Are the wheels about to fall of car finance?
Discussion
These cash rich car companies will just set their own rates, they are after all 'finance houses' now as much as they are car manufacturers. The car is the tool used to sell the product, the finance.
People are paying 12% apr on on used cars in many cases now! So interest rates going up won't change their attitude on new cars.
I have said the scam with PCP is how it is sold with no explanation, or indeed understanding, from those that are selling it, and at rates that are bordering on criminal, the fact many can pay nearly as much in interest as the balloon is quite scary.
Cars are cheap because of the numbers they are made, they are making the numbers because financing is easy, if you get rid of one the other disappears, which is not really what anyone wants. No doubt cars will disappear before financing them disappears, and then we will probably all have a monthly membership to whatever driverless transport is around and the arguments will stop.
People are paying 12% apr on on used cars in many cases now! So interest rates going up won't change their attitude on new cars.
I have said the scam with PCP is how it is sold with no explanation, or indeed understanding, from those that are selling it, and at rates that are bordering on criminal, the fact many can pay nearly as much in interest as the balloon is quite scary.
Cars are cheap because of the numbers they are made, they are making the numbers because financing is easy, if you get rid of one the other disappears, which is not really what anyone wants. No doubt cars will disappear before financing them disappears, and then we will probably all have a monthly membership to whatever driverless transport is around and the arguments will stop.
Gunk said:
The rate only went up by 0.25% Whilst I agree about the amount of excess personal debt, I don’t quite think we’re looking at Armageddon yet.
More accurately, the rate went back up to what it was before a certain event happened last year. So over a 3yr lease it hasn't really gone anywhere.If the nations financial situation becomes bad enough that car finance is going to fall in a heap, there's going to be a lot more than car finance falling over.
I think the biggest problem for new car leases is that fewer people will be getting new leases due to increased financial pressure. Not the end of the world, but not good either. There will be some contractions in the finance sector, but there's going to be contractions almost everywhere.
I'm not sure what APR I'm paying on my car, but its approx £1,000 more in total over the price of the car as the amount I'm paying is fixed. Monthlys are something I'm very happy with and can easily afford (certain manufacturers were doing insane deals just to keep stock moving, but they cant keep that up for long).
HumanDoing said:
The chickens will come home to roost. As interest rates increase, the current cheap cost of borrowing will cease. People used to living on the monthlies and justifying it on the grounds of how cheap it is will be shafted.
As cheap credit dries up, people will realise how they are being juiced and want to avoid finance, but due to their lack of liquidity they won't be able to avoid it and will be forever ingrained as wage slaves with no hope of ever paying off even the most rudimentary of debts - except of course on here where everyone has their mortgage paid off at 32 and tens of thousands of pounds sloshing around their account from month to month.
Interest rates at 1% in two years is hardly going to decimate our economy. From the BoE's own guidanceAs cheap credit dries up, people will realise how they are being juiced and want to avoid finance, but due to their lack of liquidity they won't be able to avoid it and will be forever ingrained as wage slaves with no hope of ever paying off even the most rudimentary of debts - except of course on here where everyone has their mortgage paid off at 32 and tens of thousands of pounds sloshing around their account from month to month.
https://www.theguardian.com/business/2017/nov/02/b...
"The Bank’s central forecast in its November inflation report signalled two more 0.25% percentage point rises in the next two years, capping the base rate at 1% by 2020."
gizlaroc said:
These cash rich car companies will just set their own rates, they are after all 'finance houses' now as much as they are car manufacturers. The car is the tool used to sell the product, the finance.
Fair point, but the thing is that a lot of the companies are not cash rich. They are taking advantage of the fact that loans are available to them at almost no cost to build inventory paid for with borrowed money. The asset values are what they are relying on to be able to cover the debt, but while the cycle keeps on turning the asset values never need to be realised so the interest and fees they are collecting on these deals is what the success of the business is based on,It is why GFV's do not have to match real-world values of the cars, for now!
Small shifts in interest rates aren't going to bring the edifice down, but it's like those coin-pusher machines - lots of coins stacked up in the middle yet the occasional coin in at one end will have no or minimal effect at the other, until one too many tips a pile of the most precariously balanced coins at the other end over the edge.
Edited by r11co on Wednesday 22 November 11:27
daemon said:
4941cc said:
Granfondo said:
The way new car sales have been going it wouldn't surprise me if they dropped the rate on PCPs!
GFVs are dropping considerably quicker than rates are increasing, so even with maintained rate, the monthlies are going up... 18 years in the trade as of tomorrow. I've never seen as many people a) in negative equity and b) in as much of it as they are currently. That's across the board, from Fiat to Ferrari, whether at end of term or looking to change mid-term.
