off topic: Seeking Balloon Loan Information - PeachParts Mercedes-Benz Forum

DavidWeis · #1 02-13-2003, 05:12 PM

Hi,
I was on the MBUSA site and noticed they have a balloon loan. Can anyone tell me about that. I figure to get into a new mb, you do the balloon for 2-3 years, and then dump the car for a newer one. Does this work? Whats the story?

Thanks

and sorry for being off topic.

David

New2Mercedes · #2 02-13-2003, 07:13 PM

The balloon loan (flex financing) is being touted by dealers as an answer to the lease. It addresses the negative aspect of leasing that no "equity" is built up but also provides a lower payment due to its basis on the expected "residual" value not on the full balance. The higher the residual, like leasing, the lower the payment. In theory, if at the end of the term the residual is $24k and you could sell for $28k...CHAAACHING...go for it...but as was stated the reverse might be true....dreaded NEGATIVE EQUITY, muy mal.

I think it comes down to how long you want to own the car. Since you will want to swap out frequently your best choice will be whichever financing option offers you the least money upfront and a payment that fits your budget since you will not be able to capitalize those funds over a long term ownership. Make sure you sit down with a good F&I manager at the dealer, they can run each scenario for you and you can make an informed decision based on the model you are considering . Remember the car suffers its greatest depreciation in its first 2-3 yrs, about when you would consider a trade-in and that money has to be absorbed by someone and that someone will likely be the owner.

My .02

terminator · #3 02-13-2003, 09:54 PM

David

I am a finance manager with Mercedes Benz. When a customer is deciding to buy a Mercedes I like to find out how long they plan on keeping the car or truck. If you like to get a new car every couple of years then lease. Mercedes Benz leases are not simple interest so if you do a long term lease and want to get out of your car early your buried. So make sure your happy with the car you pick. A balloon is a good way to go if your goal is to drive it for a while and then buy it at the end or sell it a long the way. With a balloon its your car. So your insurance rates should be cheaper than if you lease. With a lease its Mercedes Benz Credits car, you are just renting it, and are required to cary a higher coverage of insurance. Mercedes balloons are open ended except Texas where I believe you have a choice. With a open ended balloon you are responsible for the balloon at the end. I personaly have done both a lease and a balloon . I find it easier to trade out of a balloon. But remember if you set up a lease, its designed for you to stay in it, so its only beneficial if you complete the term. By the way the finance charge is usually less with a balloon because your guaranteeing the residual.

Terminator

02 C240W 13K
89 300SEL 163K
83 300TD 190K

DavidWeis · #4 02-13-2003, 11:13 PM

Hi again,
Thanks for the information.
.
So, can you all please confirm this....If I decided to go with a new mb with a long term balloon, say a 5 or 6...at the end of the term, I have the 'value of the car vs. the value of the loan'.

If the car was worth more than the loan, I'm doing well..
If the Loan is more than the car is worth, I could refinance?

Is this what usually happens?

Thanks

David

2LeftGoofyFeet · #5 02-14-2003, 10:00 AM

Balloons generally help people get into cars at a lower monthly rate, but delays the inevitable. On a lease or balloon, interest is paid on the total amount less a down payment so that's a wash.
A balloon can be set up to make the monthly payment very attractive but the lower the payment the higher the potential for inequity at the end of the period.
Leases are available open end or closed end. It all depends on who wants to take the risk of predicting the value of the vehicle at the end of the lease. The vast majority of leases are closed end where you can simply turn in the car and walk away which could be advantageous. For example: Banks and other lenders took a beating on SUV leases the past couple of years because SUV's have flooded the market and resale values have dropped significantly. The residuals the lenders used at the beginning of the lease on SUVs were too high and they got caught holding the bag. My company leased a SUV that ended up costing the bank about $6,000. Lease rates on SUV's have climbed considerably lately for this reason.
With a balloon, you are responsible for the outstanding amount at the end of the term. If the car is worth more that the balance due at the end of the term, your ok. If not you're upside down and you'll have to come up with the cash or have to borrow again to keep the car. Another whammy you'll encounter is a lender will not loan you the car's full value. They typically will lend you about 80% of the cars value or use NADA loan values.

terminator · #6 02-14-2003, 10:11 AM

IN SOME CASES THE CAR IS NOT WORTH THE BALLOON AT THE END OF THE TERM. BUT THAT ALSO DEPENDS ON HOW YOU TAKE CARE OF IT. I DON'T BELIEVE THERE IS A 6YR BALLOON AVAILABLE. IF YOU ARE GOING TO KEEP THE CAR, BALLOON IT, MERCEDES BENZ CREDIT WILL GIVE YOU THE OPPORTUNITY TO REFINANCE IT AT THE END OF THE TERM. BY THE WAY, THE BALLOON RESIDUAL IS THE SAME AS A 15K A YEAR LEASE RESIDUAL, SO MERCEDES SEEMS TO THINK THATS WHAT IT WILL BE WORTH AT THE END.

