# Traditional Finance vs Balloon



## BULLDOG77 (Nov 28, 2007)

I am getting a 2011M3 ED in June. I was all ready to do a traditional financeat 3.9%, putting 10K down. However, my sales rep just metioned balloon financing to me. I only have to put down 1000 and will save $300 a month on payments. I understand that I have to come up with the rest at the end of 60 months or roll it into another car. I guess my question is, does anyone have any experience with this type of financing?:dunno:


----------



## HPIA4v2 (Mar 30, 2006)

BULLDOG77 said:


> I am getting a 2011M3 ED in June. I was all ready to do a traditional financeat 3.9%, putting 10K down. However, my sales rep just metioned balloon financing to me. I only have to put down 1000 and will save $300 a month on payments. I understand that I have to come up with the rest at the end of 60 months or roll it into another car. I guess my question is, does anyone have any experience with this type of financing?:dunno:


You'll need to get the detail of the payments, like 1st .... 48th month (assuming you are doing 4 years finance) and what's left for pay-off; else you may subject to hidden charges. If they refuse to provide the list of payments, well you know what you should do right:bigpimp:


----------



## BMWofBloomfield (Nov 7, 2008)

The lower the rate, the more Select makes sense but, also depends on your financial needs goals. It'll cost you about a $1,000 more overall in terms of finance charges vs. a traditional finance but, that's because you're pay a couple hundred less per month so which is more important to you? Also as an FYI, many supercar buyer do balloon financing (except they pay much higher rates).


----------



## HPIA4v2 (Mar 30, 2006)

BMWofBloomfield said:


> The lower the rate, the more Select makes sense but, also depends on your financial needs goals. It'll cost you about a $1,000 more overall in terms of finance charges vs. a traditional finance but, that's because you're pay a couple hundred less per month so which is more important to you? Also as an FYI, many supercar buyer do balloon financing (except they pay much higher rates).


Ivan, what's the principle differences to lease?


----------



## BULLDOG77 (Nov 28, 2007)

BMWofBloomfield said:


> The lower the rate, the more Select makes sense but, also depends on your financial needs goals. It'll cost you about a $1,000 more overall in terms of finance charges vs. a traditional finance but, that's because you're pay a couple hundred less per month so which is more important to you? Also as an FYI, many supercar buyer do balloon financing (except they pay much higher rates).


well...the buy out at end ofballoon is 28K thats assuming 15k miles per year depreciation...the rate is 3.9 for both traditional and select.

I know it's tough to get financing on a 5 yrold car in general, but how willing is bmw financial to finance the buyout assuming i decide to keep the car?


----------



## Alpine300ZHP (Jan 31, 2007)

BULLDOG77 said:


> well...the buy out at end ofballoon is 28K thats assuming 15k miles per year depreciation...the rate is 3.9 for both traditional and select.
> 
> I know it's tough to get financing on a 5 yrold car in general, but how willing is bmw financial to finance the buyout assuming i decide to keep the car?


Getting a good rate on a 5 year old car that has 60k miles is going to be difficult if not impossible. Also, you need to look at the realistic possibility that interest rates are going to be marginally to significantly higher 5 years from now. Rates cannot stay this low given the overall economic pressures currently in place. I personally would finance the whole car so I know I am only paying 3.9 percent in interest. Lastly, why on earth would you take Select if the rate is the same as traditional financing. The only time Select makes sense is when its .9 percent and traditional is 5-6 percent. That was the case in the end of 2009 and why we saw a bunch of people coming on here asking about the pros and cons of Select. I personally feel that people who are considering Select are better off just doing a 36/15 lease......similar payments without any of the risk.


----------



## erictheman9 (Jun 28, 2007)

Alpine300ZHP said:


> Getting a good rate on a 5 year old car that has 60k miles is going to be difficult if not impossible. Also, you need to look at the realistic possibility that interest rates are going to be marginally to significantly higher 5 years from now. Rates cannot stay this low given the overall economic pressures currently in place. I personally would finance the whole car so I know I am only paying 3.9 percent in interest. Lastly, why on earth would you take Select if the rate is the same as traditional financing. The only time Select makes sense is when its .9 percent and traditional is 5-6 percent. That was the case in the end of 2009 and why we saw a bunch of people coming on here asking about the pros and cons of Select. I personally feel that people who are considering Select are better off just doing a 36/15 lease......similar payments without any of the risk.


If I understand correctly, Select can make a lot more sense in states/municipalities where the taxes on leases are particularly disadvantageous.


----------



## tturedraider (Nov 11, 2005)

BULLDOG77 said:


> I am getting a 2011M3 ED in June. I was all ready to do a traditional financeat 3.9%, putting 10K down. However, my sales rep just metioned balloon financing to me. I only have to put down 1000 and will save $300 a month on payments. I understand that I have to come up with the rest at the end of 60 months or roll it into another car. I guess my question is, does anyone have any experience with this type of financing?:dunno:


I'm not sure of the Money Factors for M3s, but if you're going to consider doing a balloon note you should also consider leasing. There's a very good chance leasing could be a better option.

