Are the wheels about to fall of car finance?
Discussion
Ares said:
CivBrum said:
Ares said:
daemon said:
CivBrum said:
55palfers said:
CivBrum said:
Interest rates aren't that cheap for everyone, remember. I have a decent salary and a decent credit score, yet the interest rate on my personal loan is 6.9%. Some had quoted me as high as 14% even though their advertised rates were 3%. I think a lot of people in the sub-prime end of the market will be taking out auto loans with high interest rates (though admittedly, it is easier to get the lower rates on a new car than it is when taking out an unsecured loan for a used car - I am sure I would have got 0-3% if I PCP'd a brand new car).
6.9%!Phew!
I get about .75% on cash deposits.
No wonder my arse feels sore most of the time these days
VW used car APR on a PCP deal is a quite silly 10.9% APR
Borrowing £10k will always be cheaper than borrowing £21k
You do need to add logic and consistency 
Sheepshanks said:
Granfondo said:
Very relevant because you still have to pay if you hand it back!
I meant it doesn't affect the argument as you effectively pay it either way. If you're getting a p/x value it'll reduce that value compared to a car with the contracted mileage in unmarked condition. CivBrum said:
The point is your statement of "that's why it pays to buy new" is not really true though, is it.
Yes. Go and price a brand new car and a 6-9month old one, both on dealer finance. The new one will be cheaper. If you start going 2/3/4yrs old then of course it won't, but even at 2yrs old, new cars can work out cheaper, especially once other costs are taken into account.I know, I've done so for the last 4 cars, looking at 4-6 different cars each time. Same case 100% of the time.
Ares said:
CivBrum said:
The point is your statement of "that's why it pays to buy new" is not really true though, is it.
Yes. Go and price a brand new car and a 6-9month old one, both on dealer finance. The new one will be cheaper. If you start going 2/3/4yrs old then of course it won't, but even at 2yrs old, new cars can work out cheaper, especially once other costs are taken into account.I know, I've done so for the last 4 cars, looking at 4-6 different cars each time. Same case 100% of the time.
daemon said:
Ares said:
CivBrum said:
The point is your statement of "that's why it pays to buy new" is not really true though, is it.
Yes. Go and price a brand new car and a 6-9month old one, both on dealer finance. The new one will be cheaper. If you start going 2/3/4yrs old then of course it won't, but even at 2yrs old, new cars can work out cheaper, especially once other costs are taken into account.I know, I've done so for the last 4 cars, looking at 4-6 different cars each time. Same case 100% of the time.
Ares said:
daemon said:
Ares said:
CivBrum said:
The point is your statement of "that's why it pays to buy new" is not really true though, is it.
Yes. Go and price a brand new car and a 6-9month old one, both on dealer finance. The new one will be cheaper. If you start going 2/3/4yrs old then of course it won't, but even at 2yrs old, new cars can work out cheaper, especially once other costs are taken into account.I know, I've done so for the last 4 cars, looking at 4-6 different cars each time. Same case 100% of the time.
Ares said:
Yes. Go and price a brand new car and a 6-9month old one, both on dealer finance. The new one will be cheaper. If you start going 2/3/4yrs old then of course it won't, but even at 2yrs old, new cars can work out cheaper, especially once other costs are taken into account.
I know, I've done so for the last 4 cars, looking at 4-6 different cars each time. Same case 100% of the time.
As new car sales decline I expect this to continue as manufacturers get desperate to unload stock.I know, I've done so for the last 4 cars, looking at 4-6 different cars each time. Same case 100% of the time.
Essentially they don't care about used cars, they are of no interest whatsoever: they want you in a new car.
It works both ways too: many advantages to a new car, the longer this goes on the harder and harder it will be to sell used cars due to market forces.
I think we are in oversupply and cheap credit still, although our overall debt/GDP ratio must be getting close to recessionary levels.
So, someone help me out here while we compare the growing 'crisis' of car finance to the 2007 crash...
2007 crash
As I remember the banking crisis emanated from subprime lending practice and the selling of collateralised debt obligations (CDO) to investors.
The banks took lots of subprime mortgage backed securities at B, BB and BBB rated, mixed them into a diversified CDO and sold them as AAA rated. As teaser rates on mortgages expired and interest rates increased, people defaulted, delinquency rates rocketed and these bonds were worthless. The banks had masses of subprime debt and reserves ran dry.
As a result people lost their homes, credit dried up and banks fell to the wayside - so all in all pretty heavy duty for most (apart from those that shorted the bank with credit default swaps)
Current consumer PCP debt
Following the credit crunch, interest rates were slashed and borrowing with cheap credit is on the increase. PCP deals are used by 90% of the car buying public.
