From The Daily Mail - Credit Bubble Real Trouble - oldroverboy.

Our investigation found that drivers earning as little as £8,200 a year can walk away with a brand new £12,500 Ford Fiesta, Britain's most popular car.

Read more: http://www.thisismoney.co.uk/money/cars/article-4512474/Loans-let-drivers-minimum-wage-buy-19-000-car.html#ixzz4hLdnDt6V
Earlier this month, reports emerged that The Car Finance Company, one of the country's biggest lenders to people with poor credit histories, may be in difficulty after six of its directors resigned.

But what you may not know is that your lender also charges you interest on the £8,000 you would have to pay at the end of the deal if you want to own the car outright (the so-called balloon payment).

This interest is factored into your monthly bill and charged even if you have no intention of buying the car in full.

And as you're not paying down this £8,000 each month, the interest doesn't shrink either.

This means that you end up paying more interest in total with PCP deals compared with a standard loan.

Edited by oldroverboy. on 17/05/2017 at 17:00

From The Daily Mail - Credit Bubble Real Trouble - SLO76
Of course they charge interest on that balloon payment, you're still borrowing that amount too. All you're doing is deferring repaying that portion of the capital.

I personally recommend taking out a personal loan which will almost always be at a far lower interest (as low as 2.9% APR currently) rate over 5yrs instead of a 3yr PCP for example which are typically 8% APR or higher (often well into double figures on used stock) unless subsidised as part of a manufacturer deal. The monthly payments will be similar (if not then increase the term) and you'll pay less over all plus you have the flexibility of being able to sell the car to pay off the loan at any time.

As a salesman we were put under pressure to sell via PCP because it gave you a hold over the customer when it came time to change plus it typically attracted higher interest and thus higher commission for the garage and salesperson. People rarely negotiated on the finance side of the deal which always amazed me.

Edited by SLO76 on 17/05/2017 at 18:04

From The Daily Mail - Credit Bubble Real Trouble - Engineer Andy

This sort of thing annoys the h*ll out of me as this sort irresponsible lending should not be allowed under ANY circumstances. Its also why, at least up until now, many people have not though much of the Tories despite generally liking many other policies - properly regulating lending so its responsible is not a left-wing approach, just sensible. Many similar issues abound in finance, business and consumer protection/customer service, but they seem to do almost nothing, despite many sensible proposals being mooted.

I just hope (perhaps forlornly) that they will come up with some in tomorrow's manifesto, but I doubt it, mainly because they don't need to to win by themselves (Labour are doing such a nice job for free on that score).

From The Daily Mail - Credit Bubble Real Trouble - oldroverboy.

(Labour are doing such a nice job for free on that score).

But who was in power for the last crash...

Answer 2 lines above...

From The Daily Mail - Credit Bubble Real Trouble - daveyjp
If borrowers can afford the monthly payments its not irresponsible lending.

If the same borrowers don't understand PCPs are only good for making money for the lender its irresponsible borrowing.
From The Daily Mail - Credit Bubble Real Trouble - J.Barton

The crash was suffered globally.

If one political party in a relatively small country was the cause behind the crash then knock me down with a feather.

Seriously though, that's just wrong to blame Labour for a global financial crash and you know it. You may disagree with a parties policies and have a party preference, that's fine. But don't fool yourself into seeing things that aren't really true, blinded by loyalty to an opposing party.

From The Daily Mail - Credit Bubble Real Trouble - SLO76
At the end of the day the person who should know how much they can afford to borrow is the punter themselves and I'm a great believer in personal responsibility. Do we really want to go back to the 60's and 70's when you had a very limited lending market and you had to almost beg your bank manager for a mortgage or personal loan after years of saving with them. You had few other options and borrowing for ordinary working people was very difficult. If you're stupid about your personal finances then you pay the price, it's not up to the state to protect you from yourself.

I don't blame Labour or the Tories for sub prime lending problems and the resulting crash, though Labour should've been prepared for a downturn, free market capitalist economic systems are cyclical, there will always be boom and then there will always be bust. The trick is to prepare for the bust while the sun is shining.