When you finance a balloon note you pay interest on the balloon for the entire term of the loan.

Here is an excellent calculator that allows you to put in virtually every financing scenario. It is not a lease calculator. http://www.bretwhissel.net/amortization/amortize.html

Here's a good lease calculator - http://www.autoleaseadvisers.com/calc/calc.php

To figure out what the Money Factor is as an actual interest figure multiply it by 2,400.


----------



## tturedraider (Nov 11, 2005)

BULLDOG77 said:


> well...the buy out at end ofballoon is 28K thats assuming 15k miles per year depreciation...the rate is 3.9 for both traditional and select.
> *
> I know it's tough to get financing on a 5 yr old car in general*, but how willing is bmw financial to finance the buyout assuming i decide to keep the car?





Alpine300ZHP said:


> *Getting a good rate on a 5 year old car that has 60k miles is going to be difficult if not impossible.* Also, you need to look at the realistic possibility that interest rates are going to be marginally to significantly higher 5 years from now. Rates cannot stay this low given the overall economic pressures currently in place. I personally would finance the whole car so I know I am only paying 3.9 percent in interest. Lastly, why on earth would you take Select if the rate is the same as traditional financing. The only time Select makes sense is when its .9 percent and traditional is 5-6 percent. That was the case in the end of 2009 and why we saw a bunch of people coming on here asking about the pros and cons of Select. I personally feel that people who are considering Select are better off just doing a 36/15 lease......similar payments without any of the risk.


This information is incorrect. Pentagon FCU is financing 5 yr old cars with 60k miles on them for 3.99% up to 60 months right this very minute. They virtually always have one of the best rates going. A 5 yr old car is not seen as being that old of a car these days. They are willing to finance my six year old '04 330i ZHP with 90,000 miles that I have for sale at 3.99% for up to 60 months and up to $18,000 by their book value.

btw - ANYONE can join PenFed.


----------



## Alpine300ZHP (Jan 31, 2007)

tturedraider said:


> This information is incorrect. Pentagon FCU is financing 5 yr old cars with 60k miles on them for 3.99% up to 60 months right this very minute. They virtually always have one of the best rates going. A 5 yr old car is not seen as being that old of a car these days. *They are willing to finance my six year old '04 330i ZHP with 90,000 miles that I have for sale at 3.99% for up to 60 months and up to $18,000 by their book value.*
> btw - ANYONE can join PenFed.


This is why Penfed is so great (I am a member), but I was talking in more general terms and I think Penfed is probably one of a few banks out there with a rate that good on a car of that age. Here is my real concern...he is not talking about doing a loan on a 5 year old car NOW...he is talking about doing it 5 years from now. I am of the school of thought that thinks interest rates are going to start trending up and deals that are available now will not IMHO be available in 2015. This is why I think he needs to do a lease and forget this whole Select and finance the balloon idea.....there is alot of risk in this type of thinking unless he has 28k parked in a bank account with which to pay the balloon in the event favorable financing is not available. His post seems to indicate he does not....


----------



## Alpine300ZHP (Jan 31, 2007)

tturedraider said:


> *I'm not sure of the Money Factors for M3s*, but if you're going to consider doing a balloon note you should also consider leasing. There's a very good chance leasing could be a better option.
> 
> When you finance a balloon note you pay interest on the balloon for the entire term of the loan.
> 
> ...


They are quite good this month....better than they have been since the market tanked in 2008 (as far as I can remember). New 2011 lease rates for May are 57% and .00230 base rate. That is pretty darn good for an M car.


----------



## BULLDOG77 (Nov 28, 2007)

Alpine300ZHP said:


> This is why Penfed is so great (I am a member), but I was talking in more general terms and I think Penfed is probably one of a few banks out there with a rate that good on a car of that age. Here is my real concern...he is not talking about doing a loan on a 5 year old car NOW...he is talking about doing it 5 years from now. I am of the school of thought that thinks interest rates are going to start trending up and deals that are available now will not IMHO be available in 2015. This is why I think he needs to do a lease and forget this whole Select and finance the balloon idea.....there is alot of risk in this type of thinking unless he has 28k parked in a bank account with which to pay the balloon in the event favorable financing is not available. His post seems to indicate he does not....


