Poll: Ford Options vs Finance

[timbop]

Maybe this was already asked and I apologize...can you use X-plan and use any financing you want? Or are you only to use Ford Financing?

Thank you!

You can finance however you want with X-plan, but of course the incentive cash for options only applies to the Ford Options financing.

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[ChasingCoral]

I think the residents of CARB states. Makes sense because sales in these states generate cap and trade credits that Ford might otherwise have to buy.

Nope. Not consistently the CARB states. MD is only $1000.

 

[tomterky]

You can finance however you want with X-plan, but of course the incentive cash for options only applies to the Ford Options financing.

I'm in one of the $1000 off areas, which to me isn't much of an enticement. I got a great rate of 2.74% on a 72 month with my credit union. I plan on going this route.

Appreciate the information and assist!!

 

[back_at_it_19]

Maybe this was already asked and I apologize...can you use X-plan and use any financing you want? Or are you only to use Ford Financing?

Thank you!

You can use any financing you want with the x-plan.

 

[jjwolf]

I'll be doing the 48 month loan. I looked into the Options program, but it looks to cost quite a lot more. The 48 month loan kind of sits in a sweet spot with 0.9% and zero residual. The Options route has you paying interest on the carried residual for the full term, which is a deal killer (for me).

 

[eltonlin]

I was having a tough time making sense of all the options, too. So I created a calculator. Working out the math in the calculator helped clear things up in my mind...

Maybe this will help you, too.

https://1drv.ms/x/s!ApbGIUelGmJ-s9hQWdOSPLkXVkpcrA?e=WX5FM8

You need to edit all the yellow cells (and maybe others) to represent your unique situation. But the link is set to view-only. So to get started, you'll need to save off your own copy.

CAVEATS:

• There might be mistakes. OK, there are definitely mistakes. Use at your own risk.
• I understand how X-Plan prices are calculated. I'm not 100% sure on A/Z/D plans so those might be a little off.
• I made this for me. In Arizona. Where you live, there might be some differences in how Cash Price is calculated, or taxes, or other things.
• This doesn't estimate anything for Red Carpet Leasing (RCL). It's just for cash, traditional simple interest financing, or Ford Options.
• It can help you see how a one-time Ford Options loan adjustment will impact future payments and overall interest paid. I'm not sure if my method for adjusting the loan will match up with what Ford Credit will do.
• Again, use at your own risk. I'm NOT responsible for your finances or your financial decisions.

This sheet is definitely a great start. A couple questions:

1) Residual is based off of MSRP I believe (not sure if it's actual full MSRP or x-plan?)

2) Playing around with the sheet, if I increase the mileage, the total interest calculation decreases, which is a bit odd...Since the amount financed increases as residual/balloon decreases, shouldn't the total interest accrued/paid also increase?

 

[jjwolf]

The interest values seem a little low for the Options plan. Check the interest on a loan with a balloon payment using a calculator like this one: https://www.bankrate.com/calculators/mortgages/balloon-home-mortgage-calculator.aspx

 

[Woeo]

I'll be doing the 48 month loan. I looked into the Options program, but it looks to cost quite a lot more. The 48 month loan kind of sits in a sweet spot with 0.9% and zero residual. The Options route has you paying interest on the carried residual for the full term, which is a deal killer (for me).

Borrowing 50k for 48 months at .9% will accrue $924.15 in interest
Borrowing 50k under the 4 year Options plan: 47 payments of 692.56, and a balloon payment of 20,646, for total payments of 53196.32 to retire the debt. Put another way $3196.32 in interest.

Compared to straight financing at .9%, Options would 'cost' $2272.17 more. If you are in a $1,000 incentive zip code, then it would effectively be $1272 more expensive*. If you are in a $2,500 incentive zip code the 48 month Options plan would be $228 less expensive than financing at the .9% rate over 4 years.*


*[plus $475 to actually return the vehicle unless you trade on a Ford].

 

[macchiaz-o]

This sheet is definitely a great start. A couple questions:

Thank you! I've sunk a good chunk of time into it at this point.

1) Residual is based off of MSRP I believe (not sure if it's actual full MSRP or x-plan?)

I'm thinking it's based on the Cash Price (negotiated price minus any incentives). But I don't actually know that for sure. You may be right. If you want to base it on MSRP, change the Final Payment formula to use the value for "vehicle subtotal" instead of "cash price."

Or, you can just replace the "final payment" value with the balloon amount that's shown to you on ford.com's calculator.

2) Playing around with the sheet, if I increase the mileage, the total interest calculation decreases, which is a bit odd...Since the amount financed increases as residual/balloon decreases, shouldn't the total interest accrued/paid also increase?

When you increase the number of annual miles, the balloon amount goes down.

