Poll: Ford Options vs Finance

How are you paying for your Mach E?


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macchiaz-o

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Possibly a stupid question - the "mileage" limits only apply if you want to sell it back to Ford, right? If I put 100k on it, as long as I make the final payment to buy it, there's no "overage" fee for something I don't give back, right? I guess I get why they have the mileage tiers for the different residuals, but it reminds me a bit too much of leasing and the $0.25/mile overage or whatever.

If I wanted to cash out of my paid-off current car, buy the Mach-E on Options with a low mileage limit, and invest the cash in the interim, I could put as many miles on it as I wanted, and just as long as I make the agreed-upon balloon payment at the end, nobody need know the actual mileage, right?
If you fulfill the loan obligation by paying the balloon payment (either with cash or by financing through a new loan), then you do not owe Ford Credit for excess mileage or wear and tear. And you also won't pay the $475 disposal fee.
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DBC

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I’m considering Ford options but I have no experience with anything other than traditional auto financing. It’s my habit to pay more than the minimum monthly payment, to knock down the amount at interest as quickly as possible. With Ford Options, I assume the balloon amount sits there at interest for the length of the term. Would additional monthly principal payments apply towards the balloon balance, or shorten the length of the contract?
Short answer is "no". Long answer is, as always, "it depends". Let's take the balloon payment. If you paid more than the terms of the contract required, @hybrid2bev opined that the excess would be applied to the balloon. IOW if you owed $25K in payments over three years and paid $27K, then the original balloon of $24K would be reduced to $22K. If you kept the car you would owe only $22K and if you turned the car back you would get a check for $2K. My understanding.

Shortening the term doesn't work as it would in normal financing because the term is for three years and then you have a balloon. You have a one time opportunity to increase your down and lower the monthly payments, but that doesn't shorten the term. The only way to shorten the term would be to pay off the balloon during the term. You could do that because Options is an installment loan.

If you're comfortable keeping the MME, for what you'd like to do regular financing seems like a much better idea than Options. It works the way you're envisioning and you get a lower interest rate. Very hard to beat .9% or 1.9% financing.
 

ClaudeMach-E

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I did cast my vote for financing 72 months has I intend to keep this car on the long term, like 8 to 10 years. Preferably in that optic I would like to see an 84 months option that I could pay faster if I wanted to. Don't forget here in Canada the Premium is at least $10K more expensive.
 

DBC

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I've heard this advice from many people now. Buy high, sell low.
You've nailed why individual investors significantly underperform the market averages AND why women make investors than men -- frequent trading and an emotional need to sell "losers" and buy "winners".

The facts are disheartening as recounted in, among other places, "Heads I Win Tails I Win" by
Spencer Jakob:

Another much longer-term study of U.S. investors is even starker. In April 2015, Dalbar, a firm that evaluates fund managers, released results on how American investors in mutual funds did over the past thirty years compared to the markets that those funds were supposed to track. As I said in the preface, people unfamiliar with these numbers often scoff in disbelief.
...
The “composite fund investor” earned an annualized 2.5 percent during those 30 years. That is just awful. It’s less than inflation during that time.

In other words, if a typical saver had a nice nest egg at the end of 30 years it was only because he or she salted away lots of his or her paychecks, not as the result of any real investment gains. And of course this is all before taxes.

Over the same time frame, the main U.S. stock index, the Standard & Poor’s 500, earned just over 11 percent a year


More interesting is that most of these investors had no idea how badly they had done:

Studies, among them one by German finance professors Markus Glaser and Martin Weber, show that there’s absolutely no connection between how well an investor actually has done and how well they think they have done. None, nada, zip. Or, as the Herren Professors put it in more scientific language (ideally recited in a thick Teutonic accent), “The correlation coefficient between return estimates and realized returns is not distinguishable from zero.”

The Glaser and Weber study found that while investors estimated they had returns of 15% a year, their actual returns were 3.7%. Knowing all this makes it very hard to stop the :rolleyes: when confronted with claims of investment prowess.
 

engnrng

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As a data point, the current dividend yield for the S&P is 1.55%. Additionally if the dividend yield moves up the stock price may well move down, resulting in a net loss.

That would certainly be special. The average investor makes about 2.5%, well below the average return from a balanced portfolio. The average equity investor made about half the average return of the equity markets, which is about 10%. No doubt you could beat this but you would have to first disabuse yourself of the notion that you're going to make 30% a year.

Investing in stocks requires a longer time horizon than what you get with a car loan. The S&P was at 1450 in April of 2000. It was at 750 in April of 2009.

Bottom line is that paying 3% on a depreciating asset and using that money to invest in the stock market short term is not a good idea. On the other hand, taking a down payment on a car and investing it for 20 years, and then figuring out how to otherwise pay for the depreciating asset, is not a bad idea.
Thanks for the comments, @DBC! I agree with most of what you say. Point of clarification for those who don't know. S&P is an index, not a stock. And if you don't have a clear understanding of the difference, you need to seek professional help, which may have been DBC's main point.
 


macchiaz-o

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Short answer is "no". Long answer is, as always, "it depends". Let's take the balloon payment. If you paid more than the terms of the contract required, @hybrid2bev opined that the excess would be applied to the balloon. IOW if you owed $25K in payments over three years and paid $27K, then the original balloon of $24K would be reduced to $22K. If you kept the car you would owe only $22K and if you turned the car back you would get a check for $2K. My understanding.
It's worth repeating that @hybrid2bev explicitly stated that this is his speculation on how it might work. We do not have official guidance or sufficient detail on this from Ford Credit at this point.

