Ford Options questions

Mr. Mach-E

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Have never leased before. How does the APR of 2.25% get calculated on the amount owed each month? The monthly payment changes based upon annual mileage as I would expect. But how does the amoritization work since it is both the outstanding balance and the value of the vehicle at the end of the 36 or 48 months that impacts interest paid.
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Have never leased before. How does the APR of 2.25% get calculated on the amount owed each month? The monthly payment changes based upon annual mileage as I would expect. But how does the amoritization work since it is both the outstanding balance and the value of the vehicle at the end of the 36 or 48 months that impacts interest paid.
You can search and find some of the other threads on Options but basically it's NOT really a lease. Simplified, it's more like a normal loan so you will pay the interest/taxes on the total amount with a guaranteed buyback rate at the end of the term less mileage, disposal fees, etc if you want to return it. You could also keep it and pay it off early, finance the balloon payment, or trade it in on another vehicle.
 

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Have never leased before. How does the APR of 2.25% get calculated on the amount owed each month? The monthly payment changes based upon annual mileage as I would expect. But how does the amoritization work since it is both the outstanding balance and the value of the vehicle at the end of the 36 or 48 months that impacts interest paid.
See @machiazzo's Options spreadsheet calculator.

https://www.macheforum.com/site/threads/poll-ford-options-vs-finance.2883/page-10#post-93844
 

macchiaz-o

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Have never leased before. How does the APR of 2.25% get calculated on the amount owed each month? The monthly payment changes based upon annual mileage as I would expect. But how does the amoritization work since it is both the outstanding balance and the value of the vehicle at the end of the 36 or 48 months that impacts interest paid.
You pay interest on the principal balance at a fixed monthly payment amount, much like a regular, simple interest loan.

The twist is that the first 35 or 47 payments are made smaller than they'd otherwise be because much of the principal isn't paid back until the final balloon payment (payment number 36 or 48).

As a result, with Options you will pay a larger amount of loan interest than an equivalent APR loan for the same principal total but with all-equal monthly payments.

And of course you get other benefits with Options (choices to forgo the final payment).
 

eltonlin

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You pay interest on the principal balance at a fixed monthly payment amount, much like a regular, simple interest loan.

The twist is that the first 35 or 47 payments are made smaller than they'd otherwise be because much of the principal isn't paid back until the final balloon payment (payment number 36 or 48).

As a result, with Options you will pay a larger amount of loan interest than an equivalent APR loan for the same principal total but with all-equal monthly payments.

And of course you get other benefits with Options (choices to forgo the final payment).
And in some areas you get the bonus cash that ranges from $1000 - $2500 that makes it on-par if not better than some standard loans.
 


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It's a balloon loan, cheaper payments, pay balloon off at the end, turn it in or get another vehicle
 
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Mr. Mach-E

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Mr. Mach-E

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Thanks for the spreadsheet. Amazing work. I do have a question. What accounts for the exact difference of $1,081 between total interest and the cost of financing. Is this related to the $1,000 cost reduction by Ford along with some interest savings on it of exactly $81?
I built a simple amortization for both 36 months and 48 months. I did not end up with the Balloon payment amount at the end of either 36 or 48 months using data from Ford’s web site of the Ford Option.
 

macchiaz-o

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What accounts for the exact difference of $1,081 between total interest and the cost of financing. Is this related to the $1,000 cost reduction by Ford along with some interest savings on it of exactly $81?
Cost of financing is the difference in the total of your payments between between a cash sale and a financed sale. So for example, if Ford chips in $1,000 exclusively for using Options, their $1,000 contribution is excluded from the total finance costs because from your perspective, it acted like a discount in cash price. (In reality, it doesn't change cash price. Instead, it increases your down payment. But I think this simplification helps to understand what's happening.)

To put numbers to it, let's say your share of the cash price (the amount you personally owe) is $50,000, after all discounts, rebates, and third party contributions are accounted for.

Now let's compare it to a hypothetical Options loan where the cash price is still $50,000 and Ford will now chip in another $1,000 toward the down payments. Let's pretend for this example that you will pay $2,500 in interest fees during the lifetime of the loan. Then your total finance costs are $50,000 - $1,000 (from Ford) + $2,500 (for Ford's interest as the lender) - $50,000 (if you had paid cash instead of this loan). This totals to $1,500 and that is your financing cost from my way of thinking about it as the consumer.