When the balloon amount goes down, you are accruing less interest during months 1-35 (or 1-47) than you otherwise would be, because your principal balance is decreasing more quickly thanks to your larger monthly payments towards principal.

 

[jjwolf]

Borrowing 50k for 48 months at .9% will accrue $924.15 in interest
Borrowing 50k under the 4 year Options plan: 47 payments of 692.56, and a balloon payment of 20,646, for total payments of 53196.32 to retire the debt. Put another way $3196.32 in interest.

Compared to straight financing at .9%, Options would 'cost' $2272.17 more. If you are in a $1,000 incentive zip code, then it would be $1272 more expensive [plus $475 to return the vehicle unless you trade on a Ford]. If you are in a $2,500 incentive zip code the 48 month Options plan it would be $228 less expensive than financing at the .9% rate over 4 years.

Yeah, according to my analysis, we would have to put 1/48th of the residual in a savings account every month to avoid additional financing charges on the residual in order to keep them that close to each other. They're all close if you have the right incentives on each, but it definitely depends on what you do with the residual.

 

[macchiaz-o]

The interest values seem a little low for the Options plan. Check the interest on a loan with a balloon payment using a calculator like this one: https://www.bankrate.com/calculators/mortgages/balloon-home-mortgage-calculator.aspx

I think I'm calculating them the same way that ford.com does, or very very close. Are you seeing a big discrepancy between those two?

 

[buffasnow]

I assume you mean 'offset' rather than 'avoid'.

Not to speak for Justin, but I had the same thought. You are paying hundreds per month more on a 48 month loan at 0.9% than you would for 48 month options at 2.25%. Putting the difference away each month would allow you to have enough to pay off the residual with zero financing, thus avoiding extra financing at the 48 month end of loan. To be safe, you should save 1/48th of the residual each month.
If you can get the $2500 incentive, Options may be attractive for you.

 

[Woeo]

**My own personal interpretation**
I don't think so. If you pay off the whole principal balance then the contract is complete/done. The fine print says "you may transfer ownership of the vehicle to the Creditor, and an amount equal to your originally scheduled balloon payment will be applied toward the satisfaction of all that you owe." (bolding and underline is mine). If you don't owe anything then there is no credit to apply.

I agree with you.

So the idea that is floating around that to avoid the 30% downpayment cap you need only send a large payment after a month or two is fraught with potential pitfalls.

Without reworking the payment schedule through Ford Finance the nominal payment amount will not adjust. With the extra 'down payment' having reduced the principal owed, the ongoing payments will eat into the principal at a faster rate, eventually eating into the agreed balloon amount long before the final payment of the Options term, thus substantially reducing the balloon amount owed on the loan.

I don't see Ford crediting the account for more than the then owed principal amount should the borrower want to return the car at the end of the Options term. [Comments about ignoring the plain language of the contract to apply concepts of Law and Equity are not pertinent until you find yourself in court with your lawyer along with Ford's lawyers in front of a judge. $$$$]

I also don't see Ford Finance agreeing to stop monthly payments midway thru the 35 or 47 months, if/when the account balance is equal to the agreed balloon amount, then wait for the balloon payment on the 36th or 48th month. Beyond the complexity of management of the loan, interest would continue to accrue on the balloon amount.

All in all, one needs to understand why choose the Options program over financing [or cash] in the first place? To set oneself up to take full advantage of the opportunity to escape--my perceived real value of the Options Program--one would want to end the loan term with the highest balloon amount feasible, but without spending more on interest than would be possible thru other programs.

If you qualify for the .9% APR rate....the three year Options program in $1,000 incentive zip codes is roughly the same 'cost' as 36 month financing...the four year Options program in $2,500 incentive zip codes is roughly the same 'cost' as 48 month financing. The ideal Options option would be the three year program in $2,500 zip codes.

 

[Woeo]

Not to speak for Justin, but I had the same thought. You are paying hundreds per month more on a 48 month loan at 0.9% than you would for 48 month options at 2.25%. Putting the difference away each month would allow you to have enough to pay off the residual with zero financing, thus avoiding extra financing at the 48 month end of loan. To be safe, you should save 1/48th of the residual each month.
If you can get the $2500 incentive, Options may be attractive for you.

Yes, saving the difference should give you enough to payoff the balloon and not require an additional loan term.

My assumption in my comparisons is that the balloon is paid off and not refinanced.

 

[DBC]

Yes, saving the difference should give you enough to payoff the balloon and not require an additional loan term.

This is quite misleading. Saving the difference between the monthly for a 48 month purchase and the monthly under a 36 month Options plan won't give you enough to pay the balloon. Not really close. Just run the numbers using the Ford calculator -- you end up only saving enough for half the balloon.

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