# Purchase note: does (very) early payoff cost the dealer?



## kck7 (Dec 21, 2010)

I purchased a new BMW last month and took advantage of the $2500 holiday credit and borrowed some money at 0.9% for 36 months (not a lease).

I was told that if I paid off my loan within 6 months of origination BMWFS would charge the dealer the entire $2500 incentive. I feel this would unfairly hurt the dealer so would prefer to nt do this. At the same time I don't like debt in any form and only took on this one to get the $2500 incentive. I know that at 0.9% the cost of this debt is nearly nothing but I still don't like debt. I know, how un-American of me...

A related question: is the loan truly simple interest? When I asked the F&I guy if the loan is "front-loaded" (ie classic amortization) he replied NO, it is simple interest. For example, I borrowed $36000 for 36 months. My payments are $1014.xx, ie $14.xx per month is the interest charge. If I pay it off after two months does it cost me $28.xx and no more?


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## chrisk03 (Jun 30, 2010)

Ah, very interesting. I got a similar line from my dealer about the holiday credit and borrowed money, if I paid off within 6 months, so there must be something to it. It's a moot point for me, however, as I went with my original financing offer of .9% for 60 mos and plan to payoff early anyway, which he didn't mention anything about the "6 month rule" on that. Interest-wise it was cheaper for me to do the .9/60, then again, it would only be about $600 total in interest over that 5 years, so I actually put less money down. I'm usually a stickler for debt as well, but that's nothing in my mind for 5 years of $$.

Yes, I believe you are correct about the simple interest and only paying X dollars for the time you had the loan...ie. they wouldn't charge you the whole interest amount for paying off early. You could call BMWFS to verify if you really wanted to confirm.


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## azmx74 (Aug 31, 2008)

If it's true that BMWFS would charge your dealer for an early payoff, could you pay off ~most~ of it now, and leave a very small balance til 6 mos? For example, pay everything except 6 or so payments' worth so it's done after 6 mos without penalty? Just wondering.


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## [email protected] BMW (Jan 26, 2011)

As far as the dealership being charged back fees from the bank if the loan is paid off too early, that is true. As far as the way the loan is calculated it is a simple interest loan, but as far as I understand the payments are based on an amoritization chart, so you are paying more interest early on. In the long run if you pay it off in six months and you are only paying .9% during that time it is still a good deal for you. Hope this helps.


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## b-y (Sep 14, 2004)

kck7 said:


> I purchased a new BMW last month and took advantage of the $2500 holiday credit and borrowed some money at 0.9% for 36 months (not a lease).
> 
> I was told that if I paid off my loan within 6 months of origination BMWFS would charge the dealer the entire $2500 incentive. I feel this would unfairly hurt the dealer so would prefer to nt do this. At the same time I don't like debt in any form and only took on this one to get the $2500 incentive. I know that at 0.9% the cost of this debt is nearly nothing but I still don't like debt. I know, how un-American of me...
> 
> A related question: *is the loan truly simple interest*? When I asked the F&I guy if the loan is "front-loaded" (ie classic amortization) he replied NO, it is simple interest. For example, I borrowed $36000 for 36 months. My payments are $1014.xx, ie $14.xx per month is the interest charge. If I pay it off after two months does it cost me $28.xx and no more?


You asked the wrong question and, as a result, the answer was misleading. The ~$14 monthly interest is from a fully-amortized loan with the monthly payments equalized over the 36-month life. This is the standard approach, but it is NOT "simple interest".

Here are the calculations from an Excel spreadsheet:

Total amount borrowed	$36,000 
Term of loan (months)	36
Interest rate (APR)	0.9%
Equivalent interest rate on a monthly basis	0.0750%
Monthly principal pmt. $1,000 
Monthly Interest IF SIMPLE INTEREST	$0.75 
Fully amortized monthly pmt.	($1,013.94)

(I'm not a dealer, but I used to teach Financial Management courses.)


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## ard (Jul 1, 2009)

Why do people ASK?

Read the documents you sign!

Please let me know if this is too condescending, or makes fun of peoples' lack of automotive expertise.


