balloon loan

Well I am still looking around -- went out to look at some colors - also to try a C4S in the rain -- It then did not rain. Also to see a 2c in speed yellow ( what do people think of this color, I think very sharp -- how many of this color are sold?) My real reason to post is the balloon payment - I have never herd of one for a car and I am trying to figure out the angle -- In what ways are they better/ worse than a lease. The one thing great about a lease is if you wreck the car you can just walk away? Any thoughts ?

I bought my Porsche through the balloon loan program. One advantage is a lease size payment...when the loan matures and it's time to pay the balloon, I can evaluate my options at that time of how to handle the balloon...so I see more flexibility over the long haul. Plus, too many employee minded people that can afford a Porsche go out and pay cash for them...according to Porsche stats, I think it's over 40 percent....any smart business person knows that paying cash for anything is foolish as being out of debt is stupid...that is if you know enough to invest the same cash you would have used to buy it and create more cash by not having it in a car....that's my purpose. the more i put into the car, the less i have to create wealth. another is no lease mileage restrictions to worry about. i know i'd go over and that would be too costly to justify a lease. i'm sure plenty of flaming remarks from others will follow, but thank God we are all entitled to our opinions. Consider your own pros and cons and that will help you make your right decision.

I do balloon financing for a number of reasons. I never want to be forced to keep a car. With a balloon you own the car, you can sell at any time without penalty. Residuals are usually high and unlike what above post said there is mileage restriction. However, choosing say 10k miles per year raises the residual lowering your payment. I always choose 10k miles per year as the total miles is recorded not yearly. In other words, if I choose 10k miles a year owver a 36 month term, I am allowed 30k miles. If I keep the car two years and put 25k miles, I am not over my mileage and at the same time my payment was lower becuase of the higher residual. Also, this is not true with all companies, but, usually, the balloon is a guarantee. If values tank, I would hold the car for the term and simply turn in the car at the end of the 36 months. Porsche is guaranteeing the value so if after the 36 months car is worth less than balloon, you walk away. The final reason, at least in Chicago, is the tax credit you receive. If I trade in my car after a year or two and say it is worth $95k and I buy a car for $105k, I would only pay tax on $10k. This is not true with a lease, you get no tax credit and are often penalized for early payoff. -Lou

I plan on buying a Porsche in early Spring '04. I was thinking a '02 996 Cab. I was thinking of putting down about $25K and financing the rest for 84 months which would keep the payments down. I would probably pay it back much sooner but wouldn't be obliged to. I'm wondering if a balloon loan would be better. I called my local dealer and neither the sales manager nor the business manager were familiar with the details. The biz manager said he doesn't do enough of them to know. I found that strange since the Porsche web site refers to something called "Porsche Options" which sounds like a balloon loan to me. Charlie

New York and a few other states now hold the lessor liable for accidents, which is the reason for the "balloon loans" everyone's talking about. Financially, it looks like a lease, but enables "lessor" to dodge the vicarious liability, since it's technically a loan (that looks like a lease).

________________ Lou --- 'splain more of this, if you will. I am poised to pay cash (I am one of the stupid 40%, apparently) for my soon to arrive '04 TT. I may turn around and lease the car back to my own S-corp consulting company (for my 'business' use, of course). While I need to run all of this by my accountant, what other potential downsides are there beyond what you've described above? What are the typical interest rates associated w/ this type of arrangement? The intriguing components of what I've read thusfar are the "guaranteed" end-of-balloon period valuation, the agregate mileage loophole you described, and the taxable basis on future car purchase. I don't know what the rule is on taxable basis for serial car purchases here in FL, but I think that it is a pay the 6% each & every time deal. Thanks, Jeff

charliedc, put the $25K into a duplex, or triplex, rent them out, put $1000 down on the car and let the rentals buy your Porsche.

I own a multi family already (with good cash flow). In MA, $25K won't work as a down payment on a multi family which costs over $350K. Cash flow 'ya know. Good idea in other parts of the country though. Charlie

You could probably have the same payment with less paid interest with $0 down on a balloon. That said, if you are the kind of guy who wants to keep his car, balloons aren't for you. -Lou

$350k for a multi family I wish I could touch anything for that price. In Chicago, land, which a standard lot is 25x125, in a good neighborhood will cost you $600,000-$800,000. Then you have to build. Multi-units are regularly at least $600,000(tear down) to $1mill+ if you want cash flow. You would be hard pressed to buy a 2 bedroom condo for $350k in a good neighborhood. I realize there are more expensive areas, (NY, San Fran, etc.) and believe me, I am not being pompous or making light of the situation at all, I just thought it was funny , $350k for a multi-unit -Lou

