Financing

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Discussion

ian_uk1975

Original Poster:

1,189 posts

201 months

Wednesday 26th April 2017
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So, I've got itchy feet again... always promised myself another Ferrari after the 355 (can't believe I sold it for £35k 9 years ago... would be worth £100k now, grrrr). Anyway, weighing-up a few options and struggling to decide how much to spend and how to finance the purchase. Whatever car I get, I'll be likely to keep it for maybe only 1-2 years.

Initially, I was thinking of a cash purchase. However, that's a lot of money tied-up in an illiquid asset. So, that got me thinking about finance.

As I understand it, there are, generally speaking, 2 options available to me on a used car (>5 years old) purchase... HP or HP with a balloon.

Plain old HP is pretty simple to grasp (even for me); deposit at the start of the loan + the loan amount over a specific term with fixed monthly repayments.

HP with a balloon has me all confused; I get that it's the same as HP, but with a balloon payment that's deferred until the end of the term, but it's really confusing me in terms of calculating the overall cost of borrowing for 1 or 2 years. I presume the interest I'd be paying monthly would be calculated on the entire loan amount including the balloon, but the capital portion would only be for the loan amount not including the balloon? So, compared to regular HP, the monthly repayments are lower, but the total cost of borrowing is higher?

Of course, given I have the cash (or most of it) available, it wouldn't make sense to use finance unless I had something better to do with the cash. I had thought of investing in high-yield stocks that I also think show some decent-ish growth potential... that would give me a highly liquid investment that I could turn into cash easily if I needed to and might pay for the borrowing costs on the car, for example.

Would appreciate the opinions of those who have 'been there, done that' and can offer any words of advice.

red_slr

17,122 posts

188 months

Sunday 30th April 2017
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I am sure someone will correct me but I don't think you have the same options as with a "normal" PCP which has protections / break outs in the contract by law. i.e 50% rule etc. If you go with asset finance / high net worth type finance you may find that its a business type loan and if you want to repay early there may be penalties.

You could of course go with dealer type finance but just from the sounds of your post you maybe want something a bit older?

Ferruccio

1,832 posts

118 months

Sunday 30th April 2017
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Gearing what is likely to be a wasting asset,
which also has insurance and running costs to hold,
always seems an odd economic decision to me,
unless you're Warren Buffett or Richard Branson and can really make your cash work..........?

WDISMYL

235 posts

86 months

Tuesday 2nd May 2017
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It's the US market but it's coming here soon too......

http://www.zerohedge.com/news/2017-03-31/heres-why...

You can never predict what the catalyst will be, or when it might happen but all the ingredients are there for another debt related crash.

It's none of my business what people do with their own money (or somebody else's in the case of a loan....) but the risks are there to be highlighted.

SL550M

589 posts

109 months

Tuesday 2nd May 2017
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WDISMYL said:
It's the US market but it's coming here soon too......

http://www.zerohedge.com/news/2017-03-31/heres-why...

You can never predict what the catalyst will be, or when it might happen but all the ingredients are there for another debt related crash.

It's none of my business what people do with their own money (or somebody else's in the case of a loan....) but the risks are there to be highlighted.
I don't understand any of those graphs! Need to go back to school I think! smile

Yipper

5,964 posts

89 months

Tuesday 2nd May 2017
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SL550M said:
WDISMYL said:
It's the US market but it's coming here soon too......

http://www.zerohedge.com/news/2017-03-31/heres-why...

You can never predict what the catalyst will be, or when it might happen but all the ingredients are there for another debt related crash.

It's none of my business what people do with their own money (or somebody else's in the case of a loan....) but the risks are there to be highlighted.
I don't understand any of those graphs! Need to go back to school I think! smile
The Guardian has been publishing about a US and UK car-finance crash since at least 2011. It is not a new topic:

https://www.theguardian.com/money/2014/oct/12/buyi...

WDISMYL

235 posts

86 months

Tuesday 2nd May 2017
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I don't think anyone said it was a new risk, nor that a problem will definitely occur. But it is a risk, which you can of course choose to ignore or decide the probability to be too low to be relevant.

The differences of course with now and that article 6 years ago is the market is much bigger now and central banks have moved into an interest rate raising cycle.

