May long weekend is traditionally for camping, gardening, or venturing out for some of the first outdoor activities of the summer. Unfortunately the weather hasn’t been kind to those of us in southern Alberta who were looking to spend some time outside enjoying the long weekend.
So we’re staying indoors and fortunately there was plenty of great reading to catch up on in the personal finance blogosphere. Let’s get to it!
This week’s recap:
On Monday I shared my confessions as a rewards credit card addict and why I’ve scaled back to using one card.
On Wednesday Marie looked at the impact of the new sharing economy.
And on Friday I asked why my car dealer wants to buy back my car.
Over on the Lowest Rates blog I explained how to get the lowest rate on your mortgage.
Weekend reading:
What was the greatest era for innovation? The New York Times takes us on a guided tour of life in 1870, 1920, 1970, and compares those decades to life today.
The Toronto Star explores the possibility that self-driving cars will increase auto-usage and congestion when the young, old, and disabled take up the technology.
An interesting study found that the wealthy in Florence today are the same families as 600 years ago.
On the heels of the costliest natural disaster in Canadian history, the president of the Insurance Bureau of Canada says that too many cities have allowed homes and facilities to be built in areas where they could be destroyed by floods or fire.
Rob Carrick dishes on housing, Millennials, and the state of Canadian personal finance.
What’s the problem with Millennials? This Harvard Business Review article argues that they’re way too hard on themselves.
Kudos to the Alberta government for stepping in and curbing payday loan fees to the lowest rates in Canada. Global TV interviewed several Canadians who became trapped in the payday loan cycle.
What happens when online shoppers return too many items? Amazon isn’t the only retailer that bans customers who return too much.
In his latest podcast Preet Banerjee talks about socially responsible investing with ModernAdvisor CEO Navid Boostani. A couple of robo-advisors have taken up this cause and helped drive down the cost of investing in socially responsible firms.
In another podcast, fee-only planner Sandi Martin discusses how to withdraw from your RRSP and TFSA in retirement (tax efficiently).
A nice set of tips to get wealthy using examples from the classic personal finance book, The Richest Man in Babylon.
Dan Hallett says the mutual fund industry suffers from self-inflicted problems caused by years of fighting investor-friendly reforms.
An opera-singing farm boy turned personal finance blogger writes an open letter to the financial planning industry about the inequality of advice between the rich and poor.
A generation of people who did all the right things by saving and delaying consumption are wondering where they went wrong. Adam Mayers shares lessons from this low interest rate trap.
Vanguard delivers the case for index-fund investing for Canadian investors.
John Heinzl offers a history lesson in stock market returns for critical readers of his column.
Diversification vs. returns. Tom Bradley explains why it’s important to hold bonds in your portfolio.
It’s nice to see that real estate flipping seminars have triggered a warning from the Better Business Bureau. The worst offender is the Rich Dad workshops, which I’ve written about here.
Nelson Smith from Financial Uproar argues that maybe you don’t deserve a 30-year retirement.
I love reading the Me and My Money columns by Larry MacDonald. This one features Michael James (from the blog with the same name) – another stock picker turned indexer.
Switching over to his blog, Michael James shares his thoughts on which way the Canadian dollar is headed.
Dan Wesley from Our Big Fat Wallet offers some DIY vehicle maintenance tips that anyone can do. Hey, you haven’t met me yet, Dan!
Finally, this New York Times article reveals some deceptive and manipulating practices taking place online: When websites won’t take no for an answer.
Have a great weekend, everyone!
Last week I got a letter from our local car dealer (Hyundai) offering to buy our 2012 Sante Fe and giving out big incentives to purchase a new 2016 Hyundai vehicle. I recall opening a similar letter last year. It went something like this:
We want to buy back your Sante Fe.
As you may know we have a certified pre-owned program. There has been a North America wide shortage of good, clean vehicles, in particular the Sante Fe. We have selected you because of your vehicle’s year and service history (Ed. Note: the vehicle has never been serviced here). It turns out the Sante Fe is in high demand!
We can offer you finance rates as low as 0% and rebates as high as $5,000 PLUS you are eligible for an additional loyalty credit of up to $1,500, AND all 2016 new models will be sold at the dealer invoice price!
The deadline is May 31, 2016. With all of these incentives, we are extremely confident that we can help move you into a new Hyundai while maintaining a payment at or below your current budget!
The letter includes an “exclusive PIN code” so I can go online and tell them about my vehicle as well as my desire for “what’s next”.
All of this sounds very exciting but our Sante Fe will be completely paid off in four months and I have no desire to trade it in for another car payment. New car smell may be sweet, but not as sweet as being car-payment free.
Why Does My Car Dealer Want To Buy Back My Car?
So why is our car dealer trying to get us to turn in our lightly used vehicle for a brand new model? Will they lowball my used car and turn it around for a big profit? Are they just trying to drum up new car sales?
I asked a couple of experts to weigh-in on this offer and why my car dealer is trying to buy back my car:
First up we have Natasha Nystrom from the Financial Consumer Agency of Canada (FCAC). She says that Canadians usually trade-in new cars after four or five years.
“This might be one reason why your car dealer is approaching you with such an offer,” said Nystrom.
The auto finance market in Canada has changed significantly in recent years, doubling in size since the financial crisis. What’s more is that the growth of auto loan debt has now outpaced all other forms of household credit, including mortgages.
For more information you can check out FCAC’s recent research report Auto Finance Market Trends.
Ms. Nystrom says that upon receiving such offers, or when looking for a new vehicle, the FCAC urges consumers to spend as much time shopping for their car financing as they do shopping for the car itself.
You can reduce the risks of auto-financing by:
- buying a car that you can reasonably afford.
- choosing the shortest term loan your budget will allow.