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## NotEnough (Nov 24, 2010)

My sales guy said no big deal if paid off after "a few months....3+". The finance guy didn't say anything about waiting so that the dealership doesn't get back charged. We took delivery on a Thurs and refi'd on Sat. After a few months, it probably doesn't make $$ sense to refi as you'll have hardly paid off much of the principle...depends on the difference between the two interest rates.


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## AgentZero (Dec 14, 2008)

kck7 said:


> I purchased a new BMW last month and took advantage of the $2500 holiday credit and borrowed some money at 0.9% for 36 months (not a lease).
> 
> I was told that if I paid off my loan within 6 months of origination BMWFS would charge the dealer the entire $2500 incentive. I feel this would unfairly hurt the dealer so would prefer to nt do this. At the same time I don't like debt in any form and only took on this one to get the $2500 incentive. I know that at 0.9% the cost of this debt is nearly nothing but I still don't like debt. I know, how un-American of me...
> 
> A related question: is the loan truly simple interest? When I asked the F&I guy if the loan is "front-loaded" (ie classic amortization) he replied NO, it is simple interest. For example, I borrowed $36000 for 36 months. My payments are $1014.xx, ie $14.xx per month is the interest charge. If I pay it off after two months does it cost me $28.xx and no more?


I could be wrong (please excuse me if I am), but doesn't the holiday credit mean you take "financing" on the purchased car - not a credit based on the dollar amount of the financing? If you didn't like the debt amount of the total purchase price, couldn't you have paid $X and taken a loan out for the minimum amount BMW FS would allow?


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## kck7 (Dec 21, 2010)

AgentZero said:


> I could be wrong (please excuse me if I am), but doesn't the holiday credit mean you take "financing" on the purchased car - not a credit based on the dollar amount of the financing? If you didn't like the debt amount of the total purchase price, couldn't you have paid $X and taken a loan out for the minimum amount BMW FS would allow?


You are correct as to terms of the offer but individual circumstances can change, as mine have. I financed that amount knowing that approximately that much would become available to me in the early part of 2011 based on investments I had made. In fact the entire purchase was somewhat a result of this. Also of relevance, I bought a medium-equipped X5D, and the financed amount is already considerably less than the purchase price.

I did talk to BMWFS and asked about the dealer getting dinged. They said yes it's true, but would not or could not say by how much or what percentage. I'm not going to concern myself about this any longer.

I consider this topic closed, on my end at least. Thanks to all who responded with actual information and/or relevant advice. Note this does not include the response that was from an apparently very frustrated individual. I am sorry for him in that he has such anger and bitterness, but I accept no responsibility for either. And btw, the information about dealer dunning is not in any of the documents I signed.


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## e30_for_life (Mar 6, 2009)

I purchased a car for my parents yesterday and I vividly recall the finance person telling me that state of Mass. does not allow early payoff penalties. It's hearsay at this point because it might be a federal law... or it might not be a law at all.


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## AgentZero (Dec 14, 2008)

kck7 said:


> You are correct as to terms of the offer but individual circumstances can change, as mine have. I financed that amount knowing that approximately that much would become available to me in the early part of 2011 based on investments I had made. In fact the entire purchase was somewhat a result of this. Also of relevance, I bought a medium-equipped X5D, and the financed amount is already considerably less than the purchase price.
> 
> I did talk to BMWFS and asked about the dealer getting dinged. They said yes it's true, but would not or could not say by how much or what percentage. I'm not going to concern myself about this any longer.
> 
> I consider this topic closed, on my end at least. Thanks to all who responded with actual information and/or relevant advice. Note this does not include the response that was from an apparently very frustrated individual. I am sorry for him in that he has such anger and bitterness, but I accept no responsibility for either. And btw, the information about dealer dunning is not in any of the documents I signed.


with those circumstances you definitely made the right move. i'd go ahead and prepay!


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## nlk10010 (Mar 27, 2003)

If BMW _does_ do a chargeback to the dealer then that's new this year.

When I bought my 550i a year ago last December my CA _suggested_ I take the financing Holiday Credit and pay it back right away. There is no prepayment penalty in NYS and, as I say, my salesman actually brought the whole strategy up. As long as it was OK with him, it was fine with me. I got the $2500 off (I think that was the amount) and paid the loan off after one month, no issues.