The fact this potential debt bubble exists also means the majority of people by definition couldn't care less so obviously my time spent raising it is definitely pointless!

Nothing to see - move along.

Yipper

5,964 posts

89 months

Tuesday 2nd May 2017
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People have gotten used to asset bubbles inflating and never crashing (real or perceived). There has not been a proper housing crash or employment crash for a quarter-century or more. And the last Wall Street crash was over in a flash, before rebounding like magic into an even bigger bubble. If there is UK car-debt crash, people will just pressure the government to bail everyone out, and life will quickly return to normal.

ian_uk1975

Original Poster:

1,189 posts

201 months

Tuesday 2nd May 2017
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Seems this thread is getting a bit derailed!

Adz The Rat

13,945 posts

208 months

Wednesday 3rd May 2017
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ian_uk1975 said:
Seems this thread is getting a bit derailed!
Doesn't any thread where someone dares to mention finance?

carphotographer

500 posts

194 months

Tuesday 9th May 2017
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There's a lot of owners who finance their cars, I'm surprised this topic has such little quality content.
Read an article in Autocar that said that most new purchases of Ferrari cars are financed, even popping down the local Ford dealer that was the same.
Makes sense not to have a large amount of money tied up in a liability and invest the money in assets.
J

WDISMYL

235 posts

86 months

Tuesday 9th May 2017
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carphotographer said:
There's a lot of owners who finance their cars, I'm surprised this topic has such little quality content.
Read an article in Autocar that said that most new purchases of Ferrari cars are financed, even popping down the local Ford dealer that was the same.
Makes sense not to have a large amount of money tied up in a liability and invest the money in assets.
J
..I know it's tedious..but I can't help myself....

You HAVE put a large amount of money in a liability - and on top of that you are paying interest to do it - why do people keep perpetuating the greatest myths of finance?

When you borrow money to buy a depreciating asset and then invest your own cash in an asset you have LEVERAGED your money. For it to make sense you need to make more on your investments after tax than the finance costs. That involves a fair amount of risk. It may work - it may not!

I'm not saying don't finance - none of my business - but please can we all stop pretending that we have magically not put our own cash into a liability.





Never you mind

1,507 posts

111 months

Tuesday 9th May 2017
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Supercars don't really depreciate the same way a BMW 320d does so financing can make sense. Buy the right car and you can either sell it for what you paid for it or it may even go up. And even if you do sell it for what you paid for it it's only cost you the interest which can be anywhere between 13 - 20K depending. That, in my book isn't too bad.

OP, Speak to JBR Capital they sorted out the finance on my car and it was pretty painless and the interest rate isn't massively high. Mine is a HNW type loan and yes there is penalties if I want to settle early, 6% in the first 6 or 9 months then reducing to 3% after that. Put down as much deposit as you can basically, over 30% and you should be able to get a good deal.

Any yes, most new Ferraris, Porsches, Lambos and McLarens are bought on finance these days. When I picked up mine I was talking to the salesman about it and ALL of the cars that where getting ready to go where all financed.

Edited by Never you mind on Tuesday 9th May 09:30


Edited by Never you mind on Tuesday 9th May 09:35

LA458SP

104 posts

105 months

Tuesday 9th May 2017
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Always an interesting topic!

My view has always been to pay cash wherever I can afford to i.e. if I have the surplus funds and have no requirement for those funds elsewhere or the foreseeable future - Which is normally the exact same logical reasoning you have to ask yourself before investing anyway.

Regardless of whether I am buying a supercar with low deprecation (potential appreciation) of a dd with a deprecation of say, 50-60% over 3 years I will always use as much cash as possible.

Finance APR will be around 6% (probably more) which means you are likely going to require a 10% AER from an alternative investment (before tax) to break even should you choose not to put your cash into the purchase of the car.

To be looking at 10% minimum growth potential from a passive investment you will no doubt have to invest in high risk products and over at least 5 years and not to mention the potential for fees along the way. Plus you are also doubling your exposure to market fluctuations as you have essentially leveraged your investment funding.

Please note that I do feel financing really does have a proper place in other scenarios.








WDISMYL

235 posts

86 months

Tuesday 9th May 2017
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Correct.

