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PenFed to Offer Walk-Away Balloon Car Loans

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2 hours ago, cv91915 said:

This should end well for everyone.

 

Not sure what you're leery about here ...

 

Personally, leases have had no appeal to me.  I maintain a vehicle such that it holds close to original appeal even after 4 or 5 years (but, yeah, with 13 years on my current car, I'm getting the "new car" itch again ;).  It still runs damn near as good ... in some ways, better, than when new.  <Admittedly, I'm a low mileage driver at 10k/yr>)

 

In any case, I don't see any downside to this loan vs a lease, and the fixed-cost "close out"/no-cost walk is a substantial plus.  I see any new short-term vehicle acquisition option a potential real score for consumers.  Hopefully a new player on the field will enhance price competition.

 

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24 minutes ago, hdporter said:

 

Not sure what you're leery about here ...

 

Personally, leases have had no appeal to me.  I maintain a vehicle such that it holds close to original appeal even after 4 or 5 years (but, yeah, with 13 years on my current car, I'm getting the "new car" itch again ;).  It still runs damn near as good ... in some ways, better, than when new.  <Admittedly, I'm a low mileage driver at 10k/yr>)

 

In any case, I don't see any downside to this loan vs a lease, and the fixed-cost "close out"/no-cost walk is a substantial plus.  I see any new short-term vehicle acquisition option a potential real score for consumers.  Hopefully a new player on the field will enhance price competition.

 

This is like a lease, but neither the residual nor the money factor will be subsidized by the manufacturer...   so that means higher payments compared to a traditional lease on exactly the same car.

 

PenFed has set up a program that allows any informed customer who has negative equity to just walk away before the balloon payment is due, sticking PenFed with a car that's underwater.  They're going to lose their asses on this.

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22 minutes ago, cv91915 said:

This is like a lease, but neither the residual nor the money factor will be subsidized by the manufacturer...   so that means higher payments compared to a traditional lease on exactly the same car.

 

PenFed has set up a program that allows any informed customer who has negative equity to just walk away before the balloon payment is due, sticking PenFed with a car that's underwater.  They're going to lose their asses on this.

If PenFed had designed the program and was financially bearing the risk, no doubt something like that might be in the cards.  But the residual loan value of the car is, instead, insured by a third-party. 

 

The loan is the analog of a closed-end lease (also permitting a walk-away, at no added cost).  No question, under either type of financing, the residual guarantee means higher payments than an open-end arrangement.  Again, while I wouldn't effectively pay a premium for the guaranteed residual, I'm sure there are many who will do so, glad to eliminate that risk.

 

As far as loss of manufacturer subsidy, that's true of anyone who finances or leases outside of the dealership.  But I've typically found a loan product elsewhere that put me better off than the manufacturer option.  That's likely moreso the case, assuming some type of cash purchase incentive.

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38 minutes ago, hdporter said:

 

As far as loss of manufacturer subsidy, that's true of anyone who finances or leases outside of the dealership.  But I've typically found a loan product elsewhere that put me better off than the manufacturer option.  That's likely moreso the case, assuming some type of cash purchase incentive.

This^

 

There are a few different ways that they cut and slice things in order to move metal.  For some brands, they significantly subsidize the residuals (see BMW) and at turn in the car is almost always worth significantly less than the buyout...keeps people on the leasing hamster wheel.  Others have more realistic residuals but lower the MFs to be competitive (Audi for example), and as HD mentions there is usually some cash available that can't be combined with captive financing.  As always, it makes sense to have a plan (know your driving habits, ownership habits, etc) and do the math to see which is the best scenario.

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3 hours ago, hdporter said:

If PenFed had designed the program and was financially bearing the risk, no doubt something like that might be in the cards.  But the residual loan value of the car is, instead, insured by a third-party. 

 

The loan is the analog of a closed-end lease (also permitting a walk-away, at no added cost).  No question, under either type of financing, the residual guarantee means higher payments than an open-end arrangement.  Again, while I wouldn't effectively pay a premium for the guaranteed residual, I'm sure there are many who will do so, glad to eliminate that risk.

 

As far as loss of manufacturer subsidy, that's true of anyone who finances or leases outside of the dealership.  But I've typically found a loan product elsewhere that put me better off than the manufacturer option.  That's likely moreso the case, assuming some type of cash purchase incentive.

Well... the third party isn't offering the insurance at no cost.  

 

The insurance costs have to be baked into the price of PenFed financing (in the form of more fees or a higher APR), which will paid by the consumer.

 

This is like paying PMI on a subprime mortgage.

 

I know that there are other parties who offer consumer auto leases besides the manufacturers, and if they were always the worst option they would eventually go out of business.  

 

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Remember, I posted to the thread to suggest that, on the surface, there was nothing sour with this business proposal.  Whether pricing will be competitive or not is anyone's guess.  (But, allowing for the type of product, there's every reason it could be.)

 

I acknowledged that this type of loan is going to be more expensive than a standard loan because of the guaranteed residual - the same is true of a closed-end vs open-end lease.  In either case, there will be some consumers who are willing to pay a premium for protection against an undesired liability risk at the end of ownership.

 

Bottom line, I suggest that consumers are better off for having another choice in the marketplace.   (and it's likely apparent I don't buy the PMI/subprime mortgage analogy).

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Oh, this takes me back years.   It's just a new way to package a lease and offer it on a RISC.  Try walking away at term with >100,000 miles.  Try walking away with body damage to the vehicle.   GTE FCU started doing them in the mid-2000s.   That's when I was writing with GTE FCU a lot of business.  I do not know now if they are still offering the program.

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1 hour ago, hdporter said:

Remember, I posted to the thread to suggest that, on the surface, there was nothing sour with this business proposal.  Whether pricing will be competitive or not is anyone's guess.  (But, allowing for the type of product, there's every reason it could be.)

 

I acknowledged that this type of loan is going to be more expensive than a standard loan because of the guaranteed residual - the same is true of a closed-end vs open-end lease.  In either case, there will be some consumers who are willing to pay a premium for protection against an undesired liability risk at the end of ownership.

 

Bottom line, I suggest that consumers are better off for having another choice in the marketplace.   (and it's likely apparent I don't buy the PMI/subprime mortgage analogy).

You may have noticed, but I'm easily triggered by a credit union thread, especially when it involves the CU that issued the worst rewards card in my portfolio, couldn't originate a very easy mortgage for us, and was unable to provide even marginal customer service on an extended warranty purchase that took them several weeks to fulfill.  

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12 hours ago, cv91915 said:

You may have noticed, but I'm easily triggered by a credit union thread, especially when it involves the CU that issued the worst rewards card in my portfolio, couldn't originate a very easy mortgage for us, and was unable to provide even marginal customer service on an extended warranty purchase that took them several weeks to fulfill.  

You, a CU trigger??  In any case, I should leave ample leeway for PenFed to find some way to screw this pooch ...

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13 hours ago, MarvBear said:

Oh, this takes me back years.   It's just a new way to package a lease and offer it on a RISC.  Try walking away at term with >100,000 miles.  Try walking away with body damage to the vehicle.   GTE FCU started doing them in the mid-2000s.   That's when I was writing with GTE FCU a lot of business.  I do not know now if they are still offering the program.

I assume that just as with most closed-end leases, there would be mileage caps (with a charge on additional miles) and the stipulation of charges for "excess wear".

 

I have no idea how viable closed-end leases are in the marketplace, or lease/RISC packages (retail installment sales contract).  But, yeah, this is essentially the same with a new wrapper.

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