Good economic governance dictates that you should reduce public spending as a percentage of GDP and run a surplus during times of economic growth and do the opposite during a recession to protect the economy as a whole, sadly Gordon Brown didn't do this. He increased spending year after year and even insanely stated to parliament that he had "done away with Tory boom and bust." He should've disappeared down a trap hole after this m****ic statement never to be seen again. You can't do away with the cycle, it is I'm afraid the nature of the beast like it or not. It has to be managed and prepared for. Yet despite this free market capitalism has lifted more people out of poverty than any other economic system yet devised.

I do agree with the actions the Tory Government and the Bank of England took to split up commercial and retail banking arms of the banks afterwards. Risky lending shouldn't leave tax payers liable it should be down to the institutions and shareholders only and next time and there will be a next time, it will be different especially if we keep to the current trend of restricting public spending and return to surplus spending with a longterm view until the next crisis which we will be better placed to deal with as long as Corbyn and the unions don't get anywhere near Downing St.
From The Daily Mail - Credit Bubble Real Trouble - veloceman
Totally agree.
Buyers should take full responsibility for their actions.
We live in a blame society that when things go wrong it is always someone else's fault.
However I do also think credit is too easily available to those who live beyond their means at extortionate rates.
From The Daily Mail - Credit Bubble Real Trouble - SLO76
"However I do also think credit is too easily available to those who live beyond their means at extortionate rates. "

If you restrict the rates by capping them then those with substandard credit rating won't be able to borrow at all. The market is just pricing in the risk and is right to do so. There's plenty of competition for those who've not squandered their creditworthiness away.
From The Daily Mail - Credit Bubble Real Trouble - veloceman
Again you are correct Mr SLO.
But is it right that the poor will always pay more than the well off - therefore always be poor.
As they say. Money goes to money.
Not an opinion, just an observation.
From The Daily Mail - Credit Bubble Real Trouble - SLO76
Again you are correct Mr SLO. But is it right that the poor will always pay more than the well off - therefore always be poor. As they say. Money goes to money. Not an opinion, just an observation.

Plenty of poor folks with good credit scores and an ability to borrow cheaply and there's plenty of wealthy fools with poor judgement and a CCJ or two against their name. The high rates aren't exclusively aimed at the poor, they're aimed at poor lending risks. People should have it drummed into them at school that protecting your creditworthiness is vital. It'll save you a fortune over a lifetime.
From The Daily Mail - Credit Bubble Real Trouble - Engineer Andy

My original point was that some of the lending rules are obviously not either working or correct: you cannot lend more money over a relatively short period than they earn. Whilst I agree that we don't want to go back to the 1970s and before, and that everyone should take personal responibility for their finances, not everyone is necessarily adept at such things, and to varying degrees relies on others for advice - I don't want a 'free for all' where things get out of control, as they did with the irresponsible lending (from the financial firms side) and borrowing (from our side) in the last 20 years. Just like lenders are now supposed to do for morgages, ones who lend for cars etc should do the same 'affordability tests' to see if a prospective borrower can easily afford to pay them back, including the likelihood of them staying in their job (often overlooked in my view).

I'm sure we all have aspects that we feel we aren't good at, however that doesn't mean we are 'asking' for trouble or to be ripped off if we ask for help. We need sensible policies that educates and informs so we can make a reasonable decision ourselves as far as possible, but avoids large-scale rip-offs on those less able, and especially mentally frail people such as some OAPs - some of the things I've seen happen to vulnerable people on the 'Rip off Britain' programme are downright disgraceful.

I wholeheartedly agree that sound personal finances should be a compulsary part of education, including good old fashioned 'home economics' and basic home maintenance to teach kids to cook (more than heating up packet foods and ready meals) and look after themselves and their future homes, saving them lots of £££ that they could spend on deposits for cars and homes, requiring less borrowing and more savings for the proverbial rainy day, something governments and politicians need to take heed of too.

From The Daily Mail - Credit Bubble Real Trouble - Terry W

The credit market - borrower and bank is regulated:

- Government control tends to be heavy handed, reactive, slow and potentially distort the market to the detriment of both borrower and lender.

- it may ensure the foolish avoid taking on obligations they cannot afford to repay. Banks may have less bad debts

The credit market is unregulated:

- borrowers may be driven by foolishness and unrealistic aspiration - ultimately unable to pay their debts.

- banks are unremittingly driven by profit, greed and competion, often trading in products which even the traders don't understand. They will sometimes go bust and sometimes prompt a banking crisis.

