TL_BLUE

When you do a balloon contract...

If you and the dealer agree on a COST of the vehicle that is 500 over invoice.

Is it normal for the dealer to include the MSRP price in your contract as part of the line items?

I got a deal that is 500 over invoice for a 2008 model, but on the balloon contract and in the negotiations, the dealer is using the MSRP price.

I am putting down 4500 and I'm concerned that the dealer is using that down payment to bring down the MSRP and not the actual Capitalized Cost. So he's using my down payment to bring me down to the 500 over invoice deal. This is just a hunch I have....

Any suggestions? Is it ok to have the MSRP listed on the contract even though the deal is based on an invoice price + 500.

?? thanks guys!!

brahtw8

If you are supposed to be paying $500 over invoice there will need to be a deduction from MSRP included as a line item in the contract, separate from your $4500 down payment. Don't sign anything unless the deduction from MSRP to $500 over invoice is included.

TL_BLUE

Thanks brahtw8 - thanks!

1. This deduction from MSRP to $500 over invoice - it shouldn't come from my down payment or should it? My down payment was towards the $500 over invoice price, not the MSRP. That is my concern here. Please advise, thanks so much!!

2. If the deduction its not from my down payment, how would they account for the deduction otherwise (what is normally done)?

maddogtheta

your downpayment shouldn't be paying the deduction from MSRP to $500 over invoice. Basically what you should end up financing is however much 4500 subtracted from $500 over invoice is. If you're paying more than that then something is wrong.

Bearcat94

1. No

2. For example. The way it's laid out may be different, but you get the idea.

.....Line Item MSRP $38,xxx
.....Line Item Dealer Discount $4,xxx
.....= Gross Capitalized Cost $34,xxx (--> this line should be Invoice + $500.)
.....Line Item Down Payment $4,500
.....= Net Capitalized Cost (= MSRP - Dealer Disc - DP) $30,xxx

They may call their contribution a "dealer discount" or "rebate" or "dealer contribution" or etc, etc, etc. Doesn't matter what they call it, as long as they don't call it your down payment.

black label

Do you realize that a Ballon Payment means that at the end of the contract you will have one final LARGE payment?

Balloon Contracts suck. They were invented by unscrupulous dealers who want to stuff you into a car you can't afford, but not have it get repo'd before they get paid on the contract. Your payment is low due to what Homer Simpsons truck salesman (remember Mr. Plow?) called the CFP or "crippling final payment".

I would be looking at the long term ramifications of signing this type of contract.

chill_dog

Don't know MSRP or $500 over invoice, but using some nice round numbers, it should look like this...

MSRP: $35,000
Discount: $ 4,000
Sales Price: $31,000
Down Pmt: $ 4,500
Amt of Loan: $26,500

EDIT: Beatin' me to the punch, eh Bearcat?

brahtw8

1. No. It should be a separate item. They are discounting the price you are paying. The downpayment should further reduce the discounted price. After subtraction of the downpayment you should be financing an amount that is $4000 less than the invoice price.

2. They can call it a number of thing, a discount, deduction, whatever. It doesn't really matter what they call it, as long as they include the deduction and it is separate from your downpayment.

TL_BLUE

Thanks guys - I really appreciate it! I will report back on this dealer and my deal by tomorrow.

Black Label: You do not have to pay that final balloon payment - you can just return the vehicle as you would a lease. Balloon Payment deals are awesome.

brahtw8

Yes and no. Balloon financing is not inherenly bad or good. If the interest rate is good and the balloon payment is reasonable given the expected depreciation there is no problem.

It is true, however, that this type of financing can be used in the manner you stated and can lead to problems down the road if the balloon payment amount is greater than the value of the car at the end of the contract term.

brahtw8

You can return the car, but if the car is worth less than the balloon payment amount you will have to make up the difference.

That is the difference between balloon financing and a lease. Just make sure the balloon payment is reasonable relative to the anticipated value of the car at the end of the contract.

TL_BLUE

that is correct! the balloon payment should be less than or the same as the value of the car. not more... u guys rock

TL_BLUE

brahtw8, another question for you.

The balloon payment or the residual value of the car after the balloon contract expires. Should it be 53% of the MSRP or the Sale Price?

TL_BLUE

And the taxes, do they get added to the Sale price (500 over invoice) or the amount I am financing?

brahtw8

The balloon payment can be whatever number you and the dealer agree on. If you want to make it a percentage or MSRP or the sale price you can do that.

