Ford Options Payment Breakdown

[Arsenic17]

My Ford Options payment breakdown between principal and interest does not seem right.

Basically my loan size is $43k at 3.9% and 48 months. Shouldnt the monthly interest you pay be the actual interest accrued over the last 30 days? At least roughly?

$43k * 0.039 / 12 = $140 in interest for first payment. Why is it showing as $210? To me that value would be from a rate of 5.79% or so.

Anyone else with Options have a similar discrepancy or an explanation? This is how a mortgage would work. Are car payments not the same?

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[RickMachE]

You pay interest on the balloon also.

 

[macchiaz-o]

Yup. Rick is correct. You can look up a balloon loan calculator on Bing/Google to check the math.

I also have a spreadsheet if you want to get super wonky on it:

https://www.macheforum.com/site/posts/92089/

 

[Arsenic17]

Yup. Rick is correct. You can look up a balloon loan calculator on Bing/Google to check the math.

I also have a spreadsheet if you want to get super wonky on it:

https://www.macheforum.com/site/posts/92089/

But I am calculating interest on the balloon too. I paid about 25k down payment. The total balance on the loan is $43k now (shown as the payoff amount on the picture). That includes a 22k portion that is the balloon final payment.

$43k loan balance * 0.039 = $1677 interest per year assuming loan balance does not change. $1677/12 months = $140 per month (which would decrease each month slightly as remaining principal shrinks).

BTW, thanks I actually did use your spreadsheet back when purchasing to compare options!

 

[devmach-e]

I've never been able to get those online balloon calculators to work. I tried this one:
https://www.fmbanknym.com/mortgage-balloon-payment-calculator
And when I inputted what I financed ($40,950.68), interest rate (2.7%), length of balloon period (48 months), plus length of amortization (same 48 months) it doesn't come close to matching what my monthly payment of $531.72. Even when I make the length of the amortization 7 years instead of 5 years, it is still off by a lot.

 

[HondaRacer]

I agree, after running your numbers through a payment calculator, I get $140 interest for the first payment. I’m curious if somebody has an explanation. My first options payment is going out now. I’ll have to wait until I get the next statement to check my numbers.

 

[macchiaz-o]

But I am calculating interest on the balloon too. I paid about 25k down payment. The total balance on the loan is $43k now (shown as the payoff amount on the picture). That includes a 22k portion that is the balloon final payment.

$43k loan balance * 0.039 = $1677 interest per year assuming loan balance does not change. $1677/12 months = $140 per month (which would decrease each month slightly as remaining principal shrinks).

And when I inputted what I financed ($40,950.68), interest rate (2.7%), length of balloon period (48 months), plus length of amortization (same 48 months) it doesn't come close to matching what my monthly payment of $531.72. Even when I make the length of the amortization 7 years instead of 5 years, it is still off by a lot.

I agree, after running your numbers through a payment calculator, I get $140 interest for the first payment. I’m curious if somebody has an explanation. My first options payment is going out now. I’ll have to wait until I get the next statement to check my numbers.

You need to account for the fact that your monthly payments aren't making a dent in the balloon amount, yet you're paying interest on that fixed amount every month.

You could get close by treating it as two loans and adding their payments together. One loan is a simple interest loan (paying principal + interest monthly) of the principal balance except for the balloon and it's at whatever rate e.g. 3.9%. The second loan is an interest-only loan at 3.9% of the balloon amount.

Here's a calculator you could use:

https://financial-calculators.com/balloon-payment-calculator

BTW, thanks I actually did use your spreadsheet back when purchasing to compare options!

Awesome!

 

[Arsenic17]

You need to account for the fact that your monthly payments aren't making a dent in the balloon amount, yet you're paying interest on that fixed amount every month.

You could get close by treating it as two loans and adding their payments together. One loan is a simple interest loan (paying principal + interest monthly) of the principal balance except for the balloon and it's at whatever rate e.g. 3.9%. The second loan is an interest-only loan at 3.9% of the balloon amount.

Here's a calculator you could use:

https://financial-calculators.com/balloon-payment-calculator

Regardless of how you split it up, the interest you pay would be the same. You are paying the interest rate on the full loan amount. You dont need to split it out to calculate your interest owed. You do need to split it out to calculate the total payment though. I did try that link and it shows my interest paid should be $140.

My guess here is that somehow for the first payment they actually have you pay 1.5 months of interest. For me that would be about right ($140 calculated interest * 1.5 = $210 which is what my statement showed). Basically I bought the car on Nov 15 and the first payment wasn't due to until Dec 30, 1.5 months later? Either that or I am getting ripped somehow. Will see how the second payment goes I guess.