The amounts of NE and therefore hand-backs are what subsequently drives the lowering of GFVs and increases in monthlies for new business being written.
Granfondo said:
No 20% equity to carry forward? 
Only if they put in a substantial deposit at the outset, which people haven't been doing for ages. Pre-2008 GFC, there could usually be reliably £1-1.5k of equity at end of term, thus genuinely offering people multiple options to retain, renew or hand back with no further obligation. As it stands now, retain isn't an option in the vast majority of cases because they don't have the cash to buy out, or raising it with a loan/refinancing with the finance house gives similar or dearer monthlies to handing back and starting afresh.
Leaving a 50/50 choice between either hand back if you're at end of term and mileage and condition are as per agreement - o rmore commonly when not at end of term - renew, rolling any negative equity into the new deal, with either an unshown discount paying for it if the dealer has margin to do so, taking up cash to cover it, or taking out a Negative Equity Loan to cover it specifically, alongside but separate from the new vehicle agreement...
Part of the problem there is if people want to change every 2, 2.5, 3 years, they *should* logically take an agreement with a term to offer them the choices at the point in time they'll want them - and pay the accompanying monthly. Except they don't do that, they want lowest payment possible and change as early as financially possible. There are some customers who come in every 2-3 months to review their position...
HumanDoing said:
nickfrog said:
What do you think is going to happen soon ?
The chickens will come home to roost. As interest rates increase, the current cheap cost of borrowing will cease. People used to living on the monthlies and justifying it on the grounds of how cheap it is will be shafted. As cheap credit dries up, people will realise how they are being juiced and want to avoid finance, but due to their lack of liquidity they won't be able to avoid it and will be forever ingrained as wage slaves with no hope of ever paying off even the most rudimentary of debts - except of course on here where everyone has their mortgage paid off at 32 and tens of thousands of pounds sloshing around their account from month to month.
Even IF rates rise over time, either manufacturers will subsidise the deals or people will trade down from an A4 to an A3 or whatever, or buy something used instead.
r11co said:
Small shifts in interest rates aren't going to bring the edifice down, but it's like those coin-pusher machines - lots of coins stacked up in the middle yet the occasional coin in at one end will have no or minimal effect at the other, until one too many tips a pile of the most precariously balanced coins at the other end over the edge.
And the beauty of it is - it will be the manufacturers and the finance companies / banks problem to sort out, not the individuals4941cc said:
At end of term, sure. But people want to change before that - they take a 48 month PCP to get the lowest monthly, but still want to change at 2-2.5 years mostly, plus we actively prospect them once they hit 6 months to EOC...
The amounts of NE and therefore hand-backs are what subsequently drives the lowering of GFVs and increases in monthlies for new business being written.
For those individuals taking out 4 year deals and trying to jump ship at 2-2.5 years. Tough! The product hasnt failed them, the system hasnt failed them, their own "on a whim" desire for something new is the problem. I guess they'll just have to slum it until the end of term. The amounts of NE and therefore hand-backs are what subsequently drives the lowering of GFVs and increases in monthlies for new business being written.
-VE half way through is how the product works. Dont try to bail half way through, Simples.
Its not the amount of handbacks driving future values, its market demand.
4941cc said:
Part of the problem there is if people want to change every 2, 2.5, 3 years, they *should* logically take an agreement with a term to offer them the choices at the point in time they'll want them - and pay the accompanying monthly. Except they don't do that, they want lowest payment possible and change as early as financially possible. There are some customers who come in every 2-3 months to review their position...
Then they're wholly misusing the product and people like you, being responsible salesmen will advice and direct people towards the right product / term when they do change their car.r11co said:
@4941cc - You've confirmed what most of us have suspected!
That some people out there are terminally dim and have bought a finance product, agreed to a fixed term for that then cant understand why they're upside down half way through the term?Theres no "suspecting" about that - its common sense.
4941cc said:
Only if they put in a substantial deposit at the outset, which people haven't been doing for ages. Pre-2008 GFC, there could usually be reliably £1-1.5k of equity at end of term, thus genuinely offering people multiple options to retain, renew or hand back with no further obligation.
As it stands now, retain isn't an option in the vast majority of cases because they don't have the cash to buy out, or raising it with a loan/refinancing with the finance house gives similar or dearer monthlies to handing back and starting afresh.
Leaving a 50/50 choice between either hand back if you're at end of term and mileage and condition are as per agreement - o rmore commonly when not at end of term - renew, rolling any negative equity into the new deal, with either an unshown discount paying for it if the dealer has margin to do so, taking up cash to cover it, or taking out a Negative Equity Loan to cover it specifically, alongside but separate from the new vehicle agreement...
