In the case of a TRX, you are correct that a balloon loan will require payment of the complete sales tax amount, where-as a lease buyout would reduce you total tax liability (in most states). This is not ideal for a flip situation, because it reduces your profit.
However the balloon loan is a great option to hold a TRX for a year or two. It will have a much cheaper payment then a lease or finance (because of the strong RV) and you will still realize positive equity on the backend sale.
The primary objective is to yield the lowest possible monthly payment to maximize monthly cash flow. In some cases, the total TCO maybe higher, since the interest rates on the balloon loans tend to be about 1% higher then the best conventional financing rates. However, when comparing a balloon loan to captive financing rates (like CCAP), the TCO will generally favor the balloon loan program.
When I use the calculator I dont see RV .
Isnt this suppose to show you a RV once you finish the term lets say 60 or 72 months.
What is MRM value in this calculator. MSRP?
Edit: If one wants to refinance an existing loan with BL. Not a lease but one owns the car through some other bank. Will the sales tax need to be paid again on the full value ? I guess not.
The AFG calculator obscures the RV, but you can figure it out by using the balloon loan final payment calculator as I describe in the original post.
The MRM is the market value of the vehicle AFG has established. How well the MRM compares to the MSRP goes a long way to determine if a balloon loan is a good choice for a given vehicle. The best balloon loans have the biggest gap between MRM and the price you actually paid
You only pay sales tax once. If you are using a balloon loan to refinance an existing conventional auto loan, no additional tax collection is usually required. Note that most program would apply used car rates in this scenario
See my comments on MRM. AFG only updates MRM pricing once a year, so often, as we get to the end of the year, there can be gaps, especially where the original manufacturer may have implemented MSRP changes. The other issue with AFG MRM it is doesn’t not always factor in the proper value of options, so generally the most favorable MRM are on trims which don’t have alot of additional options. Where you can find a favorable MRM will go a long to to a favorable balloon loan outcome.
At the end of last payment the amount left is due.
Its not like lease where one can walk away or buy the car at the buyout price. With BL one can not walkaway he has to pay the final amount to buy the car. That point it could be underwater or could be not. Safe to try selling before the final payment is due and it has some equity to make a profit.
Good thing is one can sell anytime during the length of loan.
I know this structure, with a large DP, will not be for everyone, but here is how I am financing my “keeper” Tesla MYP with Americu
Vehicle: Used 2021 Tesla Model Y Performance
Options: Full Self Driving, Rear Air Condition
Purchase Price: $69,000
Down payment: $32,500 (LTV ~53%)
Amount Financed: $36,500
Mileage: 7500/year
Current Odometer: 20,000
No gap coverage
No credit life coverage
No credit disability coverage
No unemployment insurance.
Payment $238 for 24mo
Final Payment $33,136.43
Total Interest after 2 years ~$2400
I have 1 Tesla MY23 RWD on order. NO FSD, $49940 including all fees. Expected delivery Nov to Dec.
I dont see 2023 year on the calculator only 21 and 22. Thinking to get Tesla finance and move to BL payments within a month. I dont keep cars for more then 3 years. Wishing to get delivery in 1/23 to get some EV credit…Looks like the dates are moving for earlier delivery rather later delivery. Maybe too many cancelation of existing orders.
For those wanting to apply at CapEd, they will start pulling Experian scores on 9/1. Currently pulling TU FICO 9. The also mentioned they match standard written/approved rates from other competitors.
My perspective is, I already paid cash for the car, so I am looking at getting $36.5K back and the only impact is a $238/mo hit to my cash flow.
It’s not that different then a lease one-pay. I’m basically paying most of the interest and principal for the term up front, which dramatically lowers the payment.
If you were to calculate my effective payment (32*20 + 238) it yields $878 with $0 DAS which is still “much better” as compared to a Tesla lease and “about the same” as an 84 mo conventional loan.
But why not just finance $32k and make a large down payment to begin with?
Because this minimizes cash outflow even though its costing slightly more interest while still betting on 24 month value to leave you with positive equity?
Also, if I’m not mistaken, it seems like all the AFG calculators on the balloons are using old rate info. The calcs have 3.5% for the balloon rate and I believe now the rate is at 4.5%. This is based off this months AFG hot sheet which says that monthly prices are calculated based on 4.5%.
This exactly. The difference in interest between balloon and conventional is not that great, but the payment is almost 50% less.
The AmeriCu calculator rates are accurate, I’m about to close my 2nd loan with them. I have found the rate is set by the credit union and not globally by AFG. I think they are just using an “industry average” in the hot sheets.
Yeah it was 83.4K at the time of order in January 2022, but had a few price bumps along the way, and no price protection from the dealer I ordered at (Chapman)
Americu & CapEd ballon rates are very competitive with conventional financing, but the lowest conventional rates from Parsons or Fedchoice (under 2.5%) will work out to a lower TCO as compared to the best balloon options. If you are all about TCO, go with Parson/Fedchoice for 84 months. If you want to trade a lower payment for a slightly higher TCO, go with AmeriCu/CapEd.
FYI-- I will almost always refinance into a balloon loan now. This just eliminates the time dependency which comes into play when buying a hot vehicle.
2022 Jeep Wranger Willys 2door Link
2021 Telsa Model Y Performance Link
Both of the above are with AmeriCu.
Prior to these, I had a Model Y w/ PenFed and a Model S w/ CapEd.
The MRM is $79K so you need to get your total amount financed as far below that as possible, which seems difficult, given the MSRP and discount structure. One of the downsides of this program is that AFG will only update MRM once a year, since we are towards the end of year now, we can see gaps where the manufacturer increase MSRP but MRM did not.
