you mean... car dealers are not honest??

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No really so much.

With all of the people commenting that most of the people who qualify for clunking probably won't be able to afford a new car....well here you go.

You would get to pay less for 3 years, hoping the economy turned around, you got a better job (or just a job) and that you would start putting aside cash for the balloon payment.

I'd be surprised if we didn't see more car loans like this in the coming year....could be the next leasing scheme.

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No, they are just using creative financing to get people in the door. These are the same kind of loans that has lead to the collapse in the home building industry. It's not that a ~$1500 finance charge is so bad, it's that people don't bother reading the fine print and get shafted at the end of our payment.

If you break that $6,667 into the 36 months you are looking at a total payment of around $285.

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balloon payments have been around for years. its the predecessor of the lease craze.

the intent is that you will trade it in before the end of term and be able to make the balloon payment with the tradein value.

but you are risking what the car will be worth. leases let the mftr take the risk.

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This is basically no different than a lease, except you can't turn the car in.

You are simply on the hook for the other $6,667 after 3 years. $4500 + $3564 + $6667 = $14731 - $13335 MSRP = $1396 in interest over 3 years on $8,835.

And, regardless, if you wanna keep the car, any bank would finance the remaining $6667, even Daimler, if you made your payments on time. Just about guaranteed given they probably don't want a bunch of 3 year old Smarts repo'd.

But the whole fact of the matter is, the Federal gov't is subsidizing your new car for the tune of $4500, or about 30% of its value. And you'd be stupid not to take it if your current car is a crapper. Doesn't take much gas to add up to $99 a month if your car qualifies (20 mpg vs 40, approx). If you average out gas costs at about $3 a gal over the next 3 years, you would save that $99 driving about 16,000 mi a year. If gas continues to rise, it takes even less mileage.

Throw in one major repair to your beater and you're in even better financial condition by buying. Consuming is not always bad. And you definitely aren't getting "screwed."

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novanglus:
As you mention, the operative part here is the government is handing you $4500, so of course you should take it. But then you somehow tie smart into that. If the government's part of the deal is the good part, maybe you could find another company that will sell you a car without trick payments that cost you in interest and leave you holding the bag at the end.

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@LS2LS7....

How are balloon payments "trick payments?" You must be a financial newbie if you think a balloon contract is a "trick payment." Because I assure you they are standard contractual agreements that sometime benefit the consumer and sometimes benefit the lender. If you're a wise person, you will use them when they are appropriate. Just because a very small number of people misused balloons to buy homes they couldn't afford doesn't mean all balloons are bad or misleading. You can rest assured that the Truth in Lending Act passed in 1968 will assure that the buyers are fully aware of their contractual obligations before they sign on the dotted line.

And, rest assured, you are ALWAYS holding the bag in a car purchase because you are ALWAYS liable for the full purchase price of the contract, leases included. Trying running up 100k miles on a lease car sometime with a 36k mi agreement. Or try failing to to carry insurance on a leased car and then wrecking it.

The simple matter is, it is a damn good deal and a standard often used financial tool, regardless of what you hand-wringers think. I believe BMW calls their program BMW Select, GM calls theirs SmartBuy, etc.

Very standard. Very much so not a "trick payment."

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There actually a benefit to balloon payments over leases.

You don't have to make the final payment, you can return the car (just like a lease) but the car goes in your name, not the bank's so for states that let sales tax be on the difference between the trade-in and the purchase price of the next vehicle instead of just the total sale price of the new vehicle, a balloon payment style transaction lets you get back the tax amount. Many states do not offset the sales tax on a lease and tax the lease payment, not the sale price.

So if your trade has a floor of 3500 or 4500, in state like NJ where taxes are 7%, you just saved yourself another $300.

In some cases it may also be better on your insurance.

Don't immediately assume evil just because it's unique. It may not be better for all, but it could be seriously better for some.

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I didn't say it was evil, I said it was a trick payment scheme. And it is.

My dad used them when we were growing up because as a GM employee, he was required (not quite, but let's say heavily incented) to buy a new car every other year.

You can use the trick well, or you can use it poorly. In the case of people who currently own 15 year old cars, it's most likely going to be used poorly. If these people had $7K lying around they'd probably be driving a newer car already. This scheme will get people to trade in cars they own for cars they can only afford to have for 3 years.

Do also find it interesting that you ignore the interest on the $6,667 for the 3 years you have the car. In a lease a lot of the advantage is you don't owe money for the years you have the car, so you don't pay interest on it. At 6%, these people will pay $1,274 in interest on the $6,667 over the 3 years before they sell the car to cover the payment they never could make.

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Seriously. The car sale business is THE most scrutinized retail business in america. I truly feel that eventually a car make is going to be very successful with a "no negotiaion" policy...

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So giving them your car doesn't constitute as payment? The $4500 is there regardless of how you choose to pay it.

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I guess it depends on how much you could get for your car. If it's anything over $3,104 then you wouldn't do it, but if it's worth $50 you'd be better off. And isn't that the point of the scheme, to get the worst cars off the road as well as helping the auto industry.

Well that is if you wanted a Smart in the first place.

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Oh come on, $50? The age limit and other restrictions pretty much make sure the "clunker" is worth considerably more than $50. Maybe $50 if you are a crack head and HAVE to sell your car TODAY!!! Otherwise a vehicle newer than whatever year it is required will be almost always worth more than a couple thousand, unless you hammer it into a bunch of guardrails or something.

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