Consumer debt hit an all-time high last year
Discussion
Granfondo said:
youngsyr said:
And you've hit the nail on the head - you used to have to pay back £x+y, now you just pay back £x.
That is a fundamental change.
If all loans are now interest free as you claim how do lenders make a profit?That is a fundamental change.
To explain how these 0% interest loans are possible:
Firstly, you seem to be labouring under the assumption that all lenders make profits on all of their loans. Again, that used to be the case, but certainly isn't true today.
Secondly, those that do make profits from their loans do it in a myriad of different ways, some of them not even directly from the recipient of the loan. For example, a provider of a 0% interest on purchases credit card will make money on the transaction fee (usually somewhere between 0.25% and 1%) that they charge the retailer who sells the cardholder the goods.
The fact that you didn't know any of that does make me wonder why you continue to join in the discussion in this thread.
Edited by youngsyr on Friday 30th June 14:40
youngsyr said:
Granfondo said:
youngsyr said:
And you've hit the nail on the head - you used to have to pay back £x+y, now you just pay back £x.
That is a fundamental change.
If all loans are now interest free as you claim how do lenders make a profit?That is a fundamental change.
To explain how these 0% interest loans are possible:
Firstly, you seem to be labouring under the assumption that all lenders make profits on all of their loans. Again, that used to be the case, but certainly isn't true today.
Secondly, those that do make profits from their loans do it in a myriad of different ways, some of them not even directly from the recipient of the loan. For example, a provider of a 0% interest on purchases credit card will make money on the transaction fee (usually somewhere between 0.25% and 1%) that they charge the retailer who sells the cardholder the goods.
The fact that you didn't know any of that does make me wonder why you continue to join in the discussion in this thread.
Edited by youngsyr on Friday 30th June 14:40
But you also said you could get the money out of a 0% CC for free so how would they make money on the transaction then?
Granfondo said:
You did ,see above!
But you also said you could get the money out of a 0% CC for free so how would they make money on the transaction then?
I didn't say that all loans are interest free.But you also said you could get the money out of a 0% CC for free so how would they make money on the transaction then?
And at the risk of repeating myself, who says the credit card company makes money out of a 0% fee balance transfer? That's another one of your incorrect assumptions.
You have a very simplistic understanding of how consumer debt works and it's not my job to educate you.
youngsyr said:
I didn't say that all loans are interest free.
And at the risk of repeating myself, who says the credit card company makes money out of a 0% fee balance transfer? That's another one of your incorrect assumptions.
You have a very simplistic understanding of how consumer debt works and it's not my job to educate you.
Well it's all there for people to read and make up their own mind!And at the risk of repeating myself, who says the credit card company makes money out of a 0% fee balance transfer? That's another one of your incorrect assumptions.
You have a very simplistic understanding of how consumer debt works and it's not my job to educate you.
Still haven't answered the question!
Educate yourself first!
oldbanger said:
If you put all your spending onto a cc, and keep the money you'd have spent in the bank, you can then do a 0% balance transfer from one card to pay off another and bank the interest of the unspent bank balance until it comes to the time to pay it off.
It only works if you don't spend the money in the meantime.
You can do similar with cheap loans and offset mortgages, providing you get a cheap enough loan. Again it only works if you don't spend the money on anything other than loan repayments.
And even if you do that, the savings account starts off with zero balance, which builds up gradually over time. No where near the same as pulling out a lump sum from a credit card and putting it into savings account from day 1. The effective interest is much lower.It only works if you don't spend the money in the meantime.
You can do similar with cheap loans and offset mortgages, providing you get a cheap enough loan. Again it only works if you don't spend the money on anything other than loan repayments.
Edited by oldbanger on Friday 30th June 09:40
youngsyr said:
Who said that all loans are interest free? Stop putting your words in my mouth to set up some sort of false argument.
To explain how these 0% interest loans are possible:
Firstly, you seem to be labouring under the assumption that all lenders make profits on all of their loans. Again, that used to be the case, but certainly isn't true today.
Secondly, those that do make profits from their loans do it in a myriad of different ways, some of them not even directly from the recipient of the loan. For example, a provider of a 0% interest on purchases credit card will make money on the transaction fee (usually somewhere between 0.25% and 1%) that they charge the retailer who sells the cardholder the goods.
