Why Lease Purchase With Balloon?

[oo7ml]

Hi,

One of my employees is looking to buy his first £100k+ car.

He has been advised to look at a ‘Lease Purchase With Balloon’. He has asked for my advice on it, but I honestly don’t know enough about this finance option. I did consider it myself before for one of my cars, but there didn’t seem to be any companies in Ireland providing this option, so I didn’t look into it any further.

My advice / opinion has always been that financing a car is fine IF you have taken care of the other basics in life (house, savings for rainy day, etc).

Can anyone provide any advice on:

01 - how this financing works

02 - benefits vs other traditional financing (i.e - traditional car loan from bank)

03 - cons / disadvantages with it


Thanks in advance for your help.

[iphonedyou]

PCP, basically - if he Googles that he should get the answers he needs.

[HustleRussell]

As with any finance product, do the sums on the various options.

Despite what some people on here will insist, PCP is often the cheapest way to buy a new car these days. The manufacturer offers a reasonable rate and further incentivises these deals with discounts and contributions.

Manufacturers want buyers on the hook. Get them in one of their cars, paying monthly, set a relatively short period for finance and put a somewhat daunting optional final balloon payment on the end. Customer pays up or customer comes back into the showroom to consider an upgrade. Win / win.

Thing is, if you have done the sums and do have the balloon payment it could well be the cheapest way to buy the car.

...and, keep most of your budget in your pocket for the duration of the finance period- which can be used elsewhere.

[syl]

iphonedyou said:

PCP, basically - if he Googles that he should get the answers he needs.

It's not PCP. It's a business product only and most importantly, you don't have the option of just handing it back at the end - you have to pay the balloon (or sell it / trade it to cover that payment)

[ikonic]

syl said:

It's not PCP. It's a business product only and most importantly, you don't have the option of just handing it back at the end - you have to pay the balloon (or sell it / trade it to cover that payment)

Yep 👍, its different to PCP. I think its also referred to as “asset finance” by a few of the banks that offer it.

You lose the option to hand back and thereby have no protection against a sudden collapse in value of the vehicle.

However, rates are typically better than the PCP rates offered by the dealers. Remember, this logic only applies on the more expensive stuff where the size of borrowing is so high that you are well out of the realms of the 4.9% APRs being offered up by mainstream manufacturers.

As an example, I know Clydesdale Bank were offering this asset finance product with rates in the region of 3-4% versus OPC rates of 6.9% for the financing of various tasty Porsches.

[HTP99]

syl said:

iphonedyou said:

PCP, basically - if he Googles that he should get the answers he needs.

It's not PCP. It's a business product only and most importantly, you don't have the option of just handing it back at the end - you have to pay the balloon (or sell it / trade it to cover that payment)

Yep and if the car is worth less than the balloon at the end of the period then you still have to pay that amount as opposed to returning the car which could leave you financially out of pocket.

I sell new and used cars and commercials, we get many people on commercials that see a headline monthly figure from an online company and don't realise that there is a very high balloon payment at he end, all they see is £250 pm, if you don't know what you are getting yourself in to then it can get messy, particularly with a business purchase as the business technically cannot buy the vehicle themselves at the end, they have to sell it to someone else and they have to also pay a percentage of the selling price to the finance company, as well as the balloon.

We don't offer lease purchase or lease hire.

[SWoll]

I assume this is the product that's particularly popular with vloggers and speculators? Makes sense if you can use the car to earn enough to pay off the balloon or can get yourself on the list for a car that will likely appreciate over the term?

[oo7ml]

Thanks all.

This is not a product for businesses as many people use it for personal cars, inc Vloggers.

The majority of the well know Vloggers use this sort of finance with this company - http://dg18son.com/types-of-finance-explained/

To me, it seems like you are only financing the expected depreciation over the period of time, and then at the end you simply sell the car or buy it (no return).

I could be wrong but if you bought a £100,000 car and it is expected to drop to £75,000 over 2 years, then you pay a £10,000 deposit and £625 per month (£15,000 / 24 months). At the end you can sell the car for £75,000 to pay the balloon so all you have lost and paid for is the depreciation and the cost of the finance?

Could I be right?

[SWoll]

oo7ml said:

Thanks all.

This is not a product for businesses as many people use it for personal cars, inc Vloggers.

The majority of the well know Vloggers use this sort of finance with this company - http://dg18son.com/types-of-finance-explained/

To me, it seems like you are only financing the expected depreciation over the period of time, and then at the end you simply sell the car or buy it (no return).

I could be wrong but if you bought a £100,000 car and it is expected to drop to £75,000 over 2 years, then you pay a £10,000 deposit and £625 per month (£15,000 / 24 months). At the end you can sell the car for £75,000 to pay the balloon so all you have lost and paid for is the depreciation and the cost of the finance?

Could I be right?

Yep, essentially you're taking the risk that the depreciation will be as expected at the start of the agreement and that you can sell the car for enough to cover the balloon

Worth the risk to the bigger vloggers as they can probably generate enough income over the term from the car to cover any shortfall, and if they can get on the list for the right cars there's a good chance it could be worth more than purchase price after 6-12 months. Cayman GT4, 911 GT3 RS etc.