Financing a large purchase such as a new car, supercar or exotic vehicle is a fantastic way to get the car you want sooner, so long as it's done correctly. In recent years finance costs have gone up though, and Supercars of London has explained why.
Unfortunately with everything going on this year, supercar ownership costs have been impacted thanks to the changes in the financial sector. Banks are now being more conservative with their loaning, and these costs have been passed on to those financing their latest purchases.
But just why exactly are costs going up for people financing their cars in particular? In his September 8 video, YouTuber Supercars of London (Paul Wallace) broke down this change in financing tactics for his subscribers to explain the situation a little better.
In essence, banks are now being more cautious about the potential future values of supercars in particular, though it does appear to be affecting more 'everyday' cars too.
Lenders are taking a 'cautious' approach
This means that whereas a bank would've previously put the residual value of a supercar at $150,000 they may now take a cautious approach and value it lower. Archie Hamilton says lenders are valuing cars "up to 20, 30 percent less" than their typical valuations.
For Paul, this meant that a typical quote for a potential purchaser on his Murcielago was coming out "around £450 per month more [than before] even with a bigger deposit."
By predicting that a car will be worth a lower value than before at the end of your finance agreement, finance payments work out at more per month, as the cost of the finance agreement takes into account this lower residual value.
Clip starts at 5:14
It could benefit consumers "in the long run"
Paul used a Lamborghini Aventador in the video as an example. "This Aventador is up for £219k ($285k) before [everything that's happened this year] the lenders might've valued it in four years at £150k, now lenders are saying it'll be worth £120k, so you're paying £30k more on finance."
This means that monthly payments will be higher, but it could actually benefit those taking out finance agreements in the long run, a theory that Paul agrees with, saying it could be "better for the consumer in the long run."
Since the bank or lender is valuing your car lower, at the end of the agreement (usually around 4 years) the 'balloon' payment at the end to purchase the car will be lower.
Archie actually sums up Paul's speech perfectly: "So what you're saying, its a lot harder to jump into supercars than it was before" to which Paul agreed, saying he had "hit the nail on the head."