silverstar11909

Hey everyone,

I just wanted to throw an idea out there and see if anyone would agree this would be a good idea. Or anyone that is smarter for me in the finance department.

I know that is is rare, but I have some friends do it on Gt3, or cars they know will hold some value.

During my research, I started to look at 5 year old g wagons. The average price is about 60 to 70k.

I wanted to do a ballon finance on a 19 g wagon, based on the history of these cars. They seem to hold value.

This lowers my payments and gives me room to use my money elsewhere and at the end of the 5 years sell the car for hopefully more then what my end ballon payment or at least walk away.

Does anyone have any bad experience with this or reason not to do it?

thank you

fabbrisd1

Check out PenFed Credit Union - which offers balloon financing - if you are not current-former military/gov - PenFed has two charitable organizations they recommend - a $35 membership in one of those qualifies you for PenFed regular membership... doesn't take huge fee's to join - and they are a very straight ahead credit union..

pdeacon

I think there is less financial risk and less interest cost if you simply lease the vehicle. Remember, with a balloon note you are paying interest on the outstanding balance for the term of the loan. You are also assuming the risk of future value on the unit. If the value at the end is more than the balloon payment, you win. If it is not, you lose. The point is you assume all the financial risk. If you lease, the finance company is assuming the future value risk. If the residual value of the vehicle is less than market you can simply turn it in and walk away. If it is more you can opt for the buyout price on your contract and flip the vehicle yourself. At least you have a choice. I haven't run the numbers but I don't think your payment would be less with a balloon note versus a lease.
I am facing the residual value issue with the lease on my G that matures in March. The buyout at the end of my lease is prox $70K. The wholesale value is about $80K and retail about $85K. To your point, the G has historically held its value. Even better than most MB models. The other reason my deal works out so well is that I received a very deep discount on my unit because of the volume I do at the dealership. This is a good lesson in negotiating the capitalized cost on a lease as aggressively as possible.

fabbrisd1

For a Balloon - you will need GAP insurance to take care of the note in the event your newly purchased G-Wagen is ever totaled - on a G-Wagon lease - "Gap forgiveness" is built-into the lease.

Frankly - on new G's for awhile best price/really for delivery from inventory and/or verified factory order will be MSRP - with most urban markets some dealers on lot stickering on lot "market adjustment of $10K-$15K over MSRP G550's - and "maybe" $20K+ for G63's that have not been released yet .

Yes - G-Wagon leases are not for the faint of heart - Mercedes lease rates are not low - however the advantage of a lease are shorter term commitment - and prepaid maintenance is a good deal/discount when added to the lease.

twist-a-grip

Balloon financing is typically not the best financial decision - do some homework.

JesseRohr

twist-a-grip

I've never done a balloon payment, but the dealer from which I bought my FGT a few years back tried to convince me to do one, so I checked them out. If my memory serves me correctly, the balloon payment will be roughly $70k (50%) on a $140k G550. So you're financing $70k over five years (let's use 4%) - payment is $1289 for that portion, but you have to pay 4% interest on the $70k balloon part as well - that's another $233/mo - a total payment of $1,522. Total interest is $7,350 for the loan and $14,000 for the balloon - $21,350 for five years!!! Finance (at same 4%) the whole $140k and your payment is $2,578 with a total interest of $14,699. So it'll cost you $6,651 more in interest after 5 years for the balloon loan and you still owe the bank $70k. Throw in the fact that balloon financing is typically at a higher interest rate, that interest expense gets even bigger. I can't think of a tax benefit to balloon financing, so I'm not sure why an accountant would suggest it. I guess you could put the $1,000 payment difference to work and make some of that interest back on market gains, but you'd have to do pretty well because you need to factor in cap gains tax as well. When I buy a car, my main focus is the interest - if I think I can do better in the market than a 2-3% car loan, I get a loan, if not I pay cash. I just hate interest, so I think a balloon payment is a bad idea - that doesn't mean it's a bad idea for others.

places

Exactly, great example, do the math. Balloons simply don't work math wise. Not sure about what exact tax(for businesses) or accounting advantages exist, if any. These programs were designed by dealers to get people into cars with lower payments while still allowing the dealers to charge interest on 100% of the principal while only financing half. That's it. Period. Better off financing straight, you will save so much more on interest. Especially on a 130K plus vehicle.

silverstar11909

pdeacon

You are paying the interest on the balloon portion during the initial term of the loan.

iluvspl

I was also thinking of a Balloon option but can't find any dealers that even offer it. You sound like myself, not planning to keep the car more than 5 years. Correct me if I'm wrong but as we all agree these cars hold their value extremely well, probably better than any other MB. So if you do a balloon finance for 5 years your payments are significantly less than a lease and from what I have seen running numbers the final payment due after would still be a good amount lower than what a typical G is valued at after 5 years. To me it seems like a great option assuming it holds its value like G's previously have.