Although poor consumer credit deals could be regulated this would not avoid banking crises - most banking business is in commercial and govt bonds, property deals, pure speculation etc.

Thus the thrust of governement action to (a) mandate improved capital ratios and (b) separate casino from high street banking activities are probably right - albeit far too slow in implementation.

From The Daily Mail - Credit Bubble Real Trouble - Chris James

This sort of thing annoys the h*ll out of me as this sort irresponsible lending should not be allowed under ANY circumstances.

If we are talking irreponsible, then it could also be said that its an indication of a reckless and irreponsible Government, encouraging owners of what may be perfectly reasonable older cars, to scrap them for thirty pieces of silver, in order to get into {more} debt in order to lease / hire / PCP a new car!. The majority of people, driving to work in 10+ year old cars aren't doing so through choice, or because they are eccentrics, they are doing so because they cannot afford to buy a brand new car and sadly this is what a lot of naive people / politicians and motoring journalists out there cannot seem to grasp!. Perhaps the car was bought cheaply, perhaps it was handed down to them by a relative, either way they aren't suddenly going to get a massive pay rise or walk into a better paying Job just because somebody offers them £2000 from a Scrappage scheme, it really doesn't work like that. The last time I looked new cars cost a hell of a lot more than £2000, even some low monthly contract hires come with £2490 deposits, so the scheme won't even cover that, even before the 2 or 3 years worth of monthly payments are taken into consideration

However with the current round of scaremongering from the diesel bashing press and polticians, and more recently even older petrol engines now being added to that equation, people with the least disposable income are going to panic and get into more debt, draw me a picture on how you reckon that will pan out!, because in a time of already growing debt and people doing the 0% credit card shuffle just to afford to live, I can only see it ending badly.

So all the scrappage scheme will do, is encourage people to get into debt, by leasing or taking out a loan. Of course its a nice little bonus for those who can afford a new car, but some may say that if that was the case, they would already be leasing a new every two to three years anyway and so the scheme wouldn't apply.

The headline is quite correct, there are plenty of people earning just £8200 a year, and even twice that in some full time work, its still difficult to pay a mortage and also take out a car loan. What the report doesn't say, is how those people are going to get to work, when they are forced to give up their 10+ year old cars, and are also refused a loan or PCP, but it's not down to the press to give solutions is it?, noooo!.

Edited by Chris James on 25/05/2017 at 22:55

From The Daily Mail - Credit Bubble Real Trouble - colinh

This is the Daily Mail belatedly catching up with a story that has been doing the rounds in USA and UK for nearly a year - one of the first reports was in John Oliver's HBO show - search "Auto Lending: Last Week Tonight with John Oliver", if interested. He equated it to the equivalent of the 2007/8 housing credit problems, with the same NINJA (no income, no jobs) loans. Santander USA were recently fined $26 million for sub-prime auto loan practices

From The Daily Mail - Credit Bubble Real Trouble - Avant

" I personally recommend taking out a personal loan which will almost always be at a far lower interest (as low as 2.9% APR currently) rate over 5yrs instead of a 3yr PCP for example which are typically 8% APR or higher...."

As ever, that's got to be good advice. But because of the balloon payment structure, even with lower rates of interest, the monthly payments on a PCP may stll be less than with a personal loan. And that's all that Arthur Punter looks at.

Also, at least if you're buying new, because of the dealer's incentives to take out PCPs, the deal offered may be that much better. It certainly was with both our current cars, and even more so with the three previous Skodas, all on 0% interest.

From The Daily Mail - Credit Bubble Real Trouble - SLO76
Got to agree on new PCP deals Avant, the manufacturers encourage it via subsidised rates often zero percent but used buys are rarely good value via PCP.
From The Daily Mail - Credit Bubble Real Trouble - concrete

I did all the sums recently and concluded that over three years I was better off by a good margin leasing the car. I took into account Cash purchase, Personal loan purchase, PCP and Leasing. Accounting for interest or loss of for cash payment, deposit and depreciation it was really a no brainer for me. I will pay less over three years than the vehicle will lose in depreciation. The dealer however will have returned a pristine vehicle with low mileage which will be very saleable.

