Balloon Payments/ Residual based financing

[Jon]

@trism

I’d still want to save the finance charges if the amount was large enough.

You are borrowing more than just the anticipated depreciation, so the $20k payment in your example won’t eliminate all the finance charges.

[HersheySweet]

Briefly, I’ve been doing some snooping with them and similar products from credit unions.

As @trism said, I think they’ve been quietly axed.

[trism]

No, but the single upfront payment should reduce the finance charges.

I’m assuming that I’d be paying the APR on the “residual” over the entire term the loan is outstanding.

[trism]

What are the chances I can get someone at PenFed to send me a sample note to review?

Before you answer:

PenFed Benefits - Up to $2000 AUDI MB FCA JEEP (usually $500 towards leases)

Is any one having issues actually getting the PenFed lease incentive? Here’s the history with my MBI policy. My mortgage experience was even worse than this: MBI Purchase Chronology: 09/??/18: Inquired by phone about coverage, cost, etc… They only accept payment by debiting a PenFed account or a charging a PenFed credit card. Was told that the MBI policy arrived by email 24-48 hours after purchase. 09/??/18: Called back to make the purchase. Out of caution I asked if using my PenFed cre…

[j_e_f_f]

@trism

No, but the single upfront payment should reduce the finance charges.

I’m assuming that I’d be paying the APR on the “residual” over the entire term the loan is outstanding.

As best as I can tell this is correct, …on a balloon you pay finance charges on the total loan amount.

Looking at the PenFed calculator, the loan amount minus total monthly payments is always a lower number than the balloon amount, meaning the balloon is accruing interest as well.

So if you did a $60k balloon and immediately paid $20k as your first payment, the loan would then be accruing interest at $40k * APR for the remaining months, as opposed to $59.5k or whatever * APR.

[mllcb42]

@j_e_f_f

Unlike a lease where you typically only pay finance charges on the depreciation amount

How do you figure?

[j_e_f_f]

@mllcb42

How do you figure?

Sigh, it’s been way too long since I manually calculated one of these…

[mllcb42]

Rent charge = mf * (adjusted cap cost + RV)

The adjust cap cost and the RV are summed as part of the running average, as the rent charge amount is a finance charge of the average “loan” amount as it decreases from the adjusted cap cost to the residual value. It’s a bit easier to see if you decompose the mf with the 2400 factor to convert to equivalent APR.

[j_e_f_f]

@mllcb42

The adjust cap cost and the RV are summed as part of the running average, as the rent charge amount is a finance charge of the average “loan” amount as it decreases from the adjusted cap cost to the residual value.

No I gotcha, just a morning brain fart, for some reason I had it in my head that it was CC minus RV, not plus, hence it’s been too long…

[mllcb42]

I figured you were on board, but added the rest for the digestion of others in case someone comes across this while searching.

Ha! That’d be the day.

[max_g]

Not the answer to the question you asked, but if it’s a MB/BMW/Audi etc CPO keep this in mind: even with low mileage you’re potentially looking at a ton of depreciation on a MY18 or newer model.

Penfed allows only the last two model years for this program so pretty soon MY19 will be the oldest you can get

[trism]

Fair point, and that’s on my radar.

I was actually thinking about getting something with relatively high mileage for its age, since I’ll add so few miles to the odometer.