Jeff, do not know what you are referring to regarding "stupid 40%" I hope you do not think I said or implied you were stupid for paying cash. If so, was in no way my intention. Anyway, to answer your questions. Talk to your accountant, I beleive you can depreciate more of the car when leased versus bought. Tax rates are the same each and everytime but, in IL you only pay tax on the difference between the trade and new purchase price. I.E. I trade my car in for $80k, I buy a new car at $100k. I do not pay tax on $100k but rather just on the difference($20k). Some companies do not offer guaranteed valuations, stay away from them. Rates are typically in this environment 6.00%(for banks offering balloons) to 6.75%(buy rate Porsche finance on balloons) The only thing is, banks do not offer balloons to the consumer, it would have to be channneled through you dealer finance department. As far as downsides go, you have to turn your car in or refi loan note at end of term. You do have mileage restrictions. If you get the itch to get out of the car, prior to end of term and car is not worth more than your payoff, you would obviously have to keep it and then turn it in at the end of term at the guaranteed price. Hope that helps. If you need additional info lemeknow. -Lou

lou, it's all relative. for $350K real estate investment, i could buy a ferrari. i paid $45,000 for 48 acres and a house, renting the house and 1/4 acre for more than the mortgage on the whole thing, sold enough timber off to pay for 1/2 a porsche....on and on. it really does depend on where you are, but then again, there's more money to be made in chicago than arkansas...now, let's buy water front in florida...now we are talking. sorry for so much off topic....

That sure would be nice, especially in Chicago's wonderful winters. Take care. . -Lou

Hi All Just wanted to get back on topic -- to those that have used this balloon loan -- what do you think -- how has it worked out. The loan I am talking is from the porsche -- not a bank! Thanks --

Lou --- No, not on you at all; that was a reference to KWC4S's comments in the post prior to yours, and to my own lack of knowledge regarding the risk/reward of balloons vs. purchasing outright. I have simply never heard of balloon notes for vehicle purchases before. Thanks for the additional info. The residual value guarantee is the part that is most intriguing to me, particularly considering how far south 996 values have gone across the board over the last few years. I personally believe that this trend will reverse for the TT w/ the end of the 996 run and that PAG will likely not introduce another turbo for a couple, if not more, years. Maybe not until the "998" or whatever comes out after that. So if I understand what you're saying, as long as I am willing to hang on to the car for the term of the balloon note, I have no downside risk to the stated "guaranteed" value? The big upside is that I can utilize my cash during the same term for whatever magnificent financial conquests my accountant and broker can cook up. I do take some immediate satisfaction in not having to shell out the monthly loan outlay, but also know that it is generally best to avoid expending capital. I'll query my dealer about PAG's program. The slightly higher interest rate might be worth it if there is potential for me to build goodwill w/ the dealer if I in fact wished to turn the car over and get into another P-car at the end of the note. Lou, thanks again! Jeff

Upon further investigation, it does appear that the balloon note is the most prudent route for my situation. Prior to his understanding the cost of the P-car that I'm getting, my accountant wasn't thinking that it was the best avenue, as he thought it would limit the amount of depreciation that I could take annually because the balloon would effectively reduce the available annual value that could be depreciated (I'm going to place the car as a corporate asset). But the TT coupe cost puts it way into the luxury class, so I wouldn't be able to take depreciation against the full value anyway without the IRS hunting me down for being the dirty dog that I am. Capping the decision off, Porsche won't do a lease on a Euro-delivery vehicle (according to my dealer), so other than retail financing or paying cash, the Balloon is the only option. The accountant figured loosely that the lease expense write-off would roughly equal the asset depreciation I'll take anyway, so balloon seems to be the right way to go. Even if I can't take advantage of that yummy sales tax break that Lou gets up in Illinois. There are still many unknowns (just as another poster pointed out, my dealer hasn't done one of these Porsche Options deals before, so there isn't any first-hand knowledge), such as loan term, interest rate, available aggregate mileage choices over the term, how the guaranteed residual is figured out (I am extremely interested in this calculation), downpayment options, and ?. I'm sure that all will be answered in short order, as the dealer has already paid PCNA for the car, and will no doubt be motivated to arrange this last segment of the deal. If anyone has any insight into how the vehicle residual is figured out, please post it. Eg. is it simple math such as: retail selling price minus average annualized depreciation over the last few years for the the loan term? If that is the case, then I am hoping that the recent depreciation trends are going to reverse for the upcoming model year changes. Who knows what's to come, "just shut up and drive" will be my standing motto!!! Thanks for all of the info. Jeff