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## Eliot (Jul 30, 2007)

BMW requires 3 months and 3 payments. Otrherwise there will be a chargeback. Not sure how much.


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## jmelong (Apr 20, 2010)

Can someone please tell me if paying off the loan amount within 6 months costs the dealer? There is so much differing opinion here, I would like to know the facts.


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## ard (Jul 1, 2009)

You will never know. If I were to say "yes" would that constitute "knowing"? Or if a dealer, known on this forum as working for BMW were to say "yes" or 'no", why believe them?


All that should matter is "is there any penalty to me" for early pay off- and the answer is in the documents you sign.


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## dkreidel (Aug 24, 2005)

I too took advantage of BMWFS' $2500 Holiday Credit on the 335, and the dealer asked me to hold off paying the loan off until after the third payment. I paid the loan off 100 days fromm inception and the dealer was fine.

Dick


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## jkjjpc (Sep 6, 2005)

I have a different angle on this question, so I'm revising this old post.

We took delivery of our new X3 yesterday and turned in our 08 X5, which was leased. We had planned to pay cash for the X3, but there were $750 in charges for the lease turn in that would be waived if we were loyal BMW FS customers ($400 for a small scratch on one of the doors and the $350 disposition fee). We decided to finance the car to avoid the lease turn-in charges and then pay off the loan quickly to avoid much in the way of interest charges, which would negate the savings from the lease charges.

The salesperson said we should make 6 payments before paying off the loan, the finance guy said 4. The BMW FS base rate for the X3 was 4.9%, but the finance guy said we qualified for a loyalty rate of 3.9%. Neither are that great given how little money in money market accounts are earning these days.

We financed for 60 months and did not think to tell him to finance the minimum amount allowed and instead financed the entire transaction amount (so we drove off in the new car without having to write a check). I realize now that was not the best move with regard to limiting our interest cost.

So, how quickly can I pay off the loan and avoid any issues with BMW FS and the waiver of the end of lease charges? I'm thinking that as soon as I get my full deposit back from the X5 that I can pay off the loan? Any chance in that case that BMW FS will try to come back to get their money back?

Also, any adverse impact on the dealer if I pay off in a month or so? This was not like the Holiday Cash program, but I suspect the dealer/finance guy made some money for originating the loan. Since we got the car at $500 over invoice (we've bought or leased a lot of BMWs from this dealer and the sales manager essentially gives us their best possible price without any negotiation), I'm not opposed to them making a bit more on the transaction. If I need to pay a few payments to avoid the dealer getting a charge back from BMW FS, then I could make four equal payments (about $12,000 each) that would pay off the loan. That would limit the interest charge to us and perhaps not hurt the dealer?

Thoughts?

John

P.S. So far we love the new X3. It is very different in many ways from the X5 and so far we are liking those differences. The X5 felt more like a "truck" the X3 feels more like a car. Must softer ride and lighter steering feel, which is OK for us since most of our driving is in the city/suburbs and the X5 really rode rough over the pot holes in DC.


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## ard (Jul 1, 2009)

OMG. Why ask us what YOUR LOAN DOCUMENTS CONTAIN?!?!? Read it.

If you cant read, scan it and post it. I'll tell you then.


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## jkjjpc (Sep 6, 2005)

ard said:


> OMG. Why ask us what YOUR LOAN DOCUMENTS CONTAIN?!?!? Read it.
> 
> If you cant read, scan it and post it. I'll tell you then.


Thanks, that was really helpful. The answers to the questions I asked are not in the loan documents.

Anyone else have any truly helpful advice?


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## [email protected] BMW (Jan 26, 2011)

The dealer does get paid from the bank for originating the loan so if you pay it off early they can be charged back. The time frame of 4 months that the finance advisor told you sounds about right, so if it matters to you that they get there money you need to make at least that many payments. As far as you yourself getting charged I know, at least in California, that BMW Financial does not have any pre-payment penalty. So you can pay it off early and you don't get penalized regardless of how much time has gone by. Hope this helps.


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