Part of the problem there is if people want to change every 2, 2.5, 3 years, they *should* logically take an agreement with a term to offer them the choices at the point in time they'll want them - and pay the accompanying monthly. Except they don't do that, they want lowest payment possible and change as early as financially possible. There are some customers who come in every 2-3 months to review their position...
Pretty much nail on head.As it stands now, retain isn't an option in the vast majority of cases because they don't have the cash to buy out, or raising it with a loan/refinancing with the finance house gives similar or dearer monthlies to handing back and starting afresh.
Leaving a 50/50 choice between either hand back if you're at end of term and mileage and condition are as per agreement - o rmore commonly when not at end of term - renew, rolling any negative equity into the new deal, with either an unshown discount paying for it if the dealer has margin to do so, taking up cash to cover it, or taking out a Negative Equity Loan to cover it specifically, alongside but separate from the new vehicle agreement...
Part of the problem there is if people want to change every 2, 2.5, 3 years, they *should* logically take an agreement with a term to offer them the choices at the point in time they'll want them - and pay the accompanying monthly. Except they don't do that, they want lowest payment possible and change as early as financially possible. There are some customers who come in every 2-3 months to review their position...
I didn't think that the size of deposit changed the GFV ?
daemon said:
That some people out there are terminally dim and have bought a finance product, agreed to a fixed term for that then cant understand why they're upside down half way through the term?
Theres no "suspecting" about that - its common sense.
Or, they are well aware of it but push it to the back of their mind when signing up as they've got to have that shiny new car on the drive for the lowest monthly payment NOW!Theres no "suspecting" about that - its common sense.
Crazy times..
L0gan5 said:
daemon said:
That some people out there are terminally dim and have bought a finance product, agreed to a fixed term for that then cant understand why they're upside down half way through the term?
Theres no "suspecting" about that - its common sense.
Or, they are well aware of it but push it to the back of their mind when signing up as they've got to have that shiny new car on the drive for the lowest monthly payment NOW!Theres no "suspecting" about that - its common sense.
Crazy times..
r11co said:
@4941cc - You've confirmed what most of us have suspected!
daemon said:
Then they're wholly misusing the product and people like you, being responsible salesmen will advice and direct people towards the right product / term when they do change their car.
They are indeed, but you can't tell them. The want is stronger than the reality of the situation. Motivated as we are by being paid for doing deals now and not for giving prudent financial advice, it's only going to continue...L0gan5 said:
Or, they are well aware of it but push it to the back of their mind when signing up as they've got to have that shiny new car on the drive for the lowest monthly payment NOW!
This, basically. You can spell it out many times throughout the quote, negotiation, close and signing up process. But you can sense them just nodding along looking at a single figure on the page and eager to scribble on it. L0gan5 said:
4941cc said:
.....There are some customers who come in every 2-3 months to review their position...
WTF! It sounds like it's becoming like the mobile phone industry!Granfondo said:
Pretty much nail on head. I didn't think that the size of deposit changed the GFV ?
Neither the GFV or market value of the car are different because a customer paid a large deposit initially, but their equity position is changed by it throughout the term as one will have funded a lower balance, so will have reached the parity point. We don't just prospect people coming to 6 month/3 month/1 month from end of term now, manufacturers have software that scans their current deal book, values the current vehicle at what it's pro-rated contract mileage would be against CAP average data held electronically, weighs that against the current settlement figure every month and where the customer is either neutral or in a positive equity position, stacks a deal assuming they will go for the same again, as close as possible to current monthly figure and sends the viable ones to the dealers to follow-up and get the customer in to do a deal.
I've moved to the manufacturer finance side of things after a career in dealerships and it's cast a new light on my - already high - levels of cynicism toward the industry. Not sure whether poacher has turned gamekeeper or vice-versa yet!
nickfrog said:
Haven't we gone through this several times already ? Sweeping statements only highlight a lack of rational thought process or an inherent level of frustration, or both.
Credit wasn't invented last Tuesday. Some have always struggled to use it properly, some haven't. Nothing new here.
I'm making a macroeconomic point, not a 'sweeping statement'. It's well known that economists are concerned about levels of debt in this country, are they 'making sweeping statements as well? The chickens are preparing to roost and we are about to be engulfed by an avalanche of soiled diapers when people realise they can't live the life 'they can afford without access to cheap credit and ever increasing debt limits. Credit wasn't invented last Tuesday. Some have always struggled to use it properly, some haven't. Nothing new here.
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