ORB thread was really about the possibility of a credit crunch which could catch out those who are overstreched anyway. As ever, there is no such thing as a bad finance deal, only bad choices made by people who do little to understand the contract they are entering into. It seems that if the monthly payment is just about affordable they go for it without any thought to a rainy day. Twas ever thus. A fool and his money are soon parted came into common parlance because of this lack of awareness. Caveat Emptor!!!

Cheers Concrete

From The Daily Mail - Credit Bubble Real Trouble - P3t3r

It amazes me what people will pay for loans when mortgage rates can be a little over 1%. I would be better off increasing my mortgage if I wanted/needed to get another car.

Can't understand why somebody would spend £12,500 on a car though if money is tight.

From The Daily Mail - Credit Bubble Real Trouble - gordonbennet

Well, i make no claims to be any sort of expert in anything, especially finance/economics, i live in a personal era where if you don't have the brass you don't buy something and have no intention of joining the indebted, the roof over your head really the only exception, cos not many can save up enough to buy a gaff outright.

Gordon Brown, leading a party that once long ago represented the working class, left office leaving a national debt of some £750billion.

Now the party masquerading, badly, as the Conservative mob has raised that national debt in 7 years to £1800billion, some economic miracle that.

So as for anyone of the above clown parties or their Lib/Green sidekicks having a handle on the economy, hang on while i laugh maniacally because weeping isn't far off.

The govt have handily come up with this latest wheeze to keep the whole ponzi scheme of credit going by demonising Diesels with their mates in the cities planning to extort huge charges from those who don't toe the line and buy new or nearly new, so legion of buyers are considering changing their cars in order to follow this, the latest instalment in the long running saga of keeping the proletariat paying interest to politician's owners/mates/backers and increasing taxes to the increasingly indebted country in one form or another.

Does anyone else have a feeling of deja vu but with icing on the top, the system seemingly desperate to get people to sign up to yet more credit, whatever fancy name its called, with an economy based almost entirely on a never ending property spiral fuelled itself by constant immigration to keep that housing demand at silly levels, with the impossibly low interest rates helping to stay long past their sell by date by printing more money out of thin air and giving it the fancy name of QE.

Blowed if i'd be signing up to anything, those not near a seat when the music stops are in for an almighty shock once again, it's happened before and sure as night follows day it's going to happen again, sooner than many people think IMHO.

Sorry for my simplistic views here, hopefully someone can tell me how wrong i am and how this utopian dream of my bungalow being worth £500k in ten years, not as it'll do me or mine a bit of good when Chairman May sends me a bill for £450k just before i pop me clogs.

Edited by gordonbennet on 21/05/2017 at 20:33

From The Daily Mail - Credit Bubble Real Trouble - SLO76
"Gordon Brown, leading a party that once long ago represented the working class, left office leaving a national debt of some £750billion.

Now the party masquerading, badly, as the Conservative mob has raised that national debt in 7 years to £1800billion, some economic miracle that."

Bit unfair gb. Firstly the national debt when the Tories came to power in 2010 was £960b and the deficit was a whopping £103b or 9.9% of GDP. As of the first quarter of 2017 the debt has risen to £1.682 trillion but the deficit has halved to £52b or 2.6% of our now noticeably higher GDP. The debt was going to continue to rise as they inherited a massive growing budget deficit from Labour.

Now if we consider what options were available to them. Slashing spending with immediate effect during a global recession was the least advisable. It would've sent massive shockwaves through our fragile economy, unemployment would've surged and tax revenues plummeted. All in all a total disaster.

However, they also couldn't go the full hog with out of control stimulus spending in the same splattergun approach Brown had been because instead of paying down the debt via running a surplus during the boom years he'd increased spending year on year, much of it wasted on huge increases in state employment and pay rises as kick backs to their paymasters in the big public sector trade unions.

The sovereign debt markets were getting spooked and Osborne had to gain their confidence if we wanted to continue borrowing at the low rates U.K. sovereign debt attracts so he talked tough but despite all the anti-cuts hysteria he didn't slash spending at all, instead he restricted the out of control growth in it to allow tax revenues and GDP to catch up. This was by far the most sensible option. Today we have a rapidly reducing deficit and when it returns to a surplus we have a government which has stated its intention to run fiscal surplus every year outside of recession or depression.