TERMINATOR

02 C240W 13K
89 300SEL 163K
83 300TD 190K

terminator · #7 02-14-2003, 10:16 AM

AS A NOTE, MERCEDES BENZ CREDIT WILL REFINANCE THE WHOLE BALLOON AT THE END OF THE TERM.

TERMINATOR

02 C240W 13K
89 300 SEL 163K
83 300TD 193K

G-Benz · #8 02-14-2003, 11:16 AM

I've recently refinanced the balloons on both the ML and SL I currently own. Both were financed by MBCC.

I refinanced the ML balloon after the 47-month term to keep the payments low, and because of the advantageous interests rates these days, was able to refinance the balloon with MBCC for a lower rate. My balloon was a bit lower than the value of the ML, but not much. My new payments are about $50/month lower too.

The SL was a different story. I purchased it used and took a steep interest rate hit as a result. Could barely swing the balloon option on that car, and even those payments are tough. Being older, the SL depreciation curve was much steeper than the ML, so I was into negative equity once I left the lot!

MBCC policy allowed us to refinance after 2 years, and the payment now is about $30/month higher. But the balloon is no more, and the interest rate is much lower!

The truth is, if I were to sell any of my MBs now, it wouldn't be a profitable option. I would only recommend this route for someone who wants to keep their cars for a long time...and I do!

What the balloon did was allow a working stiff like me to own a fleet of MBs that would normally be reserved for more affluent individuals...

DavidWeis · #9 02-14-2003, 03:18 PM

Wow. This is getting more interesting as we go. As it stands right now, I'm very interested in keeping the car for at least 5 years, if not for 10.
The Balloon looks like it can get me into the models I really want but can't afford.

Can you tell me if MBCC balloon's their starmarked cars?

Thanks

David

G-Benz · #10 02-14-2003, 03:20 PM

My SL was starmarked. And yes, I ballooned it thru MBCC...

terminator · #11 02-14-2003, 09:21 PM

All Starmarked cars and trucks can be ballooned thru Mercedes Benz Credit.

The rates are competitive with new Mercedes balloons.

Terminator

02 C240W 13K
89 300 SEL 163K
83 300 TD 190K

terminator · #12 02-14-2003, 09:52 PM

I will agree you should think carefully before you commit to anything. But one should not be afraid to explore the unknown. If I skipped on everything that some people wanted me to, I would only have half of what I have today. Its funny when your ready to go to the next level in life, one usually finds a way to keep things going and succeed. Yes do think twice about anything that you do, but don't be afraid to do anything!

Terminator

02 C240W 13K
89 300 SEL 163K
83 300 TD 190K

blackmercedes · #13 02-14-2003, 11:48 PM

There have been some excellent points made. You should ensure that you have some financial stability, and you should really try to purchase "below" your income level, instead of well above.

When we bought our first new MB, the 1998 C230, we qualified for financing in the range of $100,000 for an automobile lease. We could have leased a new S420 or E430 without any problem. However, the $1000+ lease payment took away some flexibility in our lives. Instead, we bought the C230 for $42,000 and paid it off quick. About 3.5 years ago, our daughter was born, and plans changed. I quit my job, and we lost 75% of our income. But, we could do this. Our car was nearly paid for, our mortgage is small, and we have no consumer debt.

If you tie yourself into financing a car for 7-10 years, you better do the best job you can to see that far into the future. I can't, and so we don't.

Today, we're car shopping for my wife. She LOVES the Infiniti G35 Coupe. But, it's $45,000. We would need to take on a car payment of about $700 a month after a substantial down payment. Now, we can afford it (our mortgage, taxes and insurance is well under $1K) but I'm not sure is we want to. Suppose we have another baby and want to have both of us home for a year? That $700x12 = $8400. That's $8400 additional bucks we have to find to have that year off. Yikes!

On the other hand, if I was 25 and making $100K+, I might lease/ballon payment a new SL500. It would be a blast! Ask me about the Porsche 911 Turbo I used to own...

DavidWeis · #14 02-18-2003, 03:23 PM

Well, I have to agree that you'd want to think long and hard about buying !anything! that you'd be paying off for 5-7 years. And that I will.
.
What I find most interesting, is that I can balloon a starmarked used car. For me, that is the option and the way to go when, and only when, the decision is made to upgrade my existing set of wheels.
.
Though I would love to, I can't afford, or justify spending 60K on the 320 E with all the options!..Besides, the 320E doesn't have the nav system for some reason.?!?! and I really want a nav system!!.
.
So, what I'm looking for is a newer model 30-35K car with 40K miles and a 3 year starmark with lots of options and power. Again, when I decide to do the thing, having the option of keeping my payments under $200 vs. $450 (with large downpayment) will really make the decision easier.
.
So, thanks so much for all your help!
.
David