 

[mach2]

If this was your first payment it might have the interest from 45 days instead of 30?

 

[hybrid2bev]

Regardless of how you split it up, the interest you pay would be the same. You are paying the interest rate on the full loan amount. You dont need to split it out to calculate your interest owed. You do need to split it out to calculate the total payment though. I did try that link and it shows my interest paid should be $140.

My guess here is that somehow for the first payment they actually have you pay 1.5 months of interest. For me that would be about right ($140 calculated interest * 1.5 = $210 which is what my statement showed). Basically I bought the car on Nov 15 and the first payment wasn't due to until Dec 30, 1.5 months later? Either that or I am getting ripped somehow. Will see how the second payment goes I guess.

Ford Options is a simple interest loan. You are charged a daily interest amount. So the amount of interest you pay depends upon how much you pay each month and the number of days since your last payment. If you did 45 days to first payment then more daily interest would have accrued by the time your first payment was posted.

 

[macchiaz-o]

Regardless of how you split it up, the interest you pay would be the same.

On a month by month basis, sure, the interest is very easily calculated as an agreed upon percentage of the principal balance owed.

You are paying the interest rate on the full loan amount.

True. But you're calculating TOTAL interest incorrectly.

Either that or I am getting ripped somehow

It's legit... What you're misunderstanding is that the principal balance is moving down slower than on a non-balloon simple loan. This is entirely because of the huge balloon that's waiting at the final month. Nothing else is special about it. Unless you somehow pay principal towards the balloon, it's not shrinking month to month. (And I don't think paying the balloon early is a great choice here because you'd be diminishing your benefit of the potential Return/forgo-balloon-payment option.)

 

[devmach-e]

You need to account for the fact that your monthly payments aren't making a dent in the balloon amount, yet you're paying interest on that fixed amount every month.

You could get close by treating it as two loans and adding their payments together. One loan is a simple interest loan (paying principal + interest monthly) of the principal balance except for the balloon and it's at whatever rate e.g. 3.9%. The second loan is an interest-only loan at 3.9% of the balloon amount.

Here's a calculator you could use:

https://financial-calculators.com/balloon-payment-calculator



Awesome!

Okay, using that calculator, and inputting in the balloon payment that Ford says I will owe, it comes up with the right monthly payment amount (including interest). Or if I input the monthly payment I'm being charge, I get the right balloon amount. Is the balloon payment basically the residual of the car at the end of the loan term, like in a lease?

 

[macchiaz-o]

Okay, using that calculator, and inputting in the balloon payment that Ford says I will owe, it comes up with the right monthly payment amount (including interest). Or if I input the monthly payment I'm being charge, I get the right balloon amount. Is the balloon payment basically the residual of the car at the end of the loan term, like in a lease?

Yeah it's calculated in the same general fashion.

But to be very clear, Ford Options is a retail loan contact, not a lease. There aren't prepayment penalties, tax is handled differently, and so forth. With Options, the car is titled to you with Ford Credit as the lienholder, whereas in a lease you're renting the vehicle from its owner (usually a financial institution).

 

[devmach-e]

Yeah it's calculated in the same general fashion.

But to be very clear, Ford Options is a retail loan contact, not a lease. There aren't prepayment penalties, tax is handled differently, and so forth. With Options, the car is titled to you with Ford Credit as the lienholder, whereas in a lease you're renting the vehicle from its owner (usually a financial institution).

Yeah, I got that. I specifically did Ford Options last year to get the $2500 rebate, tax credit, and lower monthly payments. What I didn't realize is that the balloon payment was calculated as if it were a residual in a traditional lease. That was the piece of info I needed to know. Thanks for the pointer to the better calculator.

 

[MikeBeeman]

My Ford Options payment breakdown between principal and interest does not seem right.

Basically my loan size is $43k at 3.9% and 48 months. Shouldnt the monthly interest you pay be the actual interest accrued over the last 30 days? At least roughly?

$43k * 0.039 / 12 = $140 in interest for first payment. Why is it showing as $210? To me that value would be from a rate of 5.79% or so.

Anyone else with Options have a similar discrepancy or an explanation? This is how a mortgage would work. Are car payments not the same?

wow...how'd you get such a good rate? My Ford Credit rate (at 12/15/2022 )was 7.99%, and my credit score is 790??!! I ended up with 7.49% at Huntington . $26K loan for 84 months