The left love to misquote the great economist John Maynard Keynes but one thing they ignore was that even the great advocate of stimulus spending himself stated that the state should be in deficit only during depression and should run a surplus at all other times in preparation for the next downturn when deficit and debt can be used to protect the economy in the short term. He would turn in his grave at the thought of the bulk of the Western world running seemingly never ending deficits in order for politicians to buy power over us with our own money.
From The Daily Mail - Credit Bubble Real Trouble - gordonbennet

Not unfair at all, any fool can borrow monopoly money and throw it about like confetti, repaying the increasingly unmanageable debt left for those who come after, namely the children who will go out and work for a living like their families before them.

You couldn't run a house for long spending more than you earn so why should a country be any different.

I hold a candle for none of the main parties, they are all culpable to a lesser or greater extent in the coming bankruptcy of this country, each one as politicians do blaming the previous lot.

From The Daily Mail - Credit Bubble Real Trouble - SLO76
It's a never ending battle between left and right. The left gain power by bribing people with their own money and the right act responsibly (economically anyway) and are attacked from every side for pushing the notion that the nation should live within its means. The problem is that it takes years, at least two full terms to turn around the mess left by the trade unions every time the get in the door of no 10 and by that time voters seem to have forgotten the damage they did the last time.

What people do need to do before voting however is to ask the question, 'How will you pay for that?' As you say it's all too easy to borrow and spend to buy votes and on the whole it works because people don't ask the right questions. I believe they should be educating the next generation to better understand the economy and public spending because it never ceases to amaze me how many get the deficit and national debt mixed up.

On that note I'm back to motors, I had my fill of politics during the Scottish referendum or neverendum as it's turning into.
From The Daily Mail - Credit Bubble Real Trouble - Engineer Andy
It's a never ending battle between left and right. The left gain power by bribing people with their own money and the right act responsibly (economically anyway) and are attacked from every side for pushing the notion that the nation should live within its means. The problem is that it takes years, at least two full terms to turn around the mess left by the trade unions every time the get in the door of no 10 and by that time voters seem to have forgotten the damage they did the last time. What people do need to do before voting however is to ask the question, 'How will you pay for that?' As you say it's all too easy to borrow and spend to buy votes and on the whole it works because people don't ask the right questions. I believe they should be educating the next generation to better understand the economy and public spending because it never ceases to amaze me how many get the deficit and national debt mixed up. On that note I'm back to motors, I had my fill of politics during the Scottish referendum or neverendum as it's turning into.

A shame some idiots are (for whatever reason) beginning to believe the lies from Corbyn and his nutty mates with their bribes with their own money, borrowed at the cost of future generations who will never be able to pay it back. Just as I start thinking this great nation has come to its senses at last, they revert back to the old 'borrowing and wasteful spending' ways of previous Labour governments.

The naive belief of the younger generation (I'm in my early - mid 40s BTW so do have some recollection of such times) who have never lived under REALLY hard times and Old Labour keep need reminding of what it was like, but in my view is a good indicator why (unlike the Lefties who want the voting age reduced to 16) it would be far better to up the voting age (and all similar minimum age laws) to 21, when at least they are starting to earn money and start to realise things in the real world aren't the same as the paid-for world of college.

You should've put yourself up for parliament in Scotland (I presume you also support the Tories with your vote) as a voice of reason amongst many politicians who definitely aren't.

I would also draw those people above who think that the state should cover our care home fees because we have paid NI and tax may not realise how expensive this can be - probably a minimum (for basic care home facilities for those with no serious health issues other than not being very mobile) of £25k pa, rising to significantly more than £100k pa for those with serious ailments to take car of, due to the extra staff and special facilities required. The younger (working generations) should never pay for older (retired) generations care as that is the definition of a ponzi scheme, even worse now the population is living longer an numbers of OAPs are rapidly growing and the birth rate is low (I'm not advocating that rising - it just makes the future situation even worse).

Other than the Tory proposals (and those of others - see below) on offer, I would strongly advocate raising the pensionable age far quicker - it should be over 70 already, given the life expectancy of UK citizens has risen by over 10 years whilst the pensionable age won't even rise to 66 until 2020, plus roll out a government heatlthy living campaign to stem the money needed to take care of a population that is getting fat and desk-bound, storing up no end of problems later in life that costs £Bns which we can't afford.

