Residual/Balloon Payment options

[Bushnut#1]

Hi Guys,

in 2012 i purchased my 1st BMW from smg Canal Walk,

Been very naive i never did any research at that time on balloon payments/residual as i wanted the car and it fall in my bracket i could afford to pay at the time,

Obviously once i realized what i got myself into it was too late to be honest,

However 5 years later my finance comes to and end and have the option either to trade or refinance or settle the car myself, what will be the best option or what have you guys done at this stage?

Its a 2011 E90 320d sport auto

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What il like to know is if my amount is lower then book value is it possible for me to ask BMW to sell it or must i refinance and then sell it privately ?

 

[ChefDJ]

Re-financing means you will pay a hell of a lot more than what the car is worth and essentially lose money when you need to sell.

Settling yourself is the best way to do this, if you have that amount of cash lying around.

Otherwise, fall into the loop of endless non-ownership and trade for another vehicle with another balloon option. Plus side to this is you have a new car every 5 years or so, but you will pay forever.

 

[Nick]

NEVER take a residual. EVER.

 

[Sabretooth tiger]

The answer to your question depends on:
1. how big that balloon payment is,
2. what interest rate you will be getting, if you finance it,
3. whether or not you have the means to settle the car cash

Also you need to ask yourself, if you want to settle the car, or whether or not you would want to purchase a new car now, or in the not so distant future.

Post here to check your car's value:
http://www.bmwfanatics.co.za/showthread.php?tid=63327&page=84

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NEVER take a residual. EVER.

He knows now that when he did that in 2012 it was not the best move.

 

[Rayzor]

I would trade and upgrade :rollsmile:

 

[325iSmk2]

The answer to your question depends on:
1. how big that balloon payment is,
2. what interest rate you will be getting, if you finance it,
3. whether or not you have the means to settle the car cash

Also you need to ask yourself, if you want to settle the car, or whether or not you would want to purchase a new car now, or in the not so distant future.

Post here to check your car's value:
http://www.bmwfanatics.co.za/showthread.php?tid=63327&page=84

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NEVER take a residual. EVER.

He knows now that when he did that in 2012 it was not the best move.

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If the car has GFV and you're within the contract mileage, simply hand it in and walk away. Then either buy a new car using a different method of finance, or lease another one. SAns have an aversion to leasing for some reason, but there is really nothing wrong with it provided it fits your requirements and your budget. Most people are not going to keep a car for longer than 3-5 years anyway.

 

[osiris]

Too many South Africans live beyond there means. Drive what you can afford to drive. There is no need to have the latest and greatest most expensive car if you can't afford it comfortably.

If your earning a shit ton of cash and you can easily afford the balloon payment at the end of the term then cool, but then you should be buying the car over 2 years. This way if you trade the car in for a newer one your car will still hold a good value and you will settle your balloon payment plus get some money back as a deposit for the next car. in this case the residual can work in your favor, but this means that your earning a shit ton of cash and don't mind never owning a car.

Buying a car on Residual over 5 years or more means you really cannot afford to drive that car...at all. This is the hard truth of the matter.

I wish they would do away with this residual crap cause its putting allot of people in the shit.

 

[Mac330]

I wish they would do away with this residual crap cause its putting allot of people in the shit.

True that ^^^

 

[Ebo]

I would keep the car (re finance the residual value), Repayments on the re financed amount should also be less than the original monthly payments.
or
Should you wish to upgrade
In a perfect world, I would look to sell the car privately, preferably for an amount that would cover the residual owed and use the balance for a small deposit for your next ride.

 

[jcwdrop]

I would trade and upgrade :rollsmile:

If your're stuck in a hole....stop digging.

 

[TurboLlew]

My advice in this instance would be to do what you can to pay up the car as you are probably going to be upside down on whatever deal is out there and just get sucked into something even worse on balance. Don't feel bad about what has happened to you. Learn from it and avoid making it in future. There are many people out there who have done the same and a) won't admit it (to themselves or others) and b) will just go and do the same thing again.

Residual can work if you have a plan to pay it off (eg: guaranteed bonuses, selling other cars privately etc.) and offers a cashflow advantage as well as a better interest rate. When I bought my car I took a small residual as BMW finance was able to give me .25% better than Wesbank provided that was taken. 3 months later it was paid up. Trick is to use it to your advantage from a cashflow perspective... but PLEASE for the love of God, have a plan and understand what you are signing.

