O/T 50%+ of car loans are 84 months!
10-26-2018, 09:39 AM
#31
Rennlist Member
Thread Starter
I have no problem with individual decisions., It the same a variable rate mortgages. The real danger is that the accumulation of all of these decisions results in a highly leveraged economy, so that when the recession comes, (as it surely will) it will affects not only the people who are directly leveraged but everyone.
10-26-2018, 10:47 AM
#33
Captain Obvious
Super User
Super User
This extra long financing is very popular in 2nd world countries where people do this just to get a basic set of wheel. Over here, people do it to get vehicles that are way more than what they need or can afford. We need idiots to keep the used vehicle market flooded with cars. I don't mind them doing this since I always buy my cars used when they are nice and cheap.
10-26-2018, 10:57 AM
#34
Three Wheelin'
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Location: Toronto, north of the lake.
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The GTA has gone though a bit of a sea change in the last 10 years. Our neighborhood used to be a Subaru and Honda place, where now it is a Merc and BMW in every driveway (Porsche owners not included). It happened around the time that house prices doubled. I couldn't figure out how everyone in town was suddenly an I-Banker. Now I know it is just that everyone is driving around in 84 month car loans.
The only cars I have ever financed offered 0% terms. I would go 84 month as well if I could get them again.
The only cars I have ever financed offered 0% terms. I would go 84 month as well if I could get them again.
10-26-2018, 11:30 AM
#36
I helped my FIL buy a car and the question they always asked was "How much do you want to pay a month?" This happened at Ford, Mazda, Subaru, Hyundai and Kia. It's easy to see how people can be enticed into long term car loans though. IIRC Hyundai were offering an 84 month 0% loan + a $3K cash rebate. So you purchase a car interest free AND get three thousand in pin money to do whatever. Sounds like a great deal if you don't care to think cynically about it.
When we bought our Macan this spring the dealer said that financing was 5.9%. We had a good laugh and were told that finance isn't a big part of the Porsche retail model.
When we bought our Macan this spring the dealer said that financing was 5.9%. We had a good laugh and were told that finance isn't a big part of the Porsche retail model.
10-26-2018, 11:39 AM
#37
VW did the same thing to me, tried to sell me on a 2018 R purely on the monthly payment. They kept asking "how much do you want to spend per month", I didn't bite and walked away.
10-26-2018, 07:48 PM
#38
Rennlist Member
The monthly payment concept continues to infiltrate the U.S.
Take technology in the Cloud. AWS (Amazon Web Services) and all their competitors (Microsoft Azure, Google Cloud Platform, etc.) have created monthly recurring options - even “how much do you want to pay per day, per week, per second” in some cases.
This is really a great idea and a huge benefit when you need to rent something for a specific time period and the time period or demand/load is uncertain. Agility can equate to big business. Or take a small business that’s rapidly expanding for example. That business suddenly needs resources very quickly, and the cloud can accommodate the need instantly.
Or using the car example, if you very suddenly need to get from point A to point B, take a Lyft or Uber, Taxi, etc.
The rental model, for the most part, just takes a capital or operational expenditure, adds in service, overhead and profits, a finance charge, and then is converted to a monthly number.
But if you don’t need the flexibility, and/or you use the resource many times over and over again, the rental model doesn’t make sense.
So why has everything gone to “monthly cost?” I suspect it’s still the ‘got to have it now’ mentality, we are only operating on the basis of wealth over a single lifetime (ours) but also, the hardest part is the huge difficulty for the human brain to grasp compound interest.
I read an an article about “stocks versus real estate over the last 145 years” or something to that affect. If humans lived 150 years, I suspect people would tend to borrow more in the short term and less in the long term, because the interest or wealth over 5-7 years is nothing compared to interest/wealth over 150.
Take technology in the Cloud. AWS (Amazon Web Services) and all their competitors (Microsoft Azure, Google Cloud Platform, etc.) have created monthly recurring options - even “how much do you want to pay per day, per week, per second” in some cases.
