Follow up from article on BBC R4's Money Box programme.
Student with part time job buys car on 5 year PCP and has struggled to meet £300+/pcm payments. Now lost job and is two months behind and being pursued by debt collectors. Mother complains that stress is ruining family's life.
www.bbc.co.uk/news/business-your-money-48776454
What does the panel think?
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I took out my first finance payments when I was 21 to buy a new motorcycle. At that age I was expected to be intelligent enough to realise my job had to be secure enough to ensure I could afford the repayments over the full term and that I understood the consequences if I couldn't.
Tough on the girl for losing her job, but she knew the score. If you borrow money you have to pay it back.
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Absolutely, she was smart enough to get a place at university, so presumably also smart enough to be capable of basic arithmetic.
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I'm not sure why anyone with a part time job would buy a new car that is so expensive.
Having said that I'm surprised there was no checks to see how likely she is to pay it back. Not knowing anything about car finance, is that normal?
91.2% of new cars bought on finance stood out for me in the article, if I had to guess I'd have thought 70odd %.
Last edited by: sooty123 on Sat 29 Jun 19 at 15:18
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>> 91.2% of new cars bought on finance stood out for me in the article, if
>> I had to guess I'd have thought 70odd %.
I think folks here and in other places report that PCP deals with incentives are so attractive that they're cheaper than price for cash. Folks will take out PCP and then clear it at nil/minimal interest.
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It's all part of an "I want it all and I want it now" culture. If she'd saved £300 a month for a year while making other travel arrangements, that would have bought her a very nice second hand small car with no debt. But people are allowing themselves to be seduced into purchases they can't sustain if their circumstances change, all in the name of image and conspicuous consumption. I don't blame the finance companies for trying to make a profit, but I do blame the gullible for signing up to their agreements without thinking through whether they are buying into something they can cope with. Caveat emptor.
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Totally agree Runfer. Author of her own destiny. Now bleating that its everyones fault but hers aided and abetted by Mother.
She could have bought a very good car at half the price.
Welcome to the real world. Suck it up.
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I think folks here and in other places report that PCP deals with incentives are
>> so attractive that they're cheaper than price for cash. Folks will take out PCP and
>> then clear it at nil/minimal interest.
>>
Probably so, but like I said all the pcp/hp just pass me by. I've only had second hand cars, so it's not really something I follow. But with those numbers there must be something in it or everyone wouldn't going down that route.
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A student in a £20k Audi A1!!!!
Citroen C1s, equivalent Peugeots and Toyotas are about £110 per month on a lease.
Saying that, none of my kids had / have a car at Uni. They couldn't afford it and took the bus, train, dads taxi and pushbike.
Eldest's first car was a pre-reg Aygo with a £500 passing driving test present and £3k loan from me, paid back over 10 months and the remaining £5k saved from her first 7 months at work.
(Personally a second hand one or lease would have been a better choice but she wanted bullet proof reliability and didn't want to worry about scratching someone else's car.)
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I wonder how much the insurance cost on the new Audi? Probably as much per annum as a decent little runaround bought from within her family’s social circle.
I’ve seen it before with my own relatives.....young uns, mortgaged to the hilt, want it new, want it now. Second hand (oops, I mean pre owned) furniture, goods and chattels from family and friends to help with the first home. Nah. Let’s load it all onto cheap or free credit from the likes of IKEA etc
Having had generous offers thrown back in my face my opinion is somewhat jaundiced
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>> I wonder how much the insurance cost on the new Audi? Probably as much per
>> annum as a decent little runaround bought from within her family’s social circle.
>> I’ve seen it before with my own relatives.....young uns, mortgaged to the hilt, want it
>> new, want it now. Second hand (oops, I mean pre owned) furniture, goods and chattels
>> from family and friends to help with the first home. Nah. Let’s load it all
>> onto cheap or free credit from the likes of IKEA etc
>> Having had generous offers thrown back in my face my opinion is somewhat jaundiced
>>
I was so grateful for our in-laws for buying our first bed and my folks for buying us a new washing machine when we got married.
I got the TV in the new years sales six months later (a proper sale where you queued for hours and they had 3 items at a ridiculously low price - a 21 inch Sanyo non-remote TV for £20, a Walkman cassette player for £5 - a gift to my younger brother and a hifi for £30 which went to the next person in the queue.)
Our sofa was second-hand from my folks and we didn't buy a new car for 16 years, though I did get a company car after about 7 years of marriage.
