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Help understanding Balloon Finance

This is a discussion on Help understanding Balloon Finance within the Mercedes CLA Canada forums, part of the Mercedes-Benz CLA World Forums category; Hi hoping some of the sales folks can help me understand something. Here's what usually happens. I buy a car (CLA45) for a few years ...

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    Veteran G4M3R's Avatar
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    Help understanding Balloon Finance

    Hi hoping some of the sales folks can help me understand something. Here's what usually happens. I buy a car (CLA45) for a few years and often like to return it. So typically I'm not adverse to leasing. I'd like to consider keeping the CLA45 (I may be kidding myself here). At the end of the lease, I have the option to return it or buy it out.

    So why would someone do a balloon finance - I understand there's a lower interest cost in the term. But I essentially am obligated to the amount at the end of the balloon finance term. More risk in my eyes vs. leasing where I have the option to walk away.

    Can someone explain if there ever IS a good reason to balloon finance?

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    Quote Originally Posted by G4M3R View Post
    Hi hoping some of the sales folks can help me understand something. Here's what usually happens. I buy a car (CLA45) for a few years and often like to return it. So typically I'm not adverse to leasing. I'd like to consider keeping the CLA45 (I may be kidding myself here). At the end of the lease, I have the option to return it or buy it out.

    So why would someone do a balloon finance - I understand there's a lower interest cost in the term. But I essentially am obligated to the amount at the end of the balloon finance term. More risk in my eyes vs. leasing where I have the option to walk away.

    Can someone explain if there ever IS a good reason to balloon finance?
    Ok basically heres what baloon financing is. Its basically financing the car with low lease payments. From what I know you can finance the car for up to 48 months using baloon financing. After those 48 months you have 3 choices. Pay the baloon off using cash, finance the baloon amount, or you trade the car in (The trade in value is higher then the baloon usually so you get the baloon paid off and you get some down payment already for your next car) and get a new car. I'm baloon financing the car because I like the low monthly payments (It also allowed me to get a fully loaded 45 instead of a Basic one), and because I plan on switching cars every 4 years so its perfect for me.

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    Have you gotten the rates for finance vs. lease yet? My dealership says they will have it later this week or early next.

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    Quote Originally Posted by G4M3R View Post
    Have you gotten the rates for finance vs. lease yet? My dealership says they will have it later this week or early next.
    My credit union will do 60 months up to $50k at 1.99%. The CLA45 may qualify for "eco" car because of 30mpg highway and that knocks the rate down to 1.74%.
    MB's best lease money factor for CLA250 of 0.00162 is 3.89%. The standard lease money factor CLA45 gets is 0.00225 which is 5.4%. So financing is a lot cheaper.




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    Quote Originally Posted by G4M3R View Post
    Have you gotten the rates for finance vs. lease yet? My dealership says they will have it later this week or early next.
    No idea yet. My dealership expects 3.9 at most for financing though, and they expect the rates to be announced early November.

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    expected to pay $1500 extra over finance under the same interest rate with balloon finance in a 48month term.
    2014 CLA 45 Northern Light Violet

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    Quote Originally Posted by eason_c View Post
    expected to pay $1500 extra over finance under the same interest rate with balloon finance in a 48month term.
    Don't see that anywhere. From what I see I pay the same MSRP as if Financing. Don't see anything stating that I'd have to pay 1500 extra.

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    Maybe he means in interest cost?

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    Quote Originally Posted by G4M3R View Post
    Maybe he means in interest cost?
    From I see you'd be saving money in interest cost, because if you don't finance the baloon then I dont think you have to pay interest for it.

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    Yeah, I think from the other thread the difference in interpretation in the balloon loan is whether there is interest charged on the balloon portion.

    Now I've never used a balloon loan before so I'm not 100% sure but logically I can't see MB offering 0% interest on the balloon portion or else why would anyone pay cash? Leverage an interest free loan from MB and invest in something else during the 48 months.

    Even if the dealer is telling you this, I'd do my own due diligence and research it myself before signing any financing terms. Most sales guys are not finance guys and sometimes they are not car guys either - how many times do you find that you know more about the car than the sales guy? lol

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