I actually do have the cash liquid...or at least close to it. See, my thought was to initially finance the whole thing laying down roughly 10K which would bring me around 1120/mo for 5yrs. If I balloon it, I'm not laying out the cash, saving roughly 300 per month and can essentially use their money for 5 yrs. With a lease, I'd have to drop roughly 3K to get the payment to 950 (or something like that) for 3 years. So...I'm a bit perplexed:dunno:


----------



## KJK228 (May 15, 2010)

I was considering the same thing only with a 335xi Coupe but changed my mind soon after talking with my dealer. Even if you get a good refinance rate after your first term there's a good chance that you will exceed warranty coverage from mileage, time or both so consider the amount of service charges you might incur while you're still financing. 
I also was looking at the fact that it's more affordable over time and that a few g's more in the long run was worth the easier monthly installment. Just check and see what kind of coverage options you have so you don't find yourself paying out of pocket a few bills/g's for new rotors or even worse a powertrain issue during the second term.


----------



## Alpine300ZHP (Jan 31, 2007)

BULLDOG77 said:


> I actually do have the cash liquid...or at least close to it. See, my thought was to initially finance the whole thing laying down roughly 10K which would bring me around 1120/mo for 5yrs. If I balloon it, I'm not laying out the cash, saving roughly 300 per month and can essentially use their money for 5 yrs. With a lease, I'd have to drop roughly 3K to get the payment to 950 (or something like that) for 3 years. So...I'm a bit perplexed:dunno:


I see your logic, but it is really up to you what makes the most sense for your personal situation. Also, will you really want to shell out 28k for a 5 year old car? IMHO I think you are better off leasing the car with 0 money down (or close to it) for 36 months. Save your cash and then decide if you want to buy the car at the end of 36 months. Your residual on a 36 month lease will be only about 10k higher than the balloon amount at the end of a 5 year Select, but the car will be 2 years younger. To me that math makes more sense and you will have the option of ditching the car if you do not want it vs. buying it out if you do want it. I think this is the better way even though you have the money to pay cash when the balloon comes due. At least doing it my way keeps all of your cash free for 3 years and you know you will be able to get good BMW financing on a 3 year old M3 should you decide you want to finance it and not use your cash. Regardless of what you do..enjoy your new car and do what you think makes the most sense for your own personal situation. All us festers can do is give you our personal opinions, but yours is the only one that counts.


----------



## BULLDOG77 (Nov 28, 2007)

Alpine300ZHP said:


> I see your logic, but it is really up to you what makes the most sense for your personal situation. Also, will you really want to shell out 28k for a 5 year old car? IMHO I think you are better off leasing the car with 0 money down (or close to it) for 36 months. Save your cash and then decide if you want to buy the car at the end of 36 months. Your residual on a 36 month lease will be only about 10k higher than the balloon amount at the end of a 5 year Select, but the car will be 2 years younger. To me that math makes more sense and you will have the option of ditching the car if you do not want it vs. buying it out if you do want it. I think this is the better way even though you have the money to pay cash when the balloon comes due. At least doing it my way keeps all of your cash free for 3 years and you know you will be able to get good BMW financing on a 3 year old M3 should you decide you want to finance it and not use your cash. Regardless of what you do..enjoy your new car and do what you think makes the most sense for your own personal situation. All us festers can do is give you our personal opinions, but yours is the only one that counts.


Thanks so much for your feedback...you showed me another persective...at the end of the day, I have a feeling I'm going to do a traditional finance. It's just that when my CA mentioned the balloon he got me thinking...either way I'm finally getting an M3 in 1 month :rofl:


----------



## tturedraider (Nov 11, 2005)

Alpine300ZHP said:


> I see your logic, but it is really up to you what makes the most sense for your personal situation. Also, will you really want to shell out 28k for a 5 year old car? IMHO I think you are better off leasing the car with 0 money down (or close to it) for 36 months. Save your cash and then decide if you want to buy the car at the end of 36 months. Your residual on a 36 month lease will be only about 10k higher than the balloon amount at the end of a 5 year Select, but the car will be 2 years younger. To me that math makes more sense and you will have the option of ditching the car if you do not want it vs. buying it out if you do want it. I think this is the better way even though you have the money to pay cash when the balloon comes due. At least doing it my way keeps all of your cash free for 3 years and you know you will be able to get good BMW financing on a 3 year old M3 should you decide you want to finance it and not use your cash. Regardless of what you do..enjoy your new car and do what you think makes the most sense for your own personal situation. All us festers can do is give you our personal opinions, but yours is the only one that counts.


+1



BULLDOG77 said:


> Thanks so much for your feedback...you showed me another persective...at the end of the day, I have a feeling I'm going to do a traditional finance. It's just that when my CA mentioned the balloon he got me thinking...either way I'm finally getting an M3 in 1 month :rofl:


I think your better off that way than with the balloon. The balloon puts a lot of risk on you. If you want to do something like that leasing puts the risk on BMWFS. One of our members, *mclaren*, compares leasing to buying an option. With the lease you pay the premium to have the option to buy at the end if you decide to, but in the meantime you do not have to bear the risk.


----------