This is really a great idea and a huge benefit when you need to rent something for a specific time period and the time period or demand/load is uncertain. Agility can equate to big business. Or take a small business that’s rapidly expanding for example. That business suddenly needs resources very quickly, and the cloud can accommodate the need instantly.
Or using the car example, if you very suddenly need to get from point A to point B, take a Lyft or Uber, Taxi, etc.
The rental model, for the most part, just takes a capital or operational expenditure, adds in service, overhead and profits, a finance charge, and then is converted to a monthly number.
But if you don’t need the flexibility, and/or you use the resource many times over and over again, the rental model doesn’t make sense.
So why has everything gone to “monthly cost?” I suspect it’s still the ‘got to have it now’ mentality, we are only operating on the basis of wealth over a single lifetime (ours) but also, the hardest part is the huge difficulty for the human brain to grasp compound interest.
I read an an article about “stocks versus real estate over the last 145 years” or something to that affect. If humans lived 150 years, I suspect people would tend to borrow more in the short term and less in the long term, because the interest or wealth over 5-7 years is nothing compared to interest/wealth over 150.
10-27-2018, 12:40 AM
#39
Please educate me.
Assuming you have $56,500 extra cash in the bank and ready to buy a new car at $50,000 price tag in Ontario.
The dealer offers you 0 down, 84 month financing at 2.9%, which means your monthly will be $744.01 after tax. (which means the total spend is $64,496.65, that includes the $5,996.65 interest)
If you put that cash in a 8% annual return investment(such as stock or mutual fund), and withdraw $755 every month, after 7 years, you will still have about $9523 left in your bank. Plus a 7 year old car that could potentially be sold for $5000. So you end up with $14,000s in your hands.
And worst case scenario, if you don't have $56k in your bank, but you can put aside $150 extra on top of you car loan payment, and invest it in stock market with the same 8% return, you will generate about $4800 interest which help you cover most of the $6k interest paid from the loan.
So in both cases, you can enjoy the car you like and have less impact on your financial situation. NO?
Assuming you have $56,500 extra cash in the bank and ready to buy a new car at $50,000 price tag in Ontario.
The dealer offers you 0 down, 84 month financing at 2.9%, which means your monthly will be $744.01 after tax. (which means the total spend is $64,496.65, that includes the $5,996.65 interest)
If you put that cash in a 8% annual return investment(such as stock or mutual fund), and withdraw $755 every month, after 7 years, you will still have about $9523 left in your bank. Plus a 7 year old car that could potentially be sold for $5000. So you end up with $14,000s in your hands.
And worst case scenario, if you don't have $56k in your bank, but you can put aside $150 extra on top of you car loan payment, and invest it in stock market with the same 8% return, you will generate about $4800 interest which help you cover most of the $6k interest paid from the loan.
So in both cases, you can enjoy the car you like and have less impact on your financial situation. NO?
10-27-2018, 09:10 AM
#40
Rennlist Member
Please educate me.
Assuming you have $56,500 extra cash in the bank and ready to buy a new car at $50,000 price tag in Ontario.
The dealer offers you 0 down, 84 month financing at 2.9%, which means your monthly will be $744.01 after tax. (which means the total spend is $64,496.65, that includes the $5,996.65 interest)
If you put that cash in a 8% annual return investment(such as stock or mutual fund), and withdraw $755 every month, after 7 years, you will still have about $9523 left in your bank. Plus a 7 year old car that could potentially be sold for $5000. So you end up with $14,000s in your hands.
And worst case scenario, if you don't have $56k in your bank, but you can put aside $150 extra on top of you car loan payment, and invest it in stock market with the same 8% return, you will generate about $4800 interest which help you cover most of the $6k interest paid from the loan.
So in both cases, you can enjoy the car you like and have less impact on your financial situation. NO?
Assuming you have $56,500 extra cash in the bank and ready to buy a new car at $50,000 price tag in Ontario.
The dealer offers you 0 down, 84 month financing at 2.9%, which means your monthly will be $744.01 after tax. (which means the total spend is $64,496.65, that includes the $5,996.65 interest)
If you put that cash in a 8% annual return investment(such as stock or mutual fund), and withdraw $755 every month, after 7 years, you will still have about $9523 left in your bank. Plus a 7 year old car that could potentially be sold for $5000. So you end up with $14,000s in your hands.