Trouble we have in SA is that (in my opinion) the majority of new car buyers have no business taking GFV or leases (or don't take the right mileage options etc). They are taking it as a way of buying things they probably shouldn't. The effects of what has been happening since 2011/12 are going to be felt in market now as with the escalation in car prices, the guys who could afford eg: a 320i can no longer afford one... and even if they could, they might not be able to afford it without a massive residual (again), a GFV with very limited mileage (this is only feasible for a small portion of the market) and/or loading the shortfall on an already bad deal.

I am always amazed by folks saying these expensive cars are 'well priced' or even cheap but it is ONLY by taking massive residuals or GFVs that these can be considered 'well priced' unless everyone is suddenly earning R1M+/year. Amazed that folks don't take their installment, multiply it by the term and come to the obvious conclusion...

 

[revred]

Having flexible finance options are great if you know what you want to achieve at the end of the term.

A few perspectives:
if you are young and want to change your car every 3-4 years (Buying New) then using a residual value makes sense and you will be able to trade it in for more than you owe. I say young because as you near retirement you should consider owning your vehicle.

If you have a car allowance/own a business then leasing is the way to go if you want to maximise the tax benefit.

In the two scenarios above you need to make a conscious decision upfront that you will not own the vehicle and will pay serious penalties if you change your mind mid way.

There is no one size fits all when it comes to finance.

BushNut, you need to decide how long you want to keep your existing vehicle. if its more than 3 years then refinance/pay it up. There is a saying that the best car in the world is a paid up car.

 

[osiris]

Yup allot of people goto a dealership and see a car they fancy and its way way way out of there budget but then the salesman comes along and says:"But why don't you buy it on residual?" "What's that you say? Well instead of paying 8k pm for 54 months, you can pay 4k pm for 54 months and then at the end of the term you just need to settle or refinance the balloon repayment" Whats that last part.....oh don't worry about that, you can just bring the car back to us and we will give you a brand new car and take care of the balloon payment! OMG so I can drive that M3 for 4k pm O_O shit ok ill take it......Dealer is sitting there :crazylaugh: at you in his mind because what you don't know is that 5 years from now the price of a new car will be a couple hundred k more than what you just paid for this....Whats the chances of your salary going up by a couple hundred grand a year in that space of time? Hmmmm think about that for a while.

Dude comes back 5 years down the line to trade his car in...Book value is a shocker and he still has that balloon payment lingering, Dealer says cool just get this 320i for the same price as the M3 you bought 5 years ago and just finance it all over again with another effing residual and the same 54 month term!

So now you have downgraded which is going to be allot to swallow for one and your back where the fonk you just left off after an entire 5 years of paying a car off! What have you gained? Nothing! you back in a shit ton of debt.

So what happens in another 5 years....

 

[MaX]

So the righteous preach instead of answering the gentlemans' question...

 

[Sabretooth tiger]

So the righteous preach instead of answering the gentlemans' question...

+1000000

The OP already stated he made a mistake. No need to throw "I told you so" posts at him.

As I said, its will be easier to work out a best solution, once he knows what numbers he is working with.

 

[osiris]

Well most people go and trade in to buy the next model because they can't find that lump sum of cash to pay the car off with because even with residual they were living well beyond their means.

If the op has the money to settle the balloon repayment then obviously that would be the best thing to do.... Then he has a paid off car that he could sell one day and actually have a good deposit on another car should he wish to upgrade.

 

[TurboLlew]

So the righteous preach instead of answering the gentlemans' question...

The question was answered and the rest of the comment serves as rationale behind the current state of affairs and why NOT to go further down the hole.

However saying that residual is the bogeyman, never to take it, that it should be done away with etc. is not productive.

 

[tman]

Learn from your mistake, and move on!

In my honest opinion the whole credit sector needs an overhaul, because 90% of the financing deals these days are unethical.

I saw a financing deal the other day via Harley Davidson where u start paying X for the 1st 12months and then Y from months, and so forth. The NCA should grow a pair and ban these type of deals

Sent on the move via Tapatalk

 

[Bushnut#1]

So the righteous preach instead of answering the gentlemans' question...

Thank you for pointing this out , alot of Finance Police on here lol
I purchase the car and have a balloon payment but that been said I was very naive back then ,however my intention is to pay it up front so won't be refinancing it .

I was offered by BMW that they willing to sell the car on my behalf however il prefer to purchase the car and resell it if need be later .

 

[BeanBooi]

Scared of baloons