Are the wheels about to fall of car finance?

[daemon]

MrBarry123 said:

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.

+1

[daemon]

48k said:

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.

Its a misunderstanding on your part then and you'd be using "handing the car back". "Handing the car back" is referring to "handing the car back to the finance company". If you're trading it in, you're not "handing the car back", because it wasnt the car dealers car for them to be receiving it back.

[48k]

Yes like I said it's semantics - at the end of the agreement you either have the car or you don't, and the point I was trying to make was that it's untrue to state you would only choose to not have the car if you were in negative equity.

[daemon]

48k said:

Yes like I said it's semantics - at the end of the agreement you either have the car or you don't, and the point I was trying to make was that it's untrue to state you would only choose to not have the car if you were in negative equity.

Fair point

[CHARLESBERG]

Is the fact that dealers are making more money on finance / interest deal the reason auction prices are holding up so well then?

[daemon]

CHARLESBERG said:

Is the fact that dealers are making more money on finance / interest deal the reason auction prices are holding up so well then?

Its demand for good, used stock. Its harder to buy good quality used cars at the right price for stock than it is to find customers for them.

BUT, at the other side of that is customers only want to pay a certain amount for a particular car, so the dealers are left in the middle with a waifer thin (net) margin and thus they try to make their profit up with finance deals, "insurance", etc.

[BigLion]

Newc said:

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?

It's a waste of time as your very example mentions borrowings exclusively which isn't necessarily derivatives.

How about, you borrow a £200 at 10% and spend a £5 top to make sure that no matter what happens between now and then to interest rates your rate will remain at 10%.

So whilst that is a prudent thing to do and REDUCES risk, the Daily Mail would say you had £5 'derivative exposure'

[stongle]

Newc 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?

How is this shadow banking example relevant to DBs derivative notional?

DB operate under intense regulatory guidelines. They wouldn't be naked the loan to Alan, in the very least you'd have collateral AND some form of CVA protection (possibly in derivative form.... oh hang on protection is bad).

The actual answer (post you going into default) is net risk is greater than a tenner IF no collateral was exchanged. In a fully idiosyncratic loss, Alan also defaults to you, you default Bob. Bob has a claim on your estate plus some interest receivable during the close out period. I suppose you could "bail in" Bob, but not sure you doc'd him as a COCO.

Edited by stongle on Wednesday 29th March 19:00

[Rick1.8t]

daemon said:

CHARLESBERG said:

Is the fact that dealers are making more money on finance / interest deal the reason auction prices are holding up so well then?

Its demand for good, used stock. Its harder to buy good quality used cars at the right price for stock than it is to find customers for them.

BUT, at the other side of that is customers only want to pay a certain amount for a particular car, so the dealers are left in the middle with a waifer thin (net) margin and thus they try to make their profit up with finance deals, "insurance", etc.

Is this going to be the case in a couple of years though, when the full extent of the change in attitiude towards PCP/Lease is seen (e.g. people who have leased / PCP'd new before are unlikely to want to 'downgrade' to a used car) and the amount of returned, great condition, low mileage, FSH cars are released onto the market?

Do you think there will still be more customers than buyers for generic cars that will surely be returned in the droves over the next few years - Literally all of my friends have one car on lease or PCP now (for around half of the couples for the first time - they purchased older / less expensive cars with loans / cash etc previously) and any conversations that steer in the car direction dont indicate it will be any different for the next car - no intention of going back to their old ways (And why should they as non PH's it provides everything they want)

I dont think we are seeing the effects of the change in the way people are obtaining cars yet, the next 5 years will be interesting.

Its a paradox, manufactuers control pricing to a great extent allowing for cheap lease / PCP due to low depreciation which results in a situation where the used car is then priced above that which is considered reasonable (as you mention) by many potential buyers, leading to ever slipping margins in an attempt just to sell. Cant go too far though or the whole artificially high GTV charade comes crashing down and the cheap deals are over - Sure there are still some that buy cars with cash, like to buy 3 year old cars etc etc but just how many are out there, enough to swallow up all of the generic returned cars?