And worst case scenario, if you don't have $56k in your bank, but you can put aside $150 extra on top of you car loan payment, and invest it in stock market with the same 8% return, you will generate about $4800 interest which help you cover most of the $6k interest paid from the loan.
So in both cases, you can enjoy the car you like and have less impact on your financial situation. NO?
Last edited by Mike Murphy; 10-27-2018 at 09:35 AM.
10-27-2018, 09:52 AM
#41
Please educate me.
Assuming you have $56,500 extra cash in the bank and ready to buy a new car at $50,000 price tag in Ontario.
The dealer offers you 0 down, 84 month financing at 2.9%, which means your monthly will be $744.01 after tax. (which means the total spend is $64,496.65, that includes the $5,996.65 interest)
If you put that cash in a 8% annual return investment(such as stock or mutual fund), and withdraw $755 every month, after 7 years, you will still have about $9523 left in your bank. Plus a 7 year old car that could potentially be sold for $5000. So you end up with $14,000s in your hands.
And worst case scenario, if you don't have $56k in your bank, but you can put aside $150 extra on top of you car loan payment, and invest it in stock market with the same 8% return, you will generate about $4800 interest which help you cover most of the $6k interest paid from the loan.
So in both cases, you can enjoy the car you like and have less impact on your financial situation. NO?
Assuming you have $56,500 extra cash in the bank and ready to buy a new car at $50,000 price tag in Ontario.
The dealer offers you 0 down, 84 month financing at 2.9%, which means your monthly will be $744.01 after tax. (which means the total spend is $64,496.65, that includes the $5,996.65 interest)
If you put that cash in a 8% annual return investment(such as stock or mutual fund), and withdraw $755 every month, after 7 years, you will still have about $9523 left in your bank. Plus a 7 year old car that could potentially be sold for $5000. So you end up with $14,000s in your hands.
And worst case scenario, if you don't have $56k in your bank, but you can put aside $150 extra on top of you car loan payment, and invest it in stock market with the same 8% return, you will generate about $4800 interest which help you cover most of the $6k interest paid from the loan.
So in both cases, you can enjoy the car you like and have less impact on your financial situation. NO?
Long term loans also work well for people like my retired FIL, who has a fixed income and tends to plan in terms of monthly expenses. It makes sense for him to keep his assets as liquid and as income-generating as possible.
10-28-2018, 08:27 PM
#43
Rennlist Member
Yeah, debt is a huge problem and financial illiteracy paired with predatory lending/selling practice is the reason it's a problem.
Most people don't default because they made truly sound borrowing decisions and then fell on unforeseen bad luck. That happens sometimes, but it's actually really rare. Much of these problems are in fact VERY foreseeable.
I love LT financing. Did 0% on a Hyundai (7 years), and recently 0% on a GTI (3 years) - AFTER negotiating the best cash price possible. What's not to like. Then again, I am not ashamed to have a Hyundai or VW in my driveway - I'll let my neighbours have the fancy daily drivers...
Cheers
Matt
Most people don't default because they made truly sound borrowing decisions and then fell on unforeseen bad luck. That happens sometimes, but it's actually really rare. Much of these problems are in fact VERY foreseeable.
I love LT financing. Did 0% on a Hyundai (7 years), and recently 0% on a GTI (3 years) - AFTER negotiating the best cash price possible. What's not to like. Then again, I am not ashamed to have a Hyundai or VW in my driveway - I'll let my neighbours have the fancy daily drivers...
Cheers
Matt
10-29-2018, 10:53 AM
#44
Rennlist Member
10-29-2018, 11:06 AM
#45
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From a different Canadian related thread:
Originally Posted by Brammy
That thread really shows the judgey snobby Canadian side. Who cares how someone acquires their stuff? And it figures the guy who started the thread worked at large corporations getting paid a lot for doing pretty much nothing. So you have a rich guy starting a thread looking down on others who finance .
Typical Canadian arrogance
Typical Canadian arrogance