I think my kids don't have the same issues that we did as the country is much richer now and in real terms household stuff is cheaper as standards of living has risen, but they still value money and often see them budget accordingly - like my youngest, who even though I offer to pay for train journeys home from Uni will, without asking, get the cheapest possible fare at inconvenient times (though picking him up from the station at 01:30AM can be a right PITA)!
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With modern media it annoys me when my younger relatives bleat about being short of brass after buying not so cheap flat pack for almost every household piece of furniture.
Where I live we have local ‘Seek and Sell’ groups, ‘Freecycle’ ‘Trash Nothing’ ‘Gumtree’ ‘Facebook Selling’ groups.
When my late Aunt passed away I managed to recycle 95% of her household stuff...even 35yo solid wood decent kitchen units that younger relatives threw scorn at. I delivered them, in a van, at my expense, to a young couple starting out and they invited me back to see the old units after sanding and two coats of furniture paint. They looked brilliant with a scumble effect.
There’s lots of good stuff out there, especially auctions at knock down prices. No need to rack up debt whatsoever. All it needs is patience, a friend with a van or trailer, and a basic understanding of economics.
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>> and a basic understanding of economics.
Yeah, y'see, that might be the root of the problem right there. According to a recent survey 52% of the population struggle with that one...
;-)
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>> >> 91.2% of new cars bought on finance stood out for me in the article,
>> if
>> >> I had to guess I'd have thought 70odd %.
>>
>> I think folks here and in other places report that PCP deals with incentives are
>> so attractive that they're cheaper than price for cash. Folks will take out PCP and
>> then clear it at nil/minimal interest.
>>
I got an extra £1,800 of the MINI I bought last year by doing that, and the MINI replaced a written off SEAT that had a £1,500 ‘deposit contribution’ on top of other discounts. Only cost a months interest in each case, and could probably have been less than that. The SEAT worked out particularly well as LV paid out on the invoice price, which included the discount but not the deposit contribution. That was on the finance docs. They only did that because they couldn’t source a like for like replacement mind you...
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Not a lot of sympathy then. I guess you've all never made a stupid decision in your life that you later regretted.
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Personally, lots and lots and lots CGN. It’s ongoing. I made one two weeks ago, and at my old age I should have known better. Far better.
But none of them involved an expensive car, being a student and debt collectors all in the same situation
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Both my daughters had driving lessons for their 17th birthdays, at SWMBOs insistance (who didn't pass her test until later in life). Fortunately they both passed within a couple of tests.
Agreement was we'd go halves on a car for them. Eldest wanted a Skoda Estelle (public school and she wanted to make a statement), youngest had a Metro. Neither wanted to take them to uni, as insurance at the time precluded driving to and from uni.
When they left uni I bought a Panda 750cc as a second car - they hated it, but if they wanted wheels it was there and I made it clear I wasn't their chauffeur.
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There are a lot worse mistakes to have made in life . At the end of the day it’s a resolvable problem and she will hopefully have learnt a lesson in finance the hard way.
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>> Not a lot of sympathy then. I guess you've all never made a stupid decision
>> in your life that you later regretted.
>>
>>
>>
We all have, but we haven't gone round whining that it was everyone else's fault.
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The girl isn’t “whining”
It’s actually the girl’s mother who is posing the question as to whether finance companies should make basic checks on the ability to pay and I would have thought the answer would surely be yes. Of course the girl was silly to sign up to the deal but surely there should be more checks.
It seems wrong to be allowed to sell credit so easily to the financially naive, or is everyone fair game in your world?
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Anyone with a bit of nous (Like a university student) should be perfectly capable of making their own basic check on their ability to repay.
She wasn't "Fair game", she entered into an agreement knowing full well what the terms and conditions were.
Last edited by: Robin O'Reliant on Sat 29 Jun 19 at 20:20
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Yes she did and she was stupid to do so but the point is should finance companies not make basic checks to see if their client has the wherewithal to pay? You clearly believe not
Seems reckless to me.
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So, you go into a shop, you buy something you can't afford, the price was apparent, is the retailer responsible for your actions? The car retailer apparently offered the finance deal, presumably through a third party, isn't it up to you as the customer, to decide if that deal works for you?
We are not talking about someone with learning difficulties here, on the contrary, someone bright enough to be at university, not everything is someone else's fault, despite our current fondness for blame transference.
Yes, in answer to an earlier question, I've cocked up on several occasions, but I've not felt inclined to fault anyone but myself. This life requires you to look after yourself much of the time.
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CG and Runfer both make valid points.
Proper checks should have resulted in credit being declined. That's why lending is regulated; for the benefit of both parties.