Residual values in leases are usually set at a percentage of MSRP rather than actual sale price.

brahtw8

That may vary by state. In my experience you pay taxes on the entire amount.

BTW, you are paying interest on the entire sale price, including the balloon payment. You are financing the entire sale price, not just the difference between the sale price and the balloon payment.

camporealer

I think a lease is better than the balloon payment. You negotiate the residual value up front, and you have the option to keep the car if it is worth more or turn it in if it is worth less. Plus (in NY at least) you only pay sales tax on the lease portion not the entire value...

Bearcat94

FWIW - On my TL-S lease in April, the residual was 56% of MSRP. Thats on 36 months & 12,000 miles per year.

TL_BLUE

BTW, you are paying interest on the entire sale price, including the balloon payment. You are financing the entire sale price, not just the difference between the sale price and the balloon payment.

Is this a fact??

brahtw8

Yes. If the amount being financed (after discount and down payment) is $27,000 and the balloon payment is $12,000, you are paying interest on $27,000, not $15,000.

DanL

iTrader: (2)

I always thought balloon loans were used by dealers to get buyers into a car they really can't afford by lowering the monthly payment and eliminating or greatly reducing the amount of down payment required. If a buyer can comfortably afford a standard fixed-term loan, what would be the advantage of going with a balloon? Or a balloon over a standard lease for that matter? From what I've read, balloons end up costing you an average of 2% more than a more conventional loan/lease. I guess if you're pretty good in the market, you could invest the monthly savings and actually come out ahead. But i think most people (myself included) would probably squander it on beer and other essentials.

TL_BLUE

Hey guys,

Got the balloon deal from Acura of Westchester. This was my second time purchasing a car from Acura of Westchester.

2004 - I bought the 2004 TL from them on a balloon payment.
2007 - I just bought the 2007 MDX from them on a balloon payment and I traded in my TL.

They gave me a BRILLIANT deal and were absolutely amazing with everything.

I tried paragon acura and a few others, but none came close to westchester - those guys rock!!

I know this sounds like an ad, but I am just happy with them and when you come across good people who are honest, it should be known and recognized in today's times.

brahtw8 - thanks for all the info and advice, I really appreciate it!!

Thanks guys!! YOU ALL ROCK!

KJSmitty

I haven't considered this type of loan for 20 years yet back when I looked into it, it wasn't really like a lease.

Say you purchased a $40K car and had a $20K balloon payment at the end of 4 years. Yes you would be paying interest for the entire $40K yet your payments (principle) were based off just $20K, thus reducing your monthly payment for the 4 years substantially.. At the end of the 4 years you would have to write a check for the remaining $20K, sell the car, or refinance that $20K "balloon". I just don't remember dealerships taking the car back like a lease etc.. Then again, 20 years ago "leasing" wasn't near as popular as it is today..

Congrats on your MDX TL-Blue!

TL_BLUE

KJSmitty - thanks. I think I will have to change my user name to MDX_Silver

Yes, that's the most attractive thing about balloon contracts is that you can turn the car in just like a lease and not have to worry about the final payment. I don't know why more people don't do this... it works out better in so many ways. For me, I am most likely keeping the MDX after the contract expires, so it will work out either way.

The only thing I regret is that I got side moldings & auto dimming rearview mirror (2007 mdx doesn't come with this). I think the car looks worse with the moldings and I could've done without the mirror - live and learn.

how come we don't have a MDX forum on this great website??

KJSmitty

The old side moldings.... They may grow on you.
- I installed them on my TL. Wasn't completely sure I liked it at first but after a while TL's just looked like they were missing something without them - as in I liked them on... Are the side moldings a dealer installed option like the TL or from the factory?

My wife really likes the new MDX and we would probably already have one in the garage, replacing the Z71 Suburban... Butttttt, the MDX wont quite pull our 6500lb boat/trailer..
I have seen several new black MDX's in town, but not a silver one. I bet yours looks good.

Cheers

TL_BLUE

hey KJ - the side moldings are Dealer installed... I've been really disappointed in my decision to get them. I see other MDX' without them and it looks so much better. I wonder now if I can get them removed and if it would cause any damage if I did that??

As for towing - the MDX can tow up to 5000lb - not enough for your needs, but not bad either huh?

thanks KJ!

TL_BLUE

Another reason why I want them removed now is because they actually cover a great design feature on the new mdx, right under the moldings is a fine, sleek line that comes out a little bit. So the moldings are actually covering part of the sleek design of the mdx. grrr