So what can go wrong?
Interest rates are raised to stave off inflation
People start to struggle with their debt (car, house and credit card/loans)
People try to get out of the unnecessary commitments
Cars are handed back if >50% is repaid without consequence
Anyone care to fill in the rest with what they think likely to happen to the public, the finance companies and the car manufacturers?
2007 crash
As I remember the banking crisis emanated from subprime lending practice and the selling of collateralised debt obligations (CDO) to investors.
The banks took lots of subprime mortgage backed securities at B, BB and BBB rated, mixed them into a diversified CDO and sold them as AAA rated. As teaser rates on mortgages expired and interest rates increased, people defaulted, delinquency rates rocketed and these bonds were worthless. The banks had masses of subprime debt and reserves ran dry.
As a result people lost their homes, credit dried up and banks fell to the wayside - so all in all pretty heavy duty for most (apart from those that shorted the bank with credit default swaps)
Current consumer PCP debt
Following the credit crunch, interest rates were slashed and borrowing with cheap credit is on the increase. PCP deals are used by 90% of the car buying public.
So what can go wrong?
Interest rates are raised to stave off inflation
People start to struggle with their debt (car, house and credit card/loans)
People try to get out of the unnecessary commitments
Cars are handed back if >50% is repaid without consequence
Anyone care to fill in the rest with what they think likely to happen to the public, the finance companies and the car manufacturers?
Sheepshanks said:
Granfondo said:
Is it bonkers though?
If you can buy an identical car for less than the balloon yes but due to the bid being trade then it could easily be that you would have to pay more from a garage to get the same car and you won't know it's history as you do your own,this may be a good or bad depending on your car!
P.S. If you pay the balloon you can't get any charges for any defects or excess mileage so that has to be taken into consideration also.
I'd imagine that if a dealer is telling you your 3yr old E Class is worth £18K then it's going to grate somewhat if you have to pay £19,500 to keep it, even if the same car on the forecourt might be £21K.If you can buy an identical car for less than the balloon yes but due to the bid being trade then it could easily be that you would have to pay more from a garage to get the same car and you won't know it's history as you do your own,this may be a good or bad depending on your car!
P.S. If you pay the balloon you can't get any charges for any defects or excess mileage so that has to be taken into consideration also.
Some people had a problem with the "guaranteed" part of GFV - they thought the finance company guaranteed the car's value. I presume it's for this reason that I don't think GFV exists now - it's referred to as Optional Final Payment.
I'm in the world of finance and it's amazing how many people think that GFV means the dealer or finance company will PAY THEM the GFV when they part ex it back for a new one. Like, whatever.
lord trumpton said:
Anyone care to fill in the rest with what they think likely to happen to the (1) public, the (2) finance companies and the (3) car manufacturers?
(1) Relative to cars, very little. They'll hand them either via a VT with 50% already paid or at the end of term. If they cant PCH or PCP another Audi A4, they'll get an A3 or a VW instead for the same monthly payment.(2) The finance companies are usually manufacturer backed. They'll post a heavy lost for a few years back to the parent manufacturer, offset by years of great profits and profits by the manufacturer based on current high levels of sales / profit.
(3) The car manufacturers will take pain for a couple of years, find new ways to sell cars and wait for the market to recover.
Pretty much like what happened 8-10 years ago now.
Edited by daemon on Wednesday 28th June 20:03
Granfondo said:
The only difference this time if it happens is that the interest rates can not be lowered to stimulate consumer spending and people will have less disposable income due to mortgages being higher if interest rates increase.
Plenty of movement to lower rates on car loans though, those deals at 10% or so are all financed with money borrowed at 0-0.5% which is why they are pushed so hard: not many investments today pay that rate that the finance companies claw out of those.Only Credit cards and Payday Loan usury is larger that I've noticed.
Globs said:
Granfondo said:
The only difference this time if it happens is that the interest rates can not be lowered to stimulate consumer spending and people will have less disposable income due to mortgages being higher if interest rates increase.
Plenty of movement to lower rates on car loans though, those deals at 10% or so are all financed with money borrowed at 0-0.5% which is why they are pushed so hard: not many investments today pay that rate that the finance companies claw out of those.Only Credit cards and Payday Loan usury is larger that I've noticed.
The likes of BMW, Merc, VW etc must have their pockets well lined in this bouyant market. They will easily weather the storm for a couple of years if theres a market downturn due to upcoming Brexit fears or sudden massive interest rate changes (which i doubt will happen anyway)
For the bulk of people it will be BAU other than maybe not having as much choice for their particular monthly budget or maybe pulling their car bracket down a notch or two.
