Why these finance packages may not be the best deal for you.
You are looking for a new motor vehicle, you have visited the dealer, and they start talking to you about a Guaranteed buyback, it seems an attractive offer, but is it really?
It may have started with BMW Finance offering “Full Circle” with Guaranteed Buyback/Future Value but now other brands are jumping on the band wagon and offering similar finance packages including Mercedes “Agility”, Audi “Choice”, Toyota “Access” and Hyundai Finance and no doubt others will follow.
What are some possible pitfalls/risks associated with this type of motor vehicle finance?
- Fair wear and tear – refers to the wear and tear that can reasonably be expected in the life of a vehicle. This can be an issue where faults or damage are considered not to have been rectified in an acceptable fashion.
This condition will also be subject to regular maintenance and servicing being carried out according to manufacturer’s guidelines and to be carried out by a franchise dealer or approved service agent, so make sure your favourite service provider is approved.
Things to consider when you trade in or hand back:-
- Is there any damage to the paint, body or interior?
- Are there any non standard accessories fitted that have been removed leaving holes etc?
- Are there any non standard badges labels or advertising fitted?
- Have you got the FULL set of keys?
The bottom line is that you need to pay attention to unacceptable damage to wheel rims, tyres, dents, scratches, abrasions, colour mismatching, poor paint or panel repairs, window cracks or chips and be aware that should any of these things be unacceptable on inspection by the franchise dealer that adjustments to the Guaranteed Future Value may be made.
- Kilometre allowance – your Guaranteed Buyback/Future Value will be subject to you not exceeding the kilometre allowance set at the start of the contract so don’t plan any extra holidays or long trips etcetera if this is a risk.
- Balloon payment – make sure your balloon payment is not set at an unreasonably high level compared to market resale trends. Whilst a high final Balloon payment reduces the monthly repayment, it also increases the interest charges included in the loan and you will need to be sure that your motor vehicle complies with all the Fair Wear and Tear and Kilometer Allowance terms and conditions, to be sure you will not be at risk of having your Guaranteed Buyback/Future Value reassessed.
- Early termination – any early termination or payout figure on a finance contract will be calculated by adding the payments left to run to the balloon payment and taking into consideration any interest rebate applied. If Guaranteed Buyback/Future Values are set at unreasonable levels then this will most likely see payout figures far outweighing trade in valuations leaving no option but to stick with what you have or suffer a potential loss.
We are not the only ones skeptical about this type of financing. Here are some comments made on forums with regards to these products:-
“If your km's suddenly increase, full circle won't help, I'm pretty sure you need to nominate a level of km's you will travel.”
“My parents financed a car using it a few years ago, and for the extra cost they said they wouldn't use it again.”
“Like any financial product it depends upon your individual circumstances. Personally I don't like/need the guaranteed buy back and prefer the good ole days where you could have a $1 residual.”
“Does anybody honestly think a finance scheme is ever designed to benefit the customer?”
“The guaranteed future values aren't exactly the market levels, gauging from what I've been quoted in Aus.”
“The benefit portrayed is that you get a "guaranteed future value" that could be higher than the market value when you go to change over, regardless of model facelifts or changes to market conditions. As others have suggested, the real benefit is given to BMW, getting first crack at the next sale.”
When considering how to finance a new motor vehicle purchase, leave your options open. When it seems too good to be true it often is not! Leave things uncomplicated, set your own terms and balloons that work for you. Make sure you compare competitive finance alternatives with your favourite finance broker or finance provider. Some of the lowest interest rates we have ever seen are available right now and there may well be better value in setting appropriate terms and balloon values to suit your individual requirements and avoiding some of the risks and costs that may occur with Guaranteed Buyback/Future Value.