Ford Flex Buy Financing

[Bronc-O]

How was your equity in the car at that point?

I think I was right at the break even point. I usually pay a little more than my payment in anticipation of the next purchase so not to be upside down.

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[NayNay]

It’s fine if you know what you’re getting into. It’s not a ballooning interest loan (a la housing crisis) but it’s structured to keep costs low in the first three years. I can see someone who is expecting a raise or keeping the car forever taking advantage of it. But if you like to trade your car in before paying it off, your vehicle value will more likely be lower than what you owe with this plan. You will be underwater on your loan for awhile but that’s not a big deal if you’re finishing the term.

Biggest thing is to just never talk monthly payments ever when you’re with finance director. They can “pack payments” take less on the actual car and add whatever they want to meet your monthly goal. It’s like saying this is my allowance add whatever you want at whatever interest to meet it.

Good late evening. You're giving great information but I wanted to add that it is illegal for any finance person, manager, or staff at a dealership to pack a payment. Very illegal!! It does not stop them from doing it. I agree you should never walk into a dealership and say where your payment needs to be. However, you can't pick a 60k vehicle and expect a 200 payment either. A dealership can not force you to purchase anything extra in order to obtain a better rate. If they are doing that then please report them.

 

[NateL]

This is just a fancy term for lease to buy.... they rid you of the limitations of mileage and place all the risk of depreciation on to you, guaranteeing you’re “purchasing” the vehicle. I’d avoid this type of payment structure on a first year vehicle. No one knows what the residual value of this vehicle will be. You could end up very upside down and stuck with a higher payment then you can afford in 36 mo and not be able to get out of it.
I always advise ppl to stick to the new car rules.
- put down at least 20%
- Fiancee for no more then 4 years ( avoid giving the banks as much “free” money as possible, unless 0%)
- total monthly vehicle cost including insurance should be no more then 10% of your gross monthly income. (You can play with this number by considering or not considering you’re 20% down, amortized over the term. Extend term if 0% if you plan to keep vehicle for long time)

 

[Boxer4]

This Ford Flex Buy financing option intrigues me. Has anyone used that previously? Is it an option for all new Ford purchases? It sounds like a nice option, especially to make the transition to a more expensive payment less painful.

Always compare all finance / lease & buyout options. The Flex plan is interesting because with a lease/buyout it is uncertain were interest rates will be in 3+ years. Here is an example of a purchase vs lease/buyout.

Lease Primer:
Its clear that if you borrow money from a bank, you pay interest on the loan.
For a lease, you are "borrowing" a car from a bank and owe them money.

Setting aside taxes, you owe the bank two things:
The car's depreciation over the lease term
The finance fee.

As an example and to keep it simple, no trade ,no money down, no nominal lease fees and a nominal interest rate:
36 month lease @ $ 360 month payments
42K MSRP
38K negotiated purchase price to finance*
1% interest**
26k Residual ( value at the end of 36 months )

Car's Depreciation:
38k-26k / 36 months = $333.33

Finance fee:
Your driving out the door with a 38K car that the bank is putting up the money-you owe them. You owe interest on the depreciation over time + on the 26k residual that is just sitting there.
Here's the formula:
38k+26K x .0004167** = $26.67
Added together = $360 payment

Formula explained:
**The formula uses the Money Factor instead of an interest rate.
Money Factor = interest rate / 2400
So .0004167= 1/2400

*Negotiated purchase price to finance explained:
The correct term is Net Captialized Cost and you get there from the MSRP by any combination of negotiations, money down or trade.

Note-This is a simply explaination.

Buying vs Leasing
Using same terms:
Buying $1071.91 @ 36 months Total cost $38,559
Lease & buyout cash @36 months Total cost $38,960

 

[atonge40]

The only way I would do this is if my job was significantly commission dependent and I planned on making additional principle payments during the first 30 months. Even then, I'd recommend just going a longer term loan. It's the lesser of two evils here.

Working at a credit union, we have a lot of higher earning members that buy high end vehicles on longer term loans and pay them off early. A lot of people with large quarterly or yearly bonuses. I don't recommend an 120 month loan to someone buying an Escape, and we don't even offer it, but there is a niche for higher dollar vehicles.

 

[perfectburrito]

Seems like a gimmick to me. I see no value in deferring paying down the principal like this. Essentially, you spend the 1st 3 years paying the interest and will be stuck upside-down on a vehicle 3 years after it was manufactured with a higher payment to boot.

Hard pass.

