# why is lease with BMWFS better than baloon payment loan



## bmwloverinsocal (Aug 10, 2007)

Hi,

I see a lot of lease enthusiasts here. Is leasing the better way to go if the balloon payment loans are giving interest rates as low as 2% and residuals that are better than given by BMWFS/Dealer? 

I see upside on doing balloon payment loans as youre not restricted to the # of miles you drive and you wont have to pay any acquision fees/ disposal fee etc?

Am I completely missing something very basic here?


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## Harald328i (Oct 21, 2011)

It depends what do you want to do.

My scenario was that I needed to get a car now, but the car I really wanted won't be available until late 2013.

Even paying upfront with cash for the car today and selling it to a private party in two years, cannot beat leasing the same car with currently available sales supported rates.

72% residual and good MF = 0.00195 is hard to beat.


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## Jon Shafer (Dec 15, 2001)

Yes. Balloon payment (option) contract, you are going to pay interest on the whole kit and kaboodle (i.e., the balloon amount),
and end up* paying substantially more in finance charges* than you will "rent charges" for the short term of your BMWFS lease.


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## gbarros (Apr 19, 2007)

Can you just "return" the car with a balloon? For me the biggest benefit is turning the car in without worrying about having to sell it (likely at a loss) at the end. Not to mention the great rates on leases right now, there is no way I could do better on a sale


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## SARAFIL (Feb 19, 2003)

bmwloverinsocal said:


> Hi,
> 
> I see a lot of lease enthusiasts here. Is leasing the better way to go if the balloon payment loans are giving interest rates as low as 2% and residuals that are better than given by BMWFS/Dealer?
> 
> ...


You're missing something big. A lease has a walk-away option. You know upfront what you' be charged for... Wear and tear, excess miles, etc. as long as you comply, at the end of the lease you can bring it back and hand over the keys and walk away. On a balloon, you are required to make that final payment. You can trade it in or sell it, but there is no guarantee that it'll be worth the balloon amount. Lots of people end up "upside down" at the end of a balloon loan and usually have to refinance the balloon and keep the car, or roll negative equity into a new car loan.


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## SARAFIL (Feb 19, 2003)

gbarros said:


> Can you just "return" the car with a balloon? For me the biggest benefit is turning the car in without worrying about having to sell it (likely at a loss) at the end. Not to mention the great rates on leases right now, there is no way I could do better on a sale


No, you can't just return it. You have to satisfy the final payment in some way (payoff, refinance, or payoff-via-trade/sale).


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## Jon Shafer (Dec 15, 2001)

It's a different deal altogether...


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## TXPearl (Apr 16, 2010)

Jon Shafer said:


> Yes. Balloon payment (option) contract, you are going to pay interest on the whole kit and kaboodle (i.e., the balloon amount),
> and end up* paying substantially more in finance charges* than you will "rent charges" for the short term of your BMWFS lease.


You pay interest on the full balance with a lease as well.

If the interest rate/money factor and residuals are the same then lease and balloon are essentially equivalent. I'm assuming the balloon has a walk-away provision.

In TX, the BMWFS balloon (Owners Choice) has some potential tax advantages if you decide to keep the car.


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## TXPearl (Apr 16, 2010)

SARAFIL said:


> No, you can't just return it. You have to satisfy the final payment in some way (payoff, refinance, or payoff-via-trade/sale).


Most balloons that I've dealt with (incl BMWFS's) allow you to return the vehicle just like a lease.

OP, what does your balloon contract state?


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## SARAFIL (Feb 19, 2003)

TXPearl said:


> Most balloons that I've dealt with (incl BMWFS's) allow you to return the vehicle just like a lease.
> 
> OP, what does your balloon contract state?


Nope. You're thinking of "Owners Choice", which is a lease disguised as a balloon for states like TX and IL that have unfavorable taxation on leases. That's why you have a walk-away option. On a "BMW Select" (the only balloon option in the other 48 states) there is no walk-away option.


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## JW_BMW (Oct 3, 2007)

TXPearl said:


> Most balloons that I've dealt with (incl BMWFS's) allow you to return the vehicle just like a lease.
> 
> OP, what does your balloon contract state?


OP is listed as located in California...in California there is no such thing as an Owners Choice contract unlike TX

Owners Choice available in TX and IL allows the buyer to walk away without paying off the balloon payment

BMW Select NOT available in TX... the buyer is responsible for the final/balloon payment...big difference


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## TXPearl (Apr 16, 2010)

Moot point. It sounds like the OP isn't getting a BMWFS balloon.

I stand by my statement above. I've had other balloons that had walk away provisions. Just because "Select" doesn't, you can't assume no one else does. Let's see what the OP's deal is before giving him poor advice (self included).