But you are talking to the deaf. The fact that the car finance market has exploded over the past ten years - 80%plus of the market now does it - means the vast majority couldn't give a rats ass what you are saying.

As long as people can afford the monthly payments - its simply fingers in the ear time and la la la la la. And they then convince themselves that they haven't put any cash in a depreciating asset because its borrowed money!

The good news from all this is that the supercar market has come on leaps and bounds - better cars and far more choice - because with finance the market has been able to grow far more quickly.

The bad news for people that don't need finance is that prices have at least doubled so we are all having to pay more for our cars.





carphotographer

500 posts

194 months

Tuesday 9th May 2017
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WDISMYL said:
carphotographer said:
There's a lot of owners who finance their cars, I'm surprised this topic has such little quality content.
Read an article in Autocar that said that most new purchases of Ferrari cars are financed, even popping down the local Ford dealer that was the same.
Makes sense not to have a large amount of money tied up in a liability and invest the money in assets.
J
..I know it's tedious..but I can't help myself....

You HAVE put a large amount of money in a liability - and on top of that you are paying interest to do it - why do people keep perpetuating the greatest myths of finance?

When you borrow money to buy a depreciating asset and then invest your own cash in an asset you have LEVERAGED your money. For it to make sense you need to make more on your investments after tax than the finance costs. That involves a fair amount of risk. It may work - it may not!

I'm not saying don't finance - none of my business - but please can we all stop pretending that we have magically not put our own cash into a liability.
Sorry I'm a bit confused.....
So you're saying don't do finance , the money I've got in the bank should be spent on a car and not on as asset such as a BTL or HMO that has a ROI of 25% + ???

WDISMYL

235 posts

86 months

Tuesday 9th May 2017
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Congratulations if you can get a long term Rate of Return of 25% on your investments!

But at least be honest - I suspect especially in the case of a BTL that is also a highly leveraged investment too. (small deposit - large mortgage). In effect you are simply putting leverage on leverage.

Just remember leverage works both ways.............

Anyways like I said its pointless having this discussion. People are all different. The finance market exists because the majority want it so who am I to argue with it?

Good luck with all that leverage.

I only made the point that just because you are using borrowed money to buy a car it doesn't mean you haven't put cash into a depreciating investment. It's simply an illusion if you think otherwise.


MDL111

6,895 posts

176 months

Tuesday 9th May 2017
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WDISMYL said:
Congratulations if you can get a long term Rate of Return of 25% on your investments!

But at least be honest - I suspect especially in the case of a BTL that is also a highly leveraged investment too. (small deposit - large mortgage). In effect you are simply putting leverage on leverage.

Just remember leverage works both ways.............

Anyways like I said its pointless having this discussion. People are all different. The finance market exists because the majority want it so who am I to argue with it?

Good luck with all that leverage.

I only made the point that just because you are using borrowed money to buy a car it doesn't mean you haven't put cash into a depreciating investment. It's simply an illusion if you think otherwise.
I guess it is the overall leverage one has. My home is levered very highly and my business is cyclical, so as a result I would not also want to have leverage on a car on top of that.

Somebody who has little leverage on his home/owns other low/no leverage assets etc, might well then take some out on a car (although I suspect it would be [a lot] more efficient to get a mortgage on the home).

supercars do not always depreciate like normal cars .... they do sometimes fall off a cliff though, usually at exactly the time when you have other financial issues coming your way ....

WDISMYL

235 posts

86 months

Tuesday 9th May 2017
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That's true - but I get the sense that too many people don't actually understand that they are leveraged..!

Anyone who has an outstanding mortgage on their home and uses cash to buy a supercar is still buying a leveraged purchase - so it's as you say its all about how much leverage you have/want in your life given your own personal circumstances/risk tolerances/expectations of future cash flows.

It's obviously much easier to hold a potentially depreciating asset in a zero interest rate environment - the shake out will come - if - and its a big if - interest rates head back to 5%. Then everyone has a real cost of carry that starts to hurt from an absolute and relative perspective.

ferdi p

1,519 posts

171 months

Tuesday 9th May 2017
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OP - NEVER ever mention finance on Pistonheads!

Everyone here is just like me; very rich, sensible, astute, intelligent & would never do anything as common as finance a vehicle! wink