 

[atonge40]

Seems like a gimmick to me. I see no value in deferring paying down the principal like this. Essentially, you spend the 1st 3 years paying the interest and will be stuck upside-down on a vehicle 3 years after it was manufactured with a higher payment to boot.

Hard pass.

I agree. Like I said, it should only be for someone that pays extra principle payments due to a bonus focused job or similar. When my income was more commission based, I would look for the longest loan term, and then pay an extra $1000 or more on good months.

As a lender, I want nothing to do with these types of loans. They make more money for the lender, but they are anti-customer and lead to high default rates.

 

[Boxer4]

Good late evening. You're giving great information but I wanted to add that it is illegal for any finance person, manager, or staff at a dealership to pack a payment. Very illegal!! It does not stop them from doing it. I agree you should never walk into a dealership and say where your payment needs to be. However, you can't pick a 60k vehicle and expect a 200 payment either. A dealership can not force you to purchase anything extra in order to obtain a better rate. If they are doing that then please report them.

Correct-never talk payment on a purchase. ONLY talk payment and money out of pocket on a lease. As a buyer, determine the price you want to pay, research the residual and current money factor. Review current National loss leader lease deals. Use those numbers to practice on a lease calculator. Run your numbers through a lease calcutator and create cheat sheets with various money factors and with increases of purchase price ( net captialized cost) of $100 per increase in monthly payment. Offer no money out of pocket except trade, first payment, tax & tags. If you stick to your reasonable payment, miles per year and your max out of pocket, the only way to meet that is for the dealer to lower the purchase price.

 

[wjfawb0 [hacked account]]

I know some will not follow this advice, but it's very good advice.

This is just a fancy term for lease to buy.... they rid you of the limitations of mileage and place all the risk of depreciation on to you, guaranteeing you’re “purchasing” the vehicle. I’d avoid this type of payment structure on a first year vehicle. No one knows what the residual value of this vehicle will be. You could end up very upside down and stuck with a higher payment then you can afford in 36 mo and not be able to get out of it.
I always advise ppl to stick to the new car rules.
- put down at least 20%
- Fiancee for no more then 4 years ( avoid giving the banks as much “free” money as possible, unless 0%)
- total monthly vehicle cost including insurance should be no more then 10% of your gross monthly income. (You can play with this number by considering or not considering you’re 20% down, amortized over the term. Extend term if 0% if you plan to keep vehicle for long time)

 

[Boxer4]

I know some will not follow this advice, but it's very good advice.

This is just a fancy term for lease to buy.... they rid you of the limitations of mileage and place all the risk of depreciation on to you, guaranteeing you’re “purchasing” the vehicle. I’d avoid this type of payment structure on a first year vehicle. No one knows what the residual value of this vehicle will be. You could end up very upside down and stuck with a higher payment then you can afford in 36 mo and not be able to get out of it.
I always advise ppl to stick to the new car rules.
- put down at least 20%
- Fiancee for no more then 4 years ( avoid giving the banks as much “free” money as possible, unless 0%)
- total monthly vehicle cost including insurance should be no more then 10% of your gross monthly income. (You can play with this number by considering or not considering you’re 20% down, amortized over the term. Extend term if 0% if you plan to keep vehicle for long time)

Yes-good financial advice. Life advice, I'm not so sure. While my Bronco purchase will be cash, I have financed or leased many times. I can honestly say I don't remember making those payments but I do remember most of the road trips and vacations with every car /truck that I have owned. No offensive, your rules look good for those that want a commuter car, but for others this about a lifestyle. Its a draw to the past for some and a look to future adventures for others. More importantly its about the open road /trail. Its about the freedom that no clean balance sheet can provide.

 

[wjfawb0 [hacked account]]

You can have all the things you want and retire before you die if you save some up front, though.

 

[Boxer4]

You can have all the things you want and retire before you die if you save some up front, though.

So true. As Einstein said " The most powerful force in the universe is compound interest. " Invest heavily in your early to late 20's and let time do the rest. In the meantime enjoy your Bronco.

 

[Bronc-O]

You can have all the things you want and retire before you die if you save some up front, though.

At my age , that's a valid consideration.

 

[Techqua]

Thanks so much for your comments, everyone! I love this forum and spend entirely too much time reading everyone's thoughts. I have learned so much! I am a person that is given annual raises and am on track to pay off some other payments in the next 2 years, which is why I am considering this loan option. The being under water stuff is a strong negative. I have a feeling vehicles are always underwater the first year or so anyway. I will take all of your thoughts to heart. We clearly still have a while before having to make this decision.

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