![]() In my case, it's 428I GC M sport, I would guess it still worth from $15k - $18 roughly after 5 yrs? So you can enjoy the low monthly pay at the same time. Yes, let's say we have more than $18k in the bank just take it invest in index fund with about 5% return each year. I mean-why not just lease, with the intent to buy out the lease at the end of the term. But-unless you are saving money on the balloon financing, and know you can pay it in cash at maturity, I just don't get the point. Of course, a mortgage is much more significant than a car loan. Or-people bought a starter house with the intent of being there 5 years, but then didn't or couldn't move. Then the economy tanked and people were saddled with huge balloon payments with houses under water. A lot of people were opting for this to lower their monthly payments, with the intent to refi in a few years when the value of their house increased. And again, if you are doing it because you can't do the deal unless you have those lower monthly payments, then you are putting yourself in a financial hole.īalloon financing is probably more common with mortgages. ![]() If you are opting for a 5 year loan for the purpose of lowering your monthly payments, and paying $2,000 extra to do it, I don't get that structure. The point of balloon financing is to lower your monthly payments. And financing in this manner costs you $2,000, which eats away at that investment. You have to have that $18,000 in the bank now to "invest" it for the balloon payment in 5 years. The advantage is you can keep the 18000 for now and invest on sth and pay that at the end of the terms. Often though towards the end it will sting you as your car is worth less than the balloon or amount owing.Ĭan you explain abit more? I did calculate both financing methods, the balloon ends up only about $2000 more than the traditional financing. In general people do balloon financing and with a higher balloon % so that they can get into a more expensive car with lower monthly payments. People generally do a higher balloon as this lowers the monthly payments.Īnother thing is some finance companies do a fixed interest rate meaning that if you sell the car before the 5 years you are still liable to pay the full interest for the 5 year contract. You can choose a lower balloon eg 20% and hopefully your car is worth more than this after 5 years. Most people will trade or upgrade after the 5 years but often the car is worth less than the $40k balloon and you end up with negative equity. You finance over 5 years with a balloon of 40% ie after 5 years you will owe $40k on the car. However, in most cases people end up with negative equity.Įxample, car costs $100k. This type of financing is common in Australia.
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