One thing that has come up that I feel compelled write about is Balloon Payments. Often people get themselves into this type of financing arrangement by the lure of low monthly payments. I admit I am guilty of falling into the same trap myself. Here is my story:
About 4 years ago I was shopping for a new car. Without going into details, I was, at the time, a single mother. I had two children to care for on a single income so naturally I was shopping primarily on price. I did some research to find the best car in my price and walked into a dealership ready to buy a car. Now that I am in the car business I realize the treatment I received was lazy at best but I went on a test drive to make sure this cheap car would atleast be driveable. I decided it was and I sat down with the salesperson to talk price.
The financing on this vehicle was 0.9% and they offered financing or a balloon payment option; no lease option. Since I was trying to keep payments down, he pushed me into the balloon payment without fully explaining what I was getting myself into. He was there to sell me a car, he could care less what would happen at the end of that balloon payment arrangement.
So fast forward 4 years and I find myself with over a year left of payments and a $5000 balloon payment at the end of those payments. Since the car manufacturer doesn't offer financing on their own vehicles the loan is held at a local bank. At the end of that term I will have to pay $5000 or refinance that amount at regular bank rates; no 0.9% fiancing. Essentially today I owe in the neighbourhood of $8600 on my car. While this in itself doesn't seem unreasonable, it is when you consider current market value of said vehicle would average about $3000; it will be less in another year when my payments are up.
This is why balloon payments are a losing proposition for the consumer. I work at a dealership with the inability to even trade in my car for a Honda because of the negative equity position I find myself in.
The car manufacturers that offer these balloon payments often do not offer lease arrangement for their customers because with a lease you have to have a lease-end value of what they think the vehicle will be worth 2-4 years down the road. Often the value is so low (due to fleeting cars; see my previous post, Who's Buying Those Cars, poor quality, etc.) that no one in their right mind would lease in the first place.
I admit that I should have been better informed when I walked in there, but I was unfamiliar with the balloon payment option and I feel that the salesperson took advantage of my situation. Now I owe lots of money on a worthless car.
I am now wary when a manufacturer doesn't stand behind their own product by offering a lease option. The biggest reason being their low value even after a short lease term. While some might suggest that there are advantages to balloon payments, my own experience has been the opposite. If someone is trying to keep payments down, one can always lease and there is always the choice to buy out the vehicle at the end of that term or bring it back and drive away with a new car.
Now I find myself in a difficult spot and I am rightfully upset about it. That salesman was there to just sell me a car...he won't be selling me my next one.
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