If you're comfortable keeping the MME, for what you'd like to do regular financing seems like a much better idea than Options. It works the way you're envisioning and you get a lower interest rate. Very hard to beat .9% or 1.9% financing.
For those of us in a $1,000 incentive market, this is about right... The finance costs are in the same ballpark if you compare 36 month normal retail financing to 36 month Options retail financing.

For people fortunate enough to live in a market with the $2,500 Options incentive, if the individual has good credit and ability to pay cash for the balloon payment when it comes due, the incentive makes Options an excellent choice. Depending on your individual situation, a $2,500 incentive for Options will net you a negative finance cost (i.e. the vehicle is cheaper to purchase with financing than with cash).
 

hybrid2bev

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It's worth repeating that @hybrid2bev explicitly stated that this is his speculation on how it might work. We do not have official guidance or sufficient detail on this from Ford Credit at this point.



For those of us in a $1,000 incentive market, this is about right... The finance costs are in the same ballpark if you compare 36 month normal retail financing to 36 month Options retail financing.

For people fortunate enough to live in a market with the $2,500 Options incentive, if the individual has good credit and ability to pay cash for the balloon payment when it comes due, the incentive makes Options an excellent choice. Depending on your individual situation, a $2,500 incentive for Options will net you a negative finance cost (i.e. the vehicle is cheaper to purchase with financing than with cash).
No need to over think it. Ford Options is a simple interest loan, the difference is the estimated payment schedule of 35/47+1 instead of 60 or 72 (for example). Interest is calculated on a daily basis based on your remaining principal balance (the whole thing including the balloon). When you make a payment it gets applied towards the interest that has accumulated since your last payment and the remainder is applied to principal.

Remember that your contracted payment schedule is an estimate based on you paying the exact amount due on the exact day it's due every time. If you pay anything extra or even 1 day early/late the estimate will be off.
 

macchiaz-o

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No need to over think it. Ford Options is a simple interest loan, the difference is the estimated payment schedule of 35/47+1 instead of 60 or 72 (for example). Interest is calculated on a daily basis based on your remaining principal balance (the whole thing including the balloon). When you make a payment it gets applied towards the interest that has accumulated since your last payment and the remainder is applied to principal.

Remember that your contracted payment schedule is an estimate based on you paying the exact amount due on the exact day it's due every time. If you pay anything extra or even 1 day early/late the estimate will be off.
Thanks, this helps. I'm still a bit uncertain about what happens if the loan were paid off very quickly. For instance, if I start a 48-month Options loan and then I paid the full principal balance any any accumulated charges within let's say... 15 months... When calendar month 48 finally rolls around, do I still have the option of giving the vehicle back to Ford Credit and receiving a check for the original balloon amount minus the disposal fee and any excess wear/mileage?
 

hybrid2bev

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Thanks, this helps. I'm still a bit uncertain about what happens if the loan were paid off very quickly. For instance, if I start a 48-month Options loan and then I paid the full principal balance any any accumulated charges within let's say... 15 months... When calendar month 48 finally rolls around, do I still have the option of giving the vehicle back to Ford Credit and receiving a check for the original balloon amount minus the disposal fee and any excess wear/mileage?
**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.
 

macchiaz-o

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**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.
Ok. This is what I've been assuming all along, too... And it's the "safe" if not pessimistic mindset for me to set as my expectation.

But I'm happy to hear some of this stuff from the five print. I will bring my glasses and read everything before signing at the dealer.
 

DBC

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If you don't owe anything then there is no credit to apply.
It's reasonable to assume that, regardless of how the law might look at the contract, equity would not allow Ford to end up with balloon payment and the vehicle, and when law and equity are at odds equity wins. So I wouldn't get too hung up on the language of the K in these circumstances. Pretty easy to read the language you've identified as "toward the satisfaction of all that you owe under the terms of the contract." That's probably how most people would think of it and I suspect how it would be interpreted.

I don't know why someone who wanted to make extra payments would go with Options -- makes no sense and would lead to all kinds of issues -- but if they did, the closest analogy I can think of would be a lessee who returns the vehicle at the end of a lease and then makes extra payments by mistake or through automatic epayments. This isn't all that unusual, and standard practice is for the lessor to treat these extra payments as an overpayment and to refund them. Seems that this would be similar to what happens here, and the consumer would be entitled to credit for the returned MME plus any overpayments.

Just my opinion.
 

solarmoo900

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So I haven't bought a car in like 10 years, is the dealer the only place to run the final numbers for all my options? Or is there a good calculator that I can try out different down payments + X Plan + everything else?

I'm still debating what to do but with X-Plan and the incentives and the different residuals and me living in a horribly high tax place it's been hard super hard to figure out real numbers
 

VegStang

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As someone who expects to keep the car the $2500 incentive + X-Plan is enough to go options instead of just full payment outright since with this vehicle there aren't a lot of ways to get money off that MSRP. Getting the dealers to not do ADM along with the incentive/plan seems about as far as they will go. There are a few balloon payment auto loan calculators online that allow you to work out an approx. comparison.
 

macchiaz-o

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So I haven't bought a car in like 10 years, is the dealer the only place to run the final numbers for all my options? Or is there a good calculator that I can try out different down payments + X Plan + everything else?

I'm still debating what to do but with X-Plan and the incentives and the different residuals and me living in a horribly high tax place it's been hard super hard to figure out real numbers
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.
 

tomterky

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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!
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