- making a larger down payment.
- planning ahead: If you expect that your car needs may change in the near future, carefully consider whether buying a new car is your best option.
- avoiding frequent trade-ins.
I also sent the letter and a few questions to car expert Mark Whinton from CarQuestions.ca. Mark was a little more blunt in his response:
“This isn’t anywhere near the deal you think it is,” he said.
Mr. Whinton says to beware of the incentives being offered. Most likely zero percent financing and a $5,000 rebate can’t be had together; you get one if you finance and the other if you pay cash – no combining.
“The $5,000 rebate would never happen unless you bought the most expensive model 2016, which you’ll never find,” said Whinton.
He broke down the rest of the letter, arguing that dealer invoice pricing is a useless term that means little to customers.
“Dealers get incentives and rebates every quarter on what they sell so there is no way a salesperson will ever know what they make on a car – only the sales manager and dealer principal know for sure what the margins are – they are not $1,000 or $500 or whatever ridiculously small number the sales person states they make on each car.”
I also asked about financing a vehicle and whether it’s best to go through the dealer or through your bank to arrange a loan.
The FCAC’s new online material entitled “Financing a car” speaks to this.
Loan arranged through a dealer
One of the biggest advantages of a loan arranged through a dealer is the convenience, but a dealership can be a high-pressure environment.
Most dealers will make loan arrangements for you with a lender. You can apply for and receive a loan directly in the dealership. Dealers work with various lenders and the lender usually pays the dealer a commission for arranging the loan.
When you visit a dealership, dealers can arrange financing for you with:
- the financing division of a manufacturer
- financial institutions, such as banks and credit unions
- independent finance companies, such as those that specialize in providing car financing
Loan or line of credit from a financial institution
An alternative to a loan arranged through a dealer is a loan or a line of credit obtained by you, directly from a bank, credit union or other financial institution.
If approved, you will be offered an interest rate quote or a conditional commitment. You can negotiate the interest rate and terms with your financial institution.
If you have a strong relationship with your financial institution (you have a bank account, mortgage, credit card that are in good standing), you may be able to negotiate a better rate from your own financial institution.
Final thoughts
A co-worker received a similar letter this week from her Mazda dealer. Curious, she called the dealership to discuss the letter and potentially trading in her 2013 MAZDA2 for a new model.
The car is paid off and my colleague had no intention of taking on another $20,000 loan. Still she ended up spending three hours at the dealership test driving new models and listening to sales pitch after sales pitch.
I’m not interested in becoming part of the statistic of Canadians who trade in their vehicle every 4-5 years. Instead I’d like to enjoy being car-payment free for several more years before we decide to replace our second vehicle (a 2007 Tucson).
What’s your take on my dealer’s offer to buy back my car? Do you toss out the offer, or take the bait?
My condo comes with two large storage spaces. I only need one, so I am able to rent out the other. This type of personal rental method is decades old – from renting a spare bedroom to a university student, providing an unused garage to protect someone’s car, being an enterprising neighbour with a rototiller digging up his neighbourhood gardens, and more.
It’s a short leap toward becoming part of what’s now known as the “sharing economy.” The sharing economy, or peer-to-peer economy, allows owners to rent out something they’re not using.
Fueled by companies such as Uber, Autoshare and Airbnb, an ever-growing number of companies are changing the way we live, work and play. The sharing economy enables individuals to obtain rides, accommodations and a wide range of other goods and services via online platforms.
Technology, together with the convenience of apps and online payment systems to handle the billing, has reduced transaction costs making sharing assets easier, cheaper and possible on a larger scale, and makes it easier to link consumers.
Online reputations
Social networks help build trust by providing an easy way to check up on people with background checks and quality assessments, and online reviews and ratings posted by both parties in the transactions.
Related: How to secure your social media and online presence
In this sharing sphere, online reputations may soon become as important as your credit history.
Upcoming complications?
This emerging model is now big enough for regulators to start assessing it. What about taxes, regulations, and personal liabilities?
Some apartment complexes are not allowing short-term rentals. Uber and Uber X are facing legal fights with disgruntled cab companies.
The sharing economy is stealing market share from traditional corporations and brands, and companies have woken up to it. Some are either buying out or collaborating with the new models.
This is a sign of its immense potential.
There’s lots available in the sharing economy
Airbnb and VRBO (Vacation Rentals by Owner): There are millions of homeowners willing to rent out a room or their entire house on a short-term rental basis.
Related: Three ways to save money on your family vacation
Uber and Uber X: This ride share service allows anyone with a car to become a temporary taxi driver. Tap the Uber X app on your smartphone and it knows exactly where you are and you can watch a clock count down the minutes until the car reaches you.
More Canadians are hiring Uber taxis and renting space through Airbnb, but this model is used in many other businesses:
- You can log into the Tool Library to temporarily borrow any tool you may never need again. Ditto the Kitchen Library for any kitchen equipment.
- Kutoto.com and askfortask.com are online marketplaces for chores.
- Share office and meeting space with ShareDesk and the HiVE. Or use a temporary office when you’re travelling through Regus.ca
- Get inexpensive private parking from roverparking.com
- Dogvacay.com allows your dog to stay in a private home with a loving family.
The fees associated with the transactions are either a one-time rental fee, or monthly or annual memberships.
Final thoughts
“We used to live in a word where there were people and there were businesses. Now we live with a third category, which is people as businesses.” Brian Chesky, Airbnb Co-founder and CEO
There is no doubt that the new sharing economy is here to stay, and will be growing in the future. A recent report by the Ontario Chamber of Commerce finds that nearly 40% of young Ontarians (aged 18-34) are consumers in the sharing economy.
Check out these stats from The Government of Canada on the impact of the sharing economy:
