Quote:
Originally Posted by geko29
But that's not how it works. You pay the taxes and fees NOW. The 34% is only of the purchase price, not the taxes and fees. And the cost to postpone the balloon portion is not zero. In this case, the cost to push the balloon payment out five years is $11,242.42.
Balloon loans are actually two separate loans packaged together. There is a "traditional" loan for the portion being financed, plus all taxes and fees. That goes to $0 after 60 months, because principal is being paid down. Then there's a second, interest-only loan on the Balloon portion, which is about $37k in this case. You pay $187/mo to carry this principal, but it is never reduced. After 5 years, you still owe the whole $37k. You just paid $11k to avoid dealing with it until then.
At the end of the 5 years, you have paid a total of $108,198.78, of which $34,482.85 is interest. You still have another $37k of principal to pay off. If you do it in a lump sum, the total cost of the car is $145,059.18. If that 37k is financed at the same rate for say another 3 years, that will be at $1,123.04/mo, and the car's total cost is $148,628.07.
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I think the key to doing the balloon payment is to treat it like a lease and pay it off at 3 years. Whether leasing is cheaper would depend on lease residual vs the remaining amount of a loan plus balloon payment. I’m only considering a balloon payment so I can sell my current car and then refinance after putting the cash down from that sale. Of course if I can lock in a CD with a higher interest rate than an auto loan then I’ll just park my cash there to create my own interest free loan.
In theory, if inflation keeps running hot then used car prices will still adjust higher over time. I would have never imagined my current car would be worth what it is today if not for the last couple years of inflation.