For the minority that are overspending as is, then there will be a very sudden wake up call at some point
Interesting times ahead though, i suspect.
TarpaTow said:
Sheepshanks said:
Granfondo said:
Is it bonkers though?
If you can buy an identical car for less than the balloon yes but due to the bid being trade then it could easily be that you would have to pay more from a garage to get the same car and you won't know it's history as you do your own,this may be a good or bad depending on your car!
P.S. If you pay the balloon you can't get any charges for any defects or excess mileage so that has to be taken into consideration also.
I'd imagine that if a dealer is telling you your 3yr old E Class is worth £18K then it's going to grate somewhat if you have to pay £19,500 to keep it, even if the same car on the forecourt might be £21K.If you can buy an identical car for less than the balloon yes but due to the bid being trade then it could easily be that you would have to pay more from a garage to get the same car and you won't know it's history as you do your own,this may be a good or bad depending on your car!
P.S. If you pay the balloon you can't get any charges for any defects or excess mileage so that has to be taken into consideration also.
Some people had a problem with the "guaranteed" part of GFV - they thought the finance company guaranteed the car's value. I presume it's for this reason that I don't think GFV exists now - it's referred to as Optional Final Payment.
I'm in the world of finance and it's amazing how many people think that GFV means the dealer or finance company will PAY THEM the GFV when they part ex it back for a new one. Like, whatever.
Globs said:
Granfondo said:
The only difference this time if it happens is that the interest rates can not be lowered to stimulate consumer spending and people will have less disposable income due to mortgages being higher if interest rates increase.
Plenty of movement to lower rates on car loans though, those deals at 10% or so are all financed with money borrowed at 0-0.5% which is why they are pushed so hard: not many investments today pay that rate that the finance companies claw out of those.Only Credit cards and Payday Loan usury is larger that I've noticed.
It's great how people change the argument to suit their own view!
It's all 0-3% and you can earn more with investments and then when someone says there is no room for decreases it's all plenty scope when the manufacturer is lending at 10% and borrowing at 0.5%!
I think the manufacturers will be just fine because it doesn't matter what the interest rate is people need cars whether it's £100k or £10k and all the talk of "opportunity cost" only applies to a minuscule proportion of people the rest just need credit if they want the latest shinnneee thing!
UK financial watchdog investigates car loans market
https://www.theguardian.com/business/2017/jun/29/u...
https://www.theguardian.com/business/2017/jun/29/u...
I got a quote from my local BMW dealer on a 6 month old M2 the other day. To finance the car with them, they are offering a very attractive rate of 10.9%!! I could only laugh. I was paying something like £19k just in interest over 4 years. I notice most dealers offer the same rate on PCP deals not involving new cars. It seems absolutely crazy to pay such a high rate on finance given the alternatives available.
I financed my current car with a bank loan at 3 points as over 4 years I'll basically own the car as opposed to 48 monthly payments a similiar monthly amount doing PCP and still having a hefty balloon payment. I'm not taking away from whatever way someone chooses to finance their car but sometimes these rates seem incredibly high.
I financed my current car with a bank loan at 3 points as over 4 years I'll basically own the car as opposed to 48 monthly payments a similiar monthly amount doing PCP and still having a hefty balloon payment. I'm not taking away from whatever way someone chooses to finance their car but sometimes these rates seem incredibly high.
Benzo26 said:
I got a quote from my local BMW dealer on a 6 month old M2 the other day. To finance the car with them, they are offering a very attractive rate of 10.9%!! I could only laugh. I was paying something like £19k just in interest over 4 years. I notice most dealers offer the same rate on PCP deals not involving new cars. It seems absolutely crazy to pay such a high rate on finance given the alternatives available.
I financed my current car with a bank loan at 3 points as over 4 years I'll basically own the car as opposed to 48 monthly payments a similiar monthly amount doing PCP and still having a hefty balloon payment. I'm not taking away from whatever way someone chooses to finance their car but sometimes these rates seem incredibly high.
+1I financed my current car with a bank loan at 3 points as over 4 years I'll basically own the car as opposed to 48 monthly payments a similiar monthly amount doing PCP and still having a hefty balloon payment. I'm not taking away from whatever way someone chooses to finance their car but sometimes these rates seem incredibly high.
BMWs current used car finance "offer" is laughable. 10.9%? Same with VW and others. Crazy.
Whilst some might say manufacturers have no vested interest in selling used cars - clearly they have. Its their finance arms that are supporting Approved Used sales.
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