OTOH this isn't a complicated arrangement like a Personal Pension or an Endowment Mortgage. She was presumably shown the usual calculation about amount financed, total amount repayable etc. Anybody capable of gaining entry to a degree course should understand a commitment to pay £3600+ a year for five years is a truckload of money.
If she cannot now afford it then she needs to understand her next steps. They probably involve handing in the keys and negotiating repayments of what remains outstanding but depending on the exact type of finance and how much she's paid there may be other options.
If the lender bent rules then maybe the Ombudsman can help but if he can she's an undeserving beneficiary.
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Yes, lenders do have a regulatory obligation to check affordability. No doubt she could afford it when she took it out.
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A first year student with a part time job a £20K Audi. Total repayment £24K over 5 years was never ever going to end well. Have I made mistakes? Oh yes! But this going to be weapons grade failure
Did she need a guarantor? No thoughts to perhaps property purchase or rent after Uni?
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SWMBO decided many years ago that at least one of us would have a car which was own outright 100%. At present there are four cars on our drive, all owned 100%, with a total value of probably just over £30,000. This means that if our business fails (and who knows these days) then we have some way of getting ourselves to jobs.
Our eldest son has just got a placement job at a firm of surveyors in between years two and three at university. One of the questions asked was if he had a car. He was really struggling to find a position so we are really pleased that he has a job with good company providing excellent training; and even more pleased that he got the job because he is mobile.
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And that is a reality for many just now.
So instead of putting £300 into a bank account every month to save up for a car and not actually being able to get about cos you have no car, why not take out a PCP or even a bank loan (with ridiculous low rates just now) and have a new, reliable car to get you to that job or whatever?
Everyone says cars are poor investments and leasing is the way to go anyway, right? So make perfect sense to someone trying to get mobile?
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"A first year student with a part time job a £20K Audi. Total repayment £24K over 5 years was never ever going to end well."
Of course it wasn't. As I said foolhardy to take it on but financially reckless to grant such a loan. You would think the finance industry would have learnt by now of the dangers of granting credit to those who very likely will be unable to pay. PCP is generating a huge credit bubble which like all such bubbles will not last forever
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A famous businessman once said that it was foolish to own depreciating assets and they should only be leased. That is a fair point but usually that is for a business which if it fails there is no-one who suffers like an individual suffers if he loses his job and cannot afford to pay the lease for the car he needs to get to work.
The best way is to buy a car and then save and save until there is enough money in the pot to replace the first car. That way there is no additional profit handed over to salesmen. Sometimes one can take advantage of a great finance deal (0% or £1,500 off list price if you do a PCP) but usually you can pay off the finance within days of the deal completing.
Put a student getting a £20,000 car on finance is plain stupid.
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Slightly OT I got an email offering me up to £350 cash back (Quidco) for taking out a specific stocks and shares ISA. Doing a little research on the internet, I was surprised to find reviews were nearly all about the cashback and no-one mentioned how the ISA performed, or the reliability of the company offering it. I did find a discussion on it on one of the forums and just one person had gone into the performance etc and concluded it was quite a high risk deal.
Cashback was quite an influencing factor when my daughters came to me with their mortgage renewal suggestions.
Seems to me that people, esp the younger generations (daughters are both low 30s) consistently fail to look behind the headlines on these kinds of thing.
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>>Finance...
A bit like those fixed rate mortgages currently on offer at a really low rate for 2 years with a £1k fee. Add the fee to the interest rate over two years and the true cost can be more than a significantly higher interest rate (unless borrowing shed loads).
I get business people doing it all the time - so and so bank are offering xyz above base / LIBOR which is better than your rate. Look at the charges, sometimes the cost to the business could be 2 or 3 times what we charge - and the advisers tell businesses we are expensive - its only because we don't hide fees!
Some even charge non-borrowing fees - if the customer doesn't take all the money asked for, then there is a fee for that too!
Last edited by: zippy on Sun 30 Jun 19 at 11:27
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Some people are as daft as brushes.
My sis treated her two daughters to a brand new car on their 21st birthday, or perhaps after getting their first job after uni. Some kind of Suzuki things.
They had both moved to London for jobs, neither wanted or really needed a car. They never use them, and both have had major headaches parking them having both relocated a couple of times in residence areas. One car is sitting on the drive of a distant relative's house in North London who is not happy.
I asked her why she did it, spend all that money for very little. I would just shove a few basic perimeters in AutoTrader. Sub £2k, 10 years or newer, fewer than 70k miles, small engine and low insurance and voila, 500 cars to choose from. Kas, 107s 207s, Pandas, Aygos and a ton of others. Something to gain experience in. No. Had to be brand new. And she peed away about £20k instead.
