Are the wheels about to fall of car finance?
Discussion
ReverseTriker said:
UK financial watchdog investigates car loans market
https://www.theguardian.com/business/2017/jun/29/u...
I think its right they do - if theres a question mark at all over the valid growth of the market then its right to look closer.https://www.theguardian.com/business/2017/jun/29/u...
Globs said:
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.
<little bit of politics>
Granfondo said:
Not many new cars are sold through PCP @ 10% though is there?
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!
Far from it. Even on semi exotics with no real discounts, you struggle to reach 7% (Highest I had was BMW for an M3 at 6.3%) Merc (C63) were at 2.9%, Maserati at 6.1%, Alfa (QV) at 3.8%.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!
Go to the next model down (340i/C43/etc) and you are at 0-3% easily.
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.
Used is always a LOT higher. No subsidy, and often not Manufacturer FS.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.
https://youtu.be/9m2g4CRPEvc?t=8m52s
Sums up the "magic" of current car finance approach pretty well. It's overpriced but most people will be buying it on finance so "that's going to be absolutely fine"
Sums up the "magic" of current car finance approach pretty well. It's overpriced but most people will be buying it on finance so "that's going to be absolutely fine"
Globs said:
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.
I think there is a lot of misunderstanding on how expensive it is to provide retail finance because banks and mortgages are able to write loans at such low rates. Most of the headline banks only offer those rates on full automated online loans that have little to no cost to super prime customers using funds provided by all the countless risk averse customers leaving money on deposit in zero interest accounts.Only Credit cards and Payday Loan usury is larger that I've noticed.
For dedicated FH they have to go to either PE or IB's to get their funds from the wholesale debt markets where they compete against yields from other securities for investor cash. The minimum rate would be at least higher than sovereign debt and corporate debt due to the extra risk exposure of the consumer market. So you are talking more like minimum 4 to 5 percent wholesale dost by the time the IB packaged it - and in rate pecking order the prime HNW books of Ferraris, Bentleys et all will be at the top.
Then the FH has to cover all their back office costs, admin, make good defaults etc and chase around idiots who can't manage their DD's. On a 12.5k deal at 10 percent out of 1800 interest they'll make a small profit and hope to upsell them a more profitable deal - its 1/10 of the cost to underwrite a 100k deal than 10x 10k deals so on smaller amounts the interest has to cover a proportionately bigger admin cost than a larger loan needs to.
In terms of rate for risk - the more expensive car is likely to hurt more if the deal goes south than if 3/10 of the 10k deals default, so alot of the pricing is dependent on the depreciation curve of the car, deposit and how likely the borrower is to outright steal the thing.
The car finance market is actually incredibly competetive behind the scenes - the dealer FH have to charge more because banks and mfr's FH's cream off all the low risk super prime deals leaving them with a lower quality book that dists more to wholesale fund.
The fact is that the reason the dealer rates are high is because nobody else would usually lend money to those people and they incur extra costs of dealing with idiots. A quick read of the CAF will reveal the alarming amount of people who finance cars then get into trouble within months then try every trick in the book to try and avoid paying what they owe. The FH have to price all those losses in somewhere.
Banks offer cheap money because customers give them cheap money, investments offer goid returns because consumers pay too much and don't arbitrage. If everyone took the PH'r approach and demanded to borrow at 0.5-2.5 percent while expecting 15 percent returns on their own savings the financial system would collapse. The interest rate differential is merely a arbitrage trade redistributing wealth from the uninformec to the astute - a model which the entire City of London depends on for its existance.
FH could probably lend money out cheaper, Tescos could probably sell eggs cheaper - but in a capitalist market exonomy you price what the market will bear and if you can place deals at 10 percent why would you place them at 7?
If dealers couldn't write business at those interest rates they'd have no business, and if you don't like the rate them seemples - pay cash.
Couple of interesting articles related to this thread from the weekend.
One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
Exchange and Mart targets 1.6m PCP owners with Payment Swap
https://www.motortrader.com/motor-trader-news/auto...
Exchange and Mart has officially launched Payment Swap which helps PCP customers exit their used car contract early and flip into a newer car for the same or lower monthly payment.
It estimates that there are 1.6 million used car owners currently in the middle of their dealer finance or PCP agreement are now able to change their car early.
The online service at paymentswap.co.uk allows buyers to digitally manage the transaction, including vehicle trade-in, sorting out the settlement of their old finance agreement, signing up to a typical 9.9% APR representative finance agreement and arranging a date for collection of their next used car from their supplying retailer. The process meets all FCA requirements it said.
https://www.motortrader.com/motor-trader-news/auto...
Exchange and Mart has officially launched Payment Swap which helps PCP customers exit their used car contract early and flip into a newer car for the same or lower monthly payment.
It estimates that there are 1.6 million used car owners currently in the middle of their dealer finance or PCP agreement are now able to change their car early.
The online service at paymentswap.co.uk allows buyers to digitally manage the transaction, including vehicle trade-in, sorting out the settlement of their old finance agreement, signing up to a typical 9.9% APR representative finance agreement and arranging a date for collection of their next used car from their supplying retailer. The process meets all FCA requirements it said.
SpeedBash said:
Couple of interesting articles related to this thread from the weekend.
One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
DM image is laughable. What has their employment got to do with it? It's down to the finance company, WHEN THEY SUBMIT AN APPLICATION, to make a judgement?! Crikey.One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
nyxster said:
Banks offer cheap money because customers give them cheap money, investments offer goid returns because consumers pay too much and don't arbitrage. If everyone took the PH'r approach and demanded to borrow at 0.5-2.5 percent while expecting 15 percent returns on their own savings the financial system would collapse. The interest rate differential is merely a arbitrage trade redistributing wealth from the uninformec to the astute - a model which the entire City of London depends on for its existance.
Can you please explain the arbitrage?romeogolf said:
SpeedBash said:
Couple of interesting articles related to this thread from the weekend.
One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
DM image is laughable. What has their employment got to do with it? It's down to the finance company, WHEN THEY SUBMIT AN APPLICATION, to make a judgement?! Crikey.One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
romeogolf said:
DM image is laughable. What has their employment got to do with it? It's down to the finance company, WHEN THEY SUBMIT AN APPLICATION, to make a judgement?! Crikey.
more to the point, they say 'travelling abroad' / 'travelling the world' like its as bad as doing time in prison.And why are only people in their 20's considered to be reckless borrowers?
Integroo said:
romeogolf said:
SpeedBash said:
Couple of interesting articles related to this thread from the weekend.
One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
DM image is laughable. What has their employment got to do with it? It's down to the finance company, WHEN THEY SUBMIT AN APPLICATION, to make a judgement?! Crikey.One from the Guardian which seems fairly balanced and talks about cheap credit in a wider context and mentions car finance specifically as well: https://www.theguardian.com/business/2017/jul/01/b...
One from the Mail which is pitched as an expose of 'reckless car salesmaen' selling PCP schemes to people who can't afford it (see image below): http://www.dailymail.co.uk/news/article-4659746/Re...
Justin Case said:
The Daily Wail rabbit on about benefit scroungers and how they get so much that by their logic the unemployed lad is probably the safest bet to lend money to 
If it was up to the mail the finance application would have the following questions:How much is your house worth?
Are you an immigrant?
Do you cry about Princess Diana every day?
Where's Maddie?
Will cheap car loans steer Britain to a financial crash?
https://www.theguardian.com/money/blog/2017/jul/08...
https://www.theguardian.com/money/blog/2017/jul/08...
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