The fact that you didn't know any of that does make me wonder why you continue to join in the discussion in this thread.
The card provider doesn't get any money from the transaction fees. The merchant's bank gets the fee (which could in theory be the same bank, but only by sheer coincidence), which is then split a number of ways e.g. VISA or MasterCard anyway. So you really don't know what you're talking about.To explain how these 0% interest loans are possible:
Firstly, you seem to be labouring under the assumption that all lenders make profits on all of their loans. Again, that used to be the case, but certainly isn't true today.
Secondly, those that do make profits from their loans do it in a myriad of different ways, some of them not even directly from the recipient of the loan. For example, a provider of a 0% interest on purchases credit card will make money on the transaction fee (usually somewhere between 0.25% and 1%) that they charge the retailer who sells the cardholder the goods.
The fact that you didn't know any of that does make me wonder why you continue to join in the discussion in this thread.
Edited by youngsyr on Friday 30th June 14:40
A big part of what I feel is going on is that the banks are trying to lure people into spending with these interest free/special introductory rate offers. They're taking a calculated risk that a proportion of the people taking up the offers won't clear the debt before the charges start to kick in.
The card companies know exactly what your monthly income is, and how much is coming and going from your current account, along with your credit rating. Yet they are still increasing people's credit limits and offering them cash advances of relatively large amounts.
Some scary reading about what the banks are up to with your personal data: http://www.telegraph.co.uk/personal-banking/curren...
youngsyr said:
Ari said:
youngsyr said:
How can you legitimately comment on a thread about consumer debt if you don't understand how it has changed over the past 30 years?
It's the lack of knowledge on the current situation and the constant references back to the 80s and 90s that makes many posters on this thread financial dinosaurs. Like it or not, the situation has changed drastically since 2008.
Because fundamentally, nothing has changed! You borrow £x, you pay back £x+y with y being the interest. The y figure is less than it used to be.It's the lack of knowledge on the current situation and the constant references back to the 80s and 90s that makes many posters on this thread financial dinosaurs. Like it or not, the situation has changed drastically since 2008.
What has changed is people's attitudes to borrowing, and the sheer amount that is being borrowed, often by people who convince themselves that they're being evaso clever for doing it.
Your new car example further up the thread is a perfect example of that.
That is a fundamental change.
I think a lot of this thread has been about trying to get the opposing party to stuff up there own argument.
Making money from borrowing - Yes, it is possible if you live your life on 0% credit cards and bank everything else in an account that generates interest. It is difficult, time-consuming and had very limited rewards.
Getting a car now rather than saving - For a start, the price of cars has gone up whilst the cost to produce has gone down. This is whare your 0% "Representative" APR come from. The interest is built into the product already. If you can borrow at a better rate then you can save then this can make sense. But you are only typically borrowing a percentage of the value and at the end of the term still, have a debt to pay to keep the car. Save for 2 years and you will earn money, loan for 2 years and it will cost you money. Not really complex.
The state of the nation - It really is concerning that so many people have so much debt. houses included. There is no buffer anymore.
People have got into debt for things that they don't need, and I find that this shows the mindset of the consumer. Fixed rate mortgages are only usually good for 2 - 5 years. At the start of the term, the interest to repayment ratio is shocking. Interest rates can only go up, and when they do a lot of people will get hurt.
Making money from borrowing - Yes, it is possible if you live your life on 0% credit cards and bank everything else in an account that generates interest. It is difficult, time-consuming and had very limited rewards.
Getting a car now rather than saving - For a start, the price of cars has gone up whilst the cost to produce has gone down. This is whare your 0% "Representative" APR come from. The interest is built into the product already. If you can borrow at a better rate then you can save then this can make sense. But you are only typically borrowing a percentage of the value and at the end of the term still, have a debt to pay to keep the car. Save for 2 years and you will earn money, loan for 2 years and it will cost you money. Not really complex.
The state of the nation - It really is concerning that so many people have so much debt. houses included. There is no buffer anymore.
People have got into debt for things that they don't need, and I find that this shows the mindset of the consumer. Fixed rate mortgages are only usually good for 2 - 5 years. At the start of the term, the interest to repayment ratio is shocking. Interest rates can only go up, and when they do a lot of people will get hurt.