More money than sense. Or no money and no sense in the case of that student.
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>>Brand new cars..
On passing her test last year at 24, my eldest and I had a look at a number of second hand "city" cars up to five years old at dealers and the cost differential between them and a pre-reg one was about £3.5k, plus the extra worry etc with some dealers really taking the mick with what was on offer and pricing.
As she lives about 3 hours away from me on a good run and works regular night shifts, we thought that reliability was important and worth the extra so splurged on a pre-reg Toyota Aygo. It was cheaper than local dealers 2 year old models.
I still maintain that over the likely period of ownership, a lease on a new one would have been better value but she wanted to own it and only be beholden to me for a loan of about a third of the car's value (now repaid in full).
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My parents lent me the money to buy my first car. Brand new! I paid them back with an interest free loan.
en.wikipedia.org/wiki/Ford_Popular
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"Electrics were 6 volts, a provided starting handle often necessary. Rod operated drum brakes, synchromesh only on 2nd and top gear. The boot accessed with a coach key, no heater or demister, semaphore indicators, pull-wire starter, manual choke. No water pump, engine cooling by thermosyphon – this was very basic motoring."
Living the dream, eh Duncan?
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When I got my first job in 1975 I got a bank loan to buy a car. It was for the full purchase price £150 and repayable over a year. It was an eight year old (1967) Ford Anglia and the loan represented 6% of my annual salary. Fortunately all my cars since then have been bought using my own money.
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I've bought three or four cars with bank loans, one on PCP and last two for cash although I did take a very small HP loan on the Skoda which had the 'come on' of two years servicing.
My partner and i were both public sector professionals at the time of the loans and could fully afford them. Obtaining one as a student with only the usual part time shop/waiting/bar or whatever work is folly particularly for something as costly as an Audi.
You really should have a regular salary or at least a dependable wage. Without that it's surprising the dealer allowed it and I'd hope that if any blind eyes were turned people will be disciplined if the default results in a 'stewards inquiry' into the loan.
My son is currently running an 09 Pug 107 and I suspect he'll keep it until it's too expensive or too small. PCP might then be an option but he's got a decent job in the Home Office and his partner's a teacher; student days are long behind them.
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I know it's becoming unfashionable, but I love cars, always have, and despite having had quite a lot of practice, I still love driving.
I've had the use of, or owned lots of them. Fast ones, posh ones, big ones, convertible ones, old ones, little ones and cheap ones, but by and large, I've enjoyed all of them, ( except the accursed Espace obviously)
The thing that occurs to me though, is that there hasn't always been a direct correlation between the cost, age, performance or perceived quality and my enjoyment of them. It was much more a function of what they allowed me to do and experience rather than any nuances of their supposed status or dynamics.
I've mentioned it before, but I've had about as much motoring fun as I'm ever likely to in an old Panda on an epic trans European trip, or just tooling about the country lanes round here in my son's ten year old Aygo.
I loved driving my Westfield, and I enjoy the cosseting I get from my current E class but I also very much enjoyed getting the best it would give out of a base model mk1 Cavalier. My old Land Rover Defender was about as dynamic as a house brick but it became a favourite too because it fitted so well with my life at the time.
I have, on occasion, spent too much on a car, mainly because I'd persuaded myself that was what I should do, and that somehow it would significantly improve my life, but you know what, the expected benefits were rarely measureable and the best cars I've ever had, were the ones when I could easily afford to buy and run them and they unlocked my access to some of life's little adventures along the way.
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That's so well expressed! It doesn't exactly correlate, but it made me think of an interview I saw with the actress Janet Suzman. She was asked what she wanted for Christmas - it was that time of year. She replied "Nothing. I've got to the age where the only thing I want is experiences." It made a big impression on me.
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Owning a car also means that if circumstances change you can change the car. With a lease or PCP presumably it's not so easy?
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>> Living the dream, eh Duncan?
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It didn't have indicators. It was reliable. It would start in the mornings - unlike some!
I wanted them to pay for a Morris Minor - oh bliss!
But they wouldn't. The Ford Popular was the cheapest new car that you could buy in those days.
Last edited by: Duncan on Sun 30 Jun 19 at 17:43
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This student is probably one of those people who bemoans the cost of housing, and how she will never be able to buy a place of her own. Well of course not if she is blowing £300/month on a depreciating asset like a £20,000 Audi! No sympathy. Caveat emptor.
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PCP Trouble - Robin O'Reliant