Hodog16

Understand the concept but it can't be that easy right? Wish it were, heck if so I'd go order one tomorrow.

mkirby

my dealer (Canada) officered me the balloon payment option. He said that MB Canada offered it and one the national banks as well. i've decided to go this route. i'll have more details soon as my G is scheduled to arrive in 2 weeks.

ADRENALINE

It’s difficult to advise without knowing the variables at play. Your dealer can provide you with comparative quotes for lease and balloon scenarios. Of course you will need to use the same down payment and term to compare apples with apples. When these quotes are generated in Canada there is a footnote detailing the total cost of borrowing on each. The total cost of borrowing is easy to calculate even if not provided.
It is much easier to make your decision based on a comparison of these side by side scenarios if you debating lease vs balloon. Keep in mind that the buyout at lease end is exclusive of tax while the buyout at the end of a balloon contract is inclusive of tax. In Ontario it’s significant at 13%. Total cost of borrowing also helps you to assess opportunity cost of your money if considering a cash purchase.

I do agree that a lease mitigates your risk in the event of a documented claim for damages but can we really operate in such a risk averse manner ?

I believe that based on the historically high G Wagon resale values balloon is always a strong consideration.

Whatever you decide I know you’re going to love the G.
I am on my 3rd G and it is an absolutely phenomenal beast.

Safe travels!

Hodog16

I looked more into this for fun to see exactly how bad an idea it would be. I will say that pretty much every car or financial website out there says a balloon payment is a bad idea, so there is that.

Mercedes has a financial comparison website, although for the G550 it only uses the base MSRP of approximately $125,000 and it leaves a lot of variables off like state tax, etc.

https://www.mbusa.com/mercedes/portf...ators/by-model

I've used some theoretical numbers for comparison:

Assume $25,000 down payment, $30,000 trade-in, 3.99% APR for both (which is likely very optimistic as I'd expect balloon rates to be higher, but that's the rate PenFed is offering for 60 month balloon although they don't do SUVs)

60 month conventional financing:
$1,280 a month for 60 months = $76,800
Total cost $131,800

60 month balloon financing:
$536 a month for 59 months = $31,624
Final payment $49,800
Total cost $136,424

I think $4,600 additional interest over 5 years isn't bad considering for 59 months one would be paying 58% less and being able to do other things with that money. And almost certainly a 5 year old 2019 G550 with even high miles should be worth more than $49,800.

I guess the biggest catch is if you trade it back in to pay off the balloon payment, there's no vehicle to drive and no trade-in equity for the next vehicle purchase. Using these numbers it would make the most sense to pay off the $49,800 and then either keep the car or trade it in for another one and get more than $50k in trade in value.

Maybe I'm overlooking something else, but this isn't as bad a comparison as I thought it would be.

iluvspl

On the G from the math I have done it does make sense especially if your comparing to a lease. I want to keep the car for 5 years thats it. If you compare the lease payment for 60 months to the balloon payment the balloon is substantially less. We all agree these cars hold their value better than any other Mercedes so I am not worried about the value at the end of the balloon from the figures I've seen. My theory is do the balloon and after the 60 months trade it in like any other car and with how well these cars hold their value you should be ahead of the game If not breaking even and the whole time having a much lower payment than a traditional lease you would have without the mileage restrictions.

ADRENALINE

Yes. Agreed.
I think that’s an entirely reasonable approach.

acmw

has anyone actually done a ballon finance yet on a new g550?

CCP_Gator

Does anybody have any new information on this topic? I have contacted two dealerships and both have quoted rates of around 9% on the balloon payment option. Neither of the dealership had clue as what I was asking about. I had to show them on the Mercedes website.

CL5504Matic

To keep payments low, a similar concept would be to find a bank that finances for 144 months with $0 down.

places

That's a mortgage. Ha.

silverstar11909

everyone made fun of this years ago…. Had to go back and look at it 😂

simandang

If Covid didn’t happen we’d still be laughing at you. 😂😂