Edited by Rick1.8t on Wednesday 29th March 19:03

[daemon]

Rick1.8t said:

Is this going to be the case in a couple of years though, when the full extent of the change in attitiude towards PCP/Lease is seen (e.g. people who have leased / PCP'd new before are unlikely to want to 'downgrade' to a used car) and the amount of returned, great condition, low mileage, FSH cars are released onto the market?

If monthly payments go up, due to residual values being set lower, i think people will just PCP / PCH cheaper cars for the same amount as they were paying previously. Some will move to used cars but i think there is a lot of appeal for a lot of people with a new car.

Rick1.8t said:

Do you think there will still be more customers than buyers for generic cars that will surely be returned in the droves over the next few years - Literally all of my friends have one car on lease or PCP now (for around half of the couples for the first time - they purchased older / less expensive cars with loans / cash etc previously) and any conversations that steer in the car direction dont indicate it will be any different for the next car - no intention of going back to their old ways (And why should they as non PH's it provides everything they want)

That might be an impact - thus lowering used values, thus lowering residuals on PCP / PCH deals. Will be interesting to see what happens.

Rick1.8t said:

I dont think we are seeing the effects of the change in the way people are obtaining cars yet, the next 5 years will be interesting.

Even 10 years ago when i PCP'd a new 535d M Sport the sales manager then was talking 75%+ of people were PCPing their new cars, so its not a new thing. Theres still a massive market out there for used cars, i dont think that will change but it might mean used car buyers get better VFM.

Rick1.8t said:

Its a paradox, manufactuers control pricing to a great extent allowing for cheap lease / PCP due to low depreciation which results in a situation where the used car is then priced above that which is considered reasonable (as you mention) by many potential buyers, leading to ever slipping margins in an attempt just to sell. Cant go too far though or the whole artificially high GTV charade comes crashing down and the cheap deals are over - Sure there are still some that buy cars with cash, like to buy 3 year old cars etc etc but just how many are out there, enough to swallow up all of the generic returned cars?

Yes, too many manufacturers now chasing market share and are happy to discount heavily to get it.

Previously - 2008 to 2010 - it just mean GFVs were set significantly lower to offset the lowered demand for th used stuff. I think that will start to happen very soon but every manufacturer seems happy to dance the jig at the moment, so its going to be interesting to see who blinks first as it were (sorry for mixing metaphors)

[berlintaxi]

bagusbagus said:

not only the wheels are about to fall off
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...

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.

Congratulations, a strong contender for smug ahole of the week post.

[daemon]

berlintaxi said:

bagusbagus said:

not only the wheels are about to fall off
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...

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.

Congratulations, a strong contender for smug ahole of the week post.

Agreed RE: the smugness but its a fair point he makes. Having said that, talking about a plan and actually delivering on it are two different things.

Personally i'm planning for world domination in 2 years...

[Elysium]

Tonsko said:

Elysium said:

This is a flawed view. If you want to understand the implications of the loan plug the details in here:

http://www.thecalculatorsite.com/finance/calculato...

If you complete the term and pay the final value, you will have paid around £29k for the car, which includes £3.5k for interest.

The GMFV is usually 80% of the trade in value so at that point it will be worth around £12.5k. So the cost to own will be £ £16,500. That is £4,125 per year and if you bought cash you could have saved £875 a year.

The big point is that you should ALWAYS buy the car. Either at the end of the term or early as the settlement value will usually be more than it is worth. Handing back the car after 4 years or early is more expensive for the buyer. The earlier you pay of the loan, the more interest you save.

I generally take a 4 year PCP with as big a deposit as I can get away with and pay off in full after 2-3 years. I always own the car at that point.

The idea that PCP leads to you not buying the car is a myth. You should never ever look at it that way.

Yeh I think I arrived at a figure of around 29K total repayments when I was looking at it.I suppose I was treating that (should no overpayments be made) as the cost of keeping liquidity, as I felt uncomfortable at raiding my savings to such an extent.