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## Jon Shafer (Dec 15, 2001)

TXPearl said:


> Moot point. It sounds like the OP isn't getting a BMWFS balloon.
> 
> I stand by my statement above. I've had other balloons that had walk away provisions. Just because "Select" doesn't, you can't assume no one else does. Let's see what the OP's deal is before giving him poor advice (self included).


For a few years in the early 1990's I was Director of Finance and then General Sales Manager of Santa Barbara Chrysler/Plymouth/Jeep/Eagle (3/03-9/05). During my tenure I took huge advantage of Chrysler Financial's "Gold Key Plus" Retail Balloon-Payment Finance product. They used it for riskier customers, and were able to get away with very high (teens) APRs, so we were able to move a million minivans and Grand Cherokees. Those contracts had a walk away provision.


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## Jon Shafer (Dec 15, 2001)

JW_BMW said:


> OP is listed as located in California...in California there is no such thing as an Owners Choice contract unlike TX
> 
> Owners Choice available in TX and IL allows the buyer to walk away without paying off the balloon payment
> 
> BMW Select NOT available in TX... the buyer is responsible for the final/balloon payment...big difference


I haven't checked since my return, but BMWFS switched away from OC contracts a while back as I recall..

In California, it has always been about leasing. Texas is a Personal Property Tax State, and leasing es no bueno there, hence the more desireable OC.


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## bmwloverinsocal (Aug 10, 2007)

SARAFIL said:


> You're missing something big. A lease has a walk-away option. You know upfront what you' be charged for... Wear and tear, excess miles, etc. as long as you comply, at the end of the lease you can bring it back and hand over the keys and walk away. On a balloon, you are required to make that final payment. You can trade it in or sell it, but there is no guarantee that it'll be worth the balloon amount. Lots of people end up "upside down" at the end of a balloon loan and usually have to refinance the balloon and keep the car, or roll negative equity into a new car loan.


Agreed.. there is a risk that it wont sell/trade-in for an amount >= baloon payment amount, but doing some research, it seems like the baloon payments are low enough where your trade-in's would "most likely" be higher. The downside on leasing on the other hand is the fees.. acquision fee, disposition fee, replacing tires, higher interest rates etc.


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## bmwloverinsocal (Aug 10, 2007)

TXPearl said:


> Moot point. It sounds like the OP isn't getting a BMWFS balloon.
> 
> I stand by my statement above. I've had other balloons that had walk away provisions. Just because "Select" doesn't, you can't assume no one else does. Let's see what the OP's deal is before giving him poor advice (self included).


TXPearl, my offer (from penfed @ 1.99 APR) does NOT have a walkaway option. But they get their residuals from NADAguides and are pretty low where it "seems" like you'd be able to trade your car in for higher or atleast the baloon payment amount. Seems like the lower residuals are offset by lower interest rates compared to leases. Would have to sit down and do some comparative math on this..


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## bmwloverinsocal (Aug 10, 2007)

BTW does BMW do any lease/balloon payment loans on USED BMWs?


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## SARAFIL (Feb 19, 2003)

bmwloverinsocal said:


> BTW does BMW do any lease/balloon payment loans on USED BMWs?


Yes on both. The leases are usually not attractive, but the balloon loans are reasonably affordable. Once again, the caveat being the risk of car not being worth the balloon value at the end. Even bigger concern when you are dealing with a 4 year balloon loan on a 3 year old car... you end up with a 7 year old car at the end with no warranty where you might owe several thousand more than you can get for it.


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## neve1064 (Mar 16, 2012)

For me, there was a big advantage to getting a balloon loan through BMWFS because I was able to save considerable amounts of money on my company taxes due to depreciation. It turned out better for me than leasing. I'm looking at buying a second BMW for my company and I want to go this route again: purchase through traditional loan or balloon like BMW select. Perusing rates out there I found PenFed has a balloon loan at 2.74%. Don't know how that compares to BMW select but PenFed is offering 1.9% on traditional auto loans up to 60 months. Does BMW post the "select" rates or just has the calculator to compare between leasing, purchasing and select?

Sent from a HTC EVO


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## BMWofBloomfield (Nov 7, 2008)

BMW Select is an alternative to regular straight financing, not leasing. So if you're going to buy a BMW, by all means take a look at the select option as well. You can enjoy the benefits of having a similar payment as conventional financing with a 25% down payment vs. 0% down payment select financing. You can then use your 25% down towards other things or investments. You also have the option of choosing a lower balloon residual amount (25% of the MSRP for example). This makes exiting the vehicle at the end a non issue (as it's virtually a certainty that a 5 year old BMW is worth 25%+ of the original MSRP).


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