Payment Saver "Balloon" Loans

[Chief762x39]

Does anyone know of anywhere other than PenFed that has auto loans with a balloon payment? Basically its a loan with a reduced monthly payment, but has a balance that must be paid or refinanced at the end of the loan.

[Treadstone]

Anyone else skeptical about these loans? What happens if you can't refinance in time at the end of the loan?

[DDustiNN]

Originally Posted by valleybacker

Anyone else skeptical about these loans? What happens if you can't refinance in time at the end of the loan?

They notify you before it's coming up I believe, to remind you. And if you can't pay it, it's probably treated just the same as not paying any other bill... and with a car loan, it would likely get your Camaro repo'd.

[cam2fst4u]

the same thing that happened with the housing pop is it not?

[kdoske]

balloon loans are dangerous and I think the interest rate on them usually fluctuates with prime. The way the market is now I don't think I would touch it.

Not to mention at the end of your loan you are gonna owe like 5k-15k dollars which you would either have to refinance at the end of you 4 year balloon loan or pay all at once.


DONT DO IT!

Originally Posted by valleybacker

Anyone else skeptical about these loans? What happens if you can't refinance in time at the end of the loan?

repo and debt collectors for life

[Chief762x39]

Yes I know about the dangers of the loans, what I need to know is who is offering them (other than PenFed).

[wullger]

I think folks that are considering that option need to give themselves a reality check, and say "Can I REALLY afford this car?" (And no, not aware of anyone else other than Penfed that's doing it, cause I'm not in the market for a bad loan)

[kdoske]

Originally Posted by Chief762x39

Yes I know about the dangers of the loans, what I need to know is who is offering them (other than PenFed).

google it, you will have ton of results im sure.

I'm pretty sure most places wont issue a balloon loan unless you have fairly good credit due to the risk involved for both parties.

The idea behind it is for you to just pretty much pay the interest and then SAVE the remaining money that would of normaly been paid to a normal car loan into a money market or something simliar.

By doing this instead of paying interest you end up making interest and essential get your car interest free. Only problem is most people can't stick to the idea and when it comes time to pay they are screwed.

Another reason to do it would be if you knew you where going to sell the car at the end of your term and hopefully you could sell the car for exactly what it was you owed on the car when your balloon loan was up.

A lot of people get misled thinking that this is a way for them to get a car that they normally wouldn't be able to afford but this is so not true. Its actually for financially responsible people that know they can afford the car the normal way but allows them to flip the system to work in their favor.

[Chief762x39]

I have great credit and am already approved for a normal loan through my credit union with affordable monthly payments, but am considering the payment saver loan because of how much lower it makes them.

[joes3rdcamaro82/91/2010]

Do not do it! Nothing good can come of it.

[kdoske]

I really don't think it is terrible as long as you setup an auto deduction into a interest bearing acount for what you would save each month.

Use their calculator to see what im talking about:
https://www.penfed.org/productsAndRa...pe=NEW&value=Y


Here is an example I did:

Car Type: 2010 CHEVROLET CAMARO
MSRP: $31,990
Loan Amount: $34,000
Auto Payment Saver Rate: 4.24% APR
Conventional Auto Rate: 3.99% APR
----------monthly payment--due at end of loan---normal payment----money saved
60 Month----$432.71----------$13,582.71----------$626.01-----------$193.30

In this example you would take 193.30 each month and set it aside in some interest earning account. This way by the end of your loan you can pay off the car AND have made back almost all the money that you paid in interest.

I would just question what happens if you total your car. Is there gap insurance involved?

[Treadstone]

Originally Posted by kdoske

I really don't think it is terrible as long as you setup an auto deduction into a interest bearing acount for what you would save each month.

Use their calculator to see what im talking about:
https://www.penfed.org/productsAndRa...pe=NEW&value=Y


Here is an example I did:

Car Type: 2010 CHEVROLET CAMARO
MSRP: $31,990
Loan Amount: $34,000
Auto Payment Saver Rate: 4.24% APR
Conventional Auto Rate: 3.99% APR
----------monthly payment--due at end of loan---normal payment----money saved
60 Month----$432.71----------$13,582.71----------$626.01-----------$193.30

In this example you would take 193.30 each month and set it aside in some interest earning account. This way by the end of your loan you can pay off the car AND have made back almost all the money that you paid in interest.

I would just question what happens if you total your car. Is there gap insurance involved?

I don't see anyone doing the right thing with these loans.

[bob2the2nd]

i hadnt really looked into this being as its my first loan but the biggest problem i see with it is, what if your car gets totaled. basically you are taking the chance that at the end of the term of the loan your car is still in perfect condition. If you have a chance to be earning 3-5% on what your normal down payment is and go with this you obviously make some money.. if of course the car is still good at the end of the payment. more or less this is the opposite of gap insurance.

[kdoske]

Originally Posted by valleybacker

I don't see anyone doing the right thing with these loans.

lol, yeah thats usually the case. The only other senario is to sell it at the end of the 5 years. According to this calculator you would owe $13,582.71. So if at the end of 5 years if you can get $13,582.71 for a $32,000 car then you will be free and clear.

I'm not going to do it because it scares me, but there is definitely potential there if you play your cards right.