I would estimate that, assuming the average person lives at a care home for 5 years when just a bit frial, but otherwise reasonably OK, then another 3 (probably an underestimate) needing higher levels of care, this would cost a total of in excess of £425k - likely more than the entire amount of tax and NI that person (unless very rich) has ever paid into the government coffers. I think its right for everyone who has assets to help fund their own care, although the method the Tories propose isn't perfect and by their own admission is a stop-gap until social insurance can be agreed. I think they are currently being quite generous in allowing everyone to give £100k FOC to their offspring in their wills (after all, it is after they die, not turfing them out beforehand) given the high cost of care, but the comments on today's Letters Page (except those by John Froggatt) are good ideas to build to a next stage.

From The Daily Mail - Credit Bubble Real Trouble - galileo

Years ago on "Yes Minister" there was a proposal to discourage smoking. Sir Humphrey pointed out that "We don't want them to give up, the tobacco tax pays for a lot of things, and they don't live so long so it saves money on State Pensions".

Although meant to be humorous, there was an element of truth in this. Improved life expectancy is one reason the incidence of age-related disease is higher than it was years ago. There is a balance between NHS cost of treating health problems caused by smoking/drinking/obesity and the 'savings' in pension and geriatric care costs because the unhealthy die younger. One wonders if the balance calculation has been done? (don't tell me Governments are not cynical enough to do this)

From The Daily Mail - Credit Bubble Real Trouble - Engineer Andy

What - sort of 'how many pies do you need to eat a week to give you a coronary at 50? and suchlike' A lot of modern health problems are mainly caused by an unhealthy diet, lack of regular (quality) exercise/sedentary lifestyle and the fast-paced modern lifestyle (not just in old age). Unfortunately they are very hard to overcome.

From The Daily Mail - Credit Bubble Real Trouble - concrete

The so called economists always seem to miss the point. Put simpy the National Debt is what the government 'borrows' from us to spend on government services, policies etc. The tax take is supposed to match the debt or vice versa. The defecit is the difference between what you buy and what you sell. You can increase the 'debt' if the tax take increases. Rather like taking a larger mortgage when your pay rises. The deficit is a much more difficult and complex animal to deal with, rather like owing loan sharks it seems one step forward half a step backwards. Like GB I have no love for politicians. Most of whom are not fit to lace my boots while trying to tell me what I should and should not be doing. Overall though my over riding opinion is that the Conservatives always do a better job of managing the economy than anyone else. At the very basic level nothing can be provided for anything unless it is paid for, so we need a healthy economy above everything else or nothing will be achieveable. Sad to say it, but the system we have is the least worst available.

Cheers Concrete

From The Daily Mail - Credit Bubble Real Trouble - Bromptonaut

An article that's typical of the Mail's style. Conflates more than one issue, confusing and contradictory on the facts and loses objectivity to pander to it's target audience.

The big issue, reported elsewhere too, is that the whole set up depends on end of lease values being accurate. If the bottom falls out of the used car market the lenders will have a massive negative equity issue. That applies to all agreements. Borrowers with A+++ ratings will return cars worth less than the finance for the balloon. Defaults are just the cherry on the top.

As to the facts the article states that in PCP the hirer is not borrowing the full cost, only enough to cover depreciation. Thus the deal is £200pcm cheaper than HP. Two lines later, scandalous tone adopted, they're unknowingly paying interest on the balloon as well. The possible demise of a bottom feeding used car lender is a bit of spice; it has no bearing on the risk PCP might pose to lenders.

The other fact issue is that although those of us with eyes, ears and curiosity fully understand PCP - it's not complex - a significant number of buyers are blind to the reality. This was covered at length on the Radio 4 Money Box programme a few weeks ago. People sign up to the agreement then a change of job means extra miles, or less money, and they don't understand they thern have limited options. As a volunteer and worker in CAB I see the consequences of lack of financial education/sophistication on a daily basis. Of course this stuff should be taught in schools. So should the facts about how our democracy and society work. But what subjects give way to make space in the curriculum?

ANd of course the other aspect for the Mail is the synthetic outrage that a youngster, full time on min wage, could theoretically get a nice sports car on PCP. If he's living at home with his Mum and paying £30/week for his keep that might be true. Not so if he has responsibility.

Actually, the fact he can afford a sports car but not the rent on a small flat of his own speaks volumes about what's wrong with UK today.

 

Ask Honest John

Value my car