Cant link it but on news today apprently UK average savings ratio- eg. percentage of income saved, has dropped to its lowest level in a long long time 1.7%
Im not familiar enough to know how they define disposable - is it literally any amount after tax?
But that means nearly all disposable income is being spent.
If that is an average and there are a fairnfew people saving comsiderably more, that also means there are a fair few actually saving considerably less, to arrrive at such a low average
Im not familiar enough to know how they define disposable - is it literally any amount after tax?
But that means nearly all disposable income is being spent.
If that is an average and there are a fairnfew people saving comsiderably more, that also means there are a fair few actually saving considerably less, to arrrive at such a low average
Granfondo said:
Personal debt at an all time high and personal savings at an all time low with interest rates only going to go one way!
What could possibly go WRONG!!!!
Well, who's going to be least affected by that - the wealthy/people with money (or the just plain prudent ones).What could possibly go WRONG!!!!
Who's going to be most affected - the ones who've spent beyond their means, typically modest incomes.
When the fan hits the s
t, it's just going to give more credence to Saint Corbyn, unfortunately.
youngsyr said:
crankedup said:
youngsyr said:
crankedup said:
Is it now easier to fall into a black hole debt post 2008?
What does that even mean?crankedup said:
Would you agree that consumer debt is good for the economy?
Would you agree that consumer debt should be controlled?
Yes and yes.Would you agree that consumer debt should be controlled?
youngsyr said:
crankedup said:
Is it now easier to fall into a black hole debt post 2008?
What does that even mean?crankedup said:
Would you agree that consumer debt is good for the economy?
Would you agree that consumer debt should be controlled?
Yes and yes.Would you agree that consumer debt should be controlled?
Feel free to add your own perspective, as this is quite interesting to me on a slightly academic level.
Ari said:
Granfondo said:
Personal debt at an all time high and personal savings at an all time low with interest rates only going to go one way!
What could possibly go WRONG!!!!
Oh you just don't understand modern finance! What could possibly go WRONG!!!!
I've only skimmed the recent posts, but it is possible to jump around between deals and borrow money for less than you can deposit it. Individuals can do this only because the majority of people don't. And for the economy as a whole, the majority are the important group.
If the economy is growing then it is entirely normal for consumer debt to be at an all time high. Wages, GDP, the national debt, the FTSE100 should always be at an all time high too. Without further clarification those headlines are meaningless.
And the total amount of consumer debt tells you nothing by itself about the cost or risk of the debt. What you actually want to know is the current cost of finance and the interest rate risk. If everyone has managed to borrow money at 0% for 30 years fixed, then consumer debt could be massive without putting them at much risk at all. If they're all paying 5000% floating rate pay-day loan stylee, then modest amounts of debt would soon torpedo the economy.
In the short run the message "by recent standards consumer borrowing is really high, and savings really low" tells us that consumer confidence is likely to fall in the coming months. Consumers were expected to lose some confidence in light of the vote for Brexit. They didn't. That unexpectedly propped the economy up for a while. Now the effect of Sterling's sharp devaluation and business' reaction to Brexit and domestic political uncertainty is feeding through into the wider economy. Consumers will eventually wake up to this and capitulate. Choppy waters ahead.
If the economy is growing then it is entirely normal for consumer debt to be at an all time high. Wages, GDP, the national debt, the FTSE100 should always be at an all time high too. Without further clarification those headlines are meaningless.
And the total amount of consumer debt tells you nothing by itself about the cost or risk of the debt. What you actually want to know is the current cost of finance and the interest rate risk. If everyone has managed to borrow money at 0% for 30 years fixed, then consumer debt could be massive without putting them at much risk at all. If they're all paying 5000% floating rate pay-day loan stylee, then modest amounts of debt would soon torpedo the economy.
In the short run the message "by recent standards consumer borrowing is really high, and savings really low" tells us that consumer confidence is likely to fall in the coming months. Consumers were expected to lose some confidence in light of the vote for Brexit. They didn't. That unexpectedly propped the economy up for a while. Now the effect of Sterling's sharp devaluation and business' reaction to Brexit and domestic political uncertainty is feeding through into the wider economy. Consumers will eventually wake up to this and capitulate. Choppy waters ahead.
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