March 2017
quotequote all
Tonsko said:
C?
No, the DM would use about £10K since it costs you £5K to take Alan to court to get your money back and then Bob takes you to court and gets awarded costs.

DonkeyApple

54,929 posts

168 months

Wednesday 29th March 2017
quotequote all
Your risk is that after passing Alan's debt to Bob and pocketing his fiver that Alan notices you leant him a fake fiver and it kicks off in the Wetherspoons one morning.

TA14

12,722 posts

257 months

Wednesday 29th March 2017
quotequote all
DonkeyApple said:
Your risk is that after passing Alan's debt to Bob and pocketing his fiver that Alan notices you leant him a fake fiver and it kicks off in the Wetherspoons one morning.
Alan could well be in on it. Since the govt changed the law to make it more difficult to buy cars with cash you've had to find other ways to launder your money and Alan seemed to be the answer, if only he didn't spend it all on WW&S and waste the rest...

daemon

35,724 posts

196 months

Wednesday 29th March 2017
quotequote all
Bill said:
daemon said:
Bill said:
Protesteth much?!? wink

Obviously it isn't the only way, but you'll forgive me being concerned that a significant proportion of mine and my kids' generation will approach retirement without a pot to piss in and expect those of us that do to pick up the bill.
Why, if you were retired by that stage anyway would you be expected to pay for someone elses upkeep?

Lots of hand wringing on this thread...
Er, really? If I'm retired by then then any effects will be reduced for me personally, but there's still the knock on to my kids and society as a while.

Anyway, why are you so bothered? You're? using PCP sensibly in which case we're not talking about you, no?

Or not...
i'm just bemused by all the hand wringing and "think of the children!" comments

I personally would be very jumpy about recommending a PCP deal on a used car, particularly with the now scandalous rates the likes of BMW are slipping in there (although some people on here have posted decent enough deals on used cars. To me, it most likely to work best on new cars with manufacturer incentives such as finance contributions, discounted finance rates or 0% APR. Even then i'd look extremely closely at ALL alternatives to see what works best for someone at that particular time.

I would also urge people to carefully consider affordability and also consider what getting that car on PCP over say an older used car enables them to do - for example, maybe commute efficiently, safely and reliably to a new job (as my niece did). If its purely a vanity purchase then thats clearly crazy.

HTH



Edited by daemon on Wednesday 29th March 14:59


Edited by daemon on Wednesday 29th March 15:06