I built a simple amortization for both 36 months and 48 months. I did not end up with the Balloon payment amount at the end of either 36 or 48 months using data from Ford’s web site of the Ford Option.
Did your total amount financed match the figure on Ford's web site?

If not, adjust one or the other. You should be finding a monthly payment matching within a few dollars.

Remember that Options is a 36 or 48 month term where payment #36 (or #48) is larger than the rest. It is not 37 or 49 payments.

Here are the residual rates
Ford Mustang Mach-E Ford Options questions PXL_20210217_020608896
Residuals depend on the selected model/trim level.
 

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Wait just to clarify: if I get $1,000 bonus cash using Ford Options, that amount gets deducted from my sales price (and thereby the amount financed), right?
 

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Wait just to clarify: if I get $1,000 bonus cash using Ford Options, that amount gets deducted from my sales price (and thereby the amount financed), right?
The sales price doesn't change. Instead, the incentive amount is added to your down payments as a contribution from Ford to your dealer.

But yes, the effect is the same. Your amount financed is reduced by $1,000.
 

JDRGolfer1

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Cost of financing is the difference in the total of your payments between between a cash sale and a financed sale. So for example, if Ford chips in $1,000 exclusively for using Options, their $1,000 contribution is excluded from the total finance costs because from your perspective, it acted like a discount in cash price. (In reality, it doesn't change cash price. Instead, it increases your down payment. But I think this simplification helps to understand what's happening.)

To put numbers to it, let's say your share of the cash price (the amount you personally owe) is $50,000, after all discounts, rebates, and third party contributions are accounted for.

Now let's compare it to a hypothetical Options loan where the cash price is still $50,000 and Ford will now chip in another $1,000 toward the down payments. Let's pretend for this example that you will pay $2,500 in interest fees during the lifetime of the loan. Then your total finance costs are $50,000 - $1,000 (from Ford) + $2,500 (for Ford's interest as the lender) - $50,000 (if you had paid cash instead of this loan). This totals to $1,500 and that is your financing cost from my way of thinking about it as the consumer.



Did your total amount financed match the figure on Ford's web site?

If not, adjust one or the other. You should be finding a monthly payment matching within a few dollars.

Remember that Options is a 36 or 48 month term where payment #36 (or #48) is larger than the rest. It is not 37 or 49 payments.



Residuals depend on the selected model/trim level.
Ok, if that's true then those are the residuals for premium AWD ex.
 

macchiaz-o

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Wait just to clarify: if I get $1,000 bonus cash using Ford Options, that amount gets deducted from my sales price (and thereby the amount financed), right?
The sales price doesn't change. Instead, the incentive amount is added to your down payments as a contribution from Ford to your dealer.

But yes, the effect is the same. Your amount financed is reduced by $1,000.
Sorry I need to clarify this in case it matters for someone's circumstances.

I looked again at the sale contract for my current car (bought in 2013). This will vary by regional laws and so forth, but at least here in the Phoenix area there are a variety of "cash prices" shown on a sale contract:

  • Cash Sale Price of Described Motor Vehicle: the agreed upon price, before any rebates are subtracted out, and before additional accessories or equipment that will be added to the sale separately from the vehicle itself; for instance, before window tinting is added, if the dealer didn't already install it on the car before you agreed on a value for the car itself.
  • Cash Price: the adjusted price of the sale agreement after rebates have been subtracted out and equipment/accessories have been added in or subtracted out (e.g. if they are to be removed from the vehicle because you don't come to agreement on fair value)
  • Total Cash Price: Subtract the "Agreed Trade in allowance for Used Vehicle" from the Cash Price (if there is a trade-in), and then compute Sales Tax on this difference. Then add Cash Price to Sales Tax to get Total Cash Price.
So to better answer your question, at least in the state of Arizona, $1,000 in manufacturer bonus cash is deducted from Cash Price and has a downstream effect on Total Cash Price. Then other fees/taxes are factored in, as well as any down payment amounts from you the buyer, and then whatever remains at the end is the "Unpaid Balance" which can be the amount financed if you are getting a loan.
 
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