Finance for uk 1M ers

[biggles]

Hi all, I\'m just doing a bit of shopping around for finance companies that offer balloon payments. After speaking to my dealer, Yorkshire bank and clydesdale bank. The best future value offered is by the dealer (surprisingly) at 18k after 4 years. This sounds very pessimistic to me, has anyone done similar/found better way of keeping the monthlys down?

[kmpowell]

Originally Posted by biggles

Hi all, I\'m just doing a bit of shopping around for finance companies that offer balloon payments. After speaking to my dealer, Yorkshire bank and clydesdale bank. The best future value offered is by the dealer (surprisingly) at 18k after 4 years. This sounds very pessimistic to me, has anyone done similar/found better way of keeping the monthlys down?

£18k!!!!! No way, GFV after 4yrs from BMW financial services is around £13k-£14k. If it is £18k then you need to look at your APR, because it will probably be astronomical, meaning your monthly payment is made up mainly of interest (not equity). APR should be around 8%.

A note of caution here. Clydsdale/Yorkshire Bank offer a "Lease Purchase with Balloon" scheme, it is not a "PCP". This means that the Balloon is NOT a guaranteed future value. APR may be around 7%, but if you haggle BMW will give you a low APR.

[biggles]

Cheers for that. Id better check those numbers they gave me!

[Jezzer]

Originally Posted by kmpowell

£18k!!!!! No way, GFV after 4yrs from BMW financial services is around £13k-£14k. If it is £18k then you need to look at your APR, because it will probably be astronomical, meaning your monthly payment is made up mainly of interest (not equity). APR should be around 8%.

A note of caution here. Clydsdale/Yorkshire Bank offer a "Lease Purchase with Balloon" scheme, it is not a "PCP". This means that the Balloon is NOT a guaranteed future value. APR may be around 7%, but if you haggle BMW will give you a low APR.

Never done this before so dont really understand how this works. How does the the value of the GFV work? are you saying the higher the value the worse this is for the consumer?

[clived]

This really boils down to two things:

1) Do you want to be able to just hand the car back at the end
2) Are you confident that your car will be worth at least what residual value the finance company uses is

If you want zero hassle at the end of the finance term and want to be able to just hand it back, PCP with a GFV is good as it ensures you can just hand the car back. Downside is that the rate might by higher than a lease purchase with balloo.n scheme.

For me, on both my 135i and 1M I went with LP with balloon. It worked out that even as a part exchange (so it could have been even better if I'd have sold it privately) the value of the car was £6000 more than the residual value the finance company had used - so I had £6k deposit for the 1M. I did of course however have no option to just hand the car back - I had to either a) sell it, b) finance the remaining finance or c) p/x it. Of course, given the residual was way lower than the actual value, none of these options were a problem. The issue is if the car is worth less than the residual - however, with LP with Balloon, to protect themselves in case of default, the risuals they use are typically lower than a PCP, so this is unlikely to happen. I view LP with balloon as a good way to save up the deposit for my next car over the period of the deal, or to have paid off a lot of the value of the car should I choose to keep it at the end.

[kmpowell]

Originally Posted by Jezzer

are you saying the higher the value the worse this is for the consumer?

To get down to the nitty gritty of capital v interest in your repayments, think of it this way, for a car priced at £42,000, with a deposit of £2,000:

Total to Finance = £40,000
47 x £750 (your monthly payment)
1x £18,000 (the balloon)
APR 11.7%

After 12 months of payments, you have paid £9000. The settlement figure after 12mths will be £35,965. This means that out of your £9000 paid over the 12 months, you have only paid £4,035 capital. the rest has been interest.


Now look at it from a lower APR point of view, with a lower GFV. For arguments sake I will keep the monthly payment the same to keep it simple (but in most cases the payment will be slightly lower per month)

Total to Finance = £40,000
47 x £750 (your monthly payment)
1x £13,500 (the balloon)
APR 8.3%

After 12 months of payments, you have paid £9000. The settlement figure after 12mths will be £34,200. This means that out of your £9000 paid over the 12 months, you have paid £5,800 capital.


So over 12 months you have saved yourself £1,800 in interest payments alone! Look at how that will look over 4 years, and things start to look very scary indeed!

A higher balloon is not always good, not unless the APR is very low, which in turn will make your payments low. Finance is about finding a balance of all factors. Never fall for the "what is your monthly budget?" question because a finance guy will just work it so the Balloon is higher, which on paper looks good, but as the above example demonstrates, isn't.

[Z4Mr]

Very illuminating summary KMP - many thanks.

Mike

[biggles]

Originally Posted by clived

This really boils down to two things:

1) Do you want to be able to just hand the car back at the end
2) Are you confident that your car will be worth at least what residual value the finance company uses is

If you want zero hassle at the end of the finance term and want to be able to just hand it back, PCP with a GFV is good as it ensures you can just hand the car back. Downside is that the rate might by higher than a lease purchase with balloo.n scheme.

For me, on both my 135i and 1M I went with LP with balloon. It worked out that even as a part exchange (so it could have been even better if I'd have sold it privately) the value of the car was £6000 more than the residual value the finance company had used - so I had £6k deposit for the 1M. I did of course however have no option to just hand the car back - I had to either a) sell it, b) finance the remaining finance or c) p/x it. Of course, given the residual was way lower than the actual value, none of these options were a problem. The issue is if the car is worth less than the residual - however, with LP with Balloon, to protect themselves in case of default, the risuals they use are typically lower than a PCP, so this is unlikely to happen. I view LP with balloon as a good way to save up the deposit for my next car over the period of the deal, or to have paid off a lot of the value of the car should I choose to keep it at the end.

Thanks for that, did you get your LP with balloon from your dealer? Did they try and persuade you onto pcp instead? Can I be very cheeky and ask what sort or rate/balloon/deposit deal you got?

Feel free to either send me a private msg or tell me to eff off!

Cheers

Biggles

[clived]

Not via a dealer (pointless! ;-) ) - Clydesdale!

[biggles]

Originally Posted by clived

Not via a dealer (pointless! ;-) ) - Clydesdale!

Cheers for that.

Biggles