The £3.5k finance charge is the cost of maintaining your liquidity, less any interest you could earn elsewhere (probably nothing in the bank, but potentially about £2k in a mortgage offset account), less any additional discounts you may have got from the manufacturer for taking finance.

I paid £4k in interest for the last car I bought, but saved £2.5k on my mortgage and got an additional £2.5k discount. So I was £1k better off over a 4 year period as a result of taking the PCP.

I sold after three years, with a final settlement figure of around £19k vs trade in price of £24k. Reinforcing the point that GMFV is usually 80% of trade in value. Handing the car back to the dealer would have been financial madness.

[Baz Tench]

Blimey. Interesting thread.

I'm just glad my car is all paid for (13yr old M3).

I was toying with the idea of borrowing (via Sainsburys bank etc) to trade it in for an e92 M3. I don't know if I can be arsed though after reading all this. Sometimes it's better to be debt/lease free altogether (besides mortgage).

It's quite a nice feeling, which I've only experienced myself in the last couple of years, having never been that good with finances in the past.

[MrBarry123]

daemon said:

Personally i'm planning for world domination in 2 years...

And I'm planning to overthrow you after you've had a year in power...

[SWoll]

Baz Tench said:

Blimey. Interesting thread.

I'm just glad my car is all paid for (13yr old M3).

I was toying with the idea of borrowing (via Sainsburys bank etc) to trade it in for an e92 M3. I don't know if I can be arsed though after reading all this. Sometimes it's better to be debt/lease free altogether (besides mortgage).

It's quite a nice feeling, which I've only experienced myself in the last couple of years, having never been that good with finances in the past.

Not seeing how most of this relates to your circumstances TBH as PCP/PCH on a new car is a very different commitment to what you are considering.

If an E93 M3 is what you want, and you can afford the loan repayment then you're looking at about £400 in interest at the moment to loan £10K over 3 years for example.

You aren't tied into anything as the loan is unsecured and should the worst happen (job loss etc.) you just sell the car, pay of the remaining loan and buy something else within you budget.

Either that or you can save £280 a month for the next 3 years and then buy it, but for the sake of a few quid a year in interest I'd ask why would you wait as they must already be towards the bottom of their depreciation curve by now?

If you're meeting your other commitments then FFS enjoy the money you earn and don't be put off by the doomsayers on here. What else do you work for?

[Baz Tench]

It just puts me off the whole borrowing treadmill for the time being, but on the other hand, this is probably the best time to borrow if you shop around.

Just a little crossroads for me personally.

[DonkeyApple]

Baz Tench said:

It. just puts me off the whole borrowing treadmill for the time being, but on the other hand, this is probably the best time to borrow if you shop around.

Just a little crossroads for me personally.

Perversely, the best time to borrow can be when rates are high because values are depressed.

[SWoll]

Baz Tench said:

It just puts me off the whole borrowing treadmill for the time being, but on the other hand, this is probably the best time to borrow if you shop around.

Just a little crossroads for me personally.

It's like anything, as long as you go into it with your eyes open and make any decision with your head as well as your heart then using finance is absolutely fine.

Totally agree though, if you've had a few financial 'issues' in the past then a debt free period where you can put some money aside is never a bad idea.

DonkeyApple said:

Perversely, the best time to borrow can be when rates are high because values are depressed.

Swings and roundabouts I'd have thought DA? Especially when you're talking about used car values as they seem to be all over the place at present.

[philmots]

Baz Tench said:

It just puts me off the whole borrowing treadmill for the time being, but on the other hand, this is probably the best time to borrow if you shop around.

Just a little crossroads for me personally.

There's no right or wrong answer, it's down to your individual circumstances.

Personally I love the leases, and I look at them in the most simple way - i rent the car. I don't actually see it as 'borrowing' or 'debt' some will agree, some will disagree, maybe it's a generation thing? But it works great for me.