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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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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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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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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.
 

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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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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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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.
This is not true at all. The way to look at it is in the concept of a loan (like a mortgage). You're paying less of the principal down per month in balloon financing. In the end you're going to pay more interest in total, than if you financed conventionally and paid off the principal more quickly.

Just try it on the Mercedes Canada website. Take the base car $33,900 to the calculator and zero out the down payment and change them both to 48 months and leave the freight unchecked.
Regular Finance: $748.86/month ---> $35,945.28
Balloon Finance: $457.74/month + $15,255 ---> $37,226.52

That is apples to apples comparison, since the rate for both is 2.9%.

If you try the shorter terms, like 36 months or 24 months, the difference will be less, but the balloon finance total will still come out higher.
 

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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
Well if you pay the baloon off with cash I can see there being no interest or if you trade in the vehicle, but if ya choose to finance it then I can see their being whatever interest rate their is at the time for it. Also the dealer isn't telling me this lol.

Just read Kenchaus post so ignore this.
 

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This is not true at all. The way to look at it is in the concept of a loan (like a mortgage). You're paying less of the principal down per month in balloon financing. In the end you're going to pay more interest in total, than if you financed conventionally and paid off the principal more quickly.

Just try it on the Mercedes Canada website. Take the base car $33,900 to the calculator and zero out the down payment and change them both to 48 months and leave the freight unchecked.
Regular Finance: $748.86/month ---> $35,945.28
Balloon Finance: $457.74/month + $15,255 ---> $37,226.52

That is apples to apples comparison, since the rate for both is 2.9%.

If you try the shorter terms, like 36 months or 24 months, the difference will be less, but the balloon finance total will still come out higher.
Well didn't know about that, but either way the 1.5k doesn't bother me
 

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Well didn't know about that, but either way the 1.5k doesn't bother me
Yeah, it's really just to be aware. At the end of the day, that option is there because there are people that opt for it for any number of reasons - makes it possible to get a few more options, a higher trim level car; or completely unrelated to the car, the person may just feel with the difference in payment, they can earn more than the car interest in the stock market, etc. over same time period.

Most of the brands now offer balloon financing.
 

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Yeah, it's really just to be aware. At the end of the day, that option is there because there are people that opt for it for any number of reasons - makes it possible to get a few more options, a higher trim level car; or completely unrelated to the car, the person may just feel with the difference in payment, they can earn more than the car interest in the stock market, etc. over same time period.

Most of the brands now offer balloon financing.

Ya I'm only going for it because I can get a practically fully loaded 45 AMG thanks to it. Also in the reserves I get paid 900 dollars monthly so with mid 700 monthly payments I still have some money for myself.
 

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I was always thinking of Balloon option before, but there must be away for them to earn your money... After I did the calculation, I will stick with finance only.
 

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Discussion Starter #17
SO what I'm hearing is that there really isn't any real time you'd want to do a balloon if a lease works for you.
 

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Balloon gives you a lower interest rate over leasing and you could have any mileage your want since you are technically owning the car.
 

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Eason,

Are you doing normal financing?

Do you mind if you tell me what you go for?

Noticed that you are from Vancouver too.
 

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Balloon gives you a lower interest rate over leasing and you could have any mileage your want since you are technically owning the car.
To add to Ndxnd's comment. Leasing limits you to a certain number of KM's per year. If you decide to return the car and you go over KM's, you pay extra. If you're under KM's, then you're essentially putting money back into the dealership's pocket.
 
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