Guaranteed Future Value – what does it really mean?

Seen new car ads for Guaranteed Future Value? It sounds appealing, but what does it really mean? What should you watch out for?

In basic terms, this is a sales strategy that plays on your worry that your new car will lose a lot of value quickly, especially if your loan has a balloon payment (a big final amount due at the end of the loan term).

It also lets the dealer control the used car market by making you return to them for your next buy. This limits your options and is often presented as “loyalty to the brand.”

If you’re thinking about this kind of guarantee, take your time to look at all choices. Keep these key points in mind:

• You’ll have fewer options when trading in the car, as you have to go back to the same dealer.
• If you choose a different dealer and your balloon payment is higher than the car’s actual market value, you’ll end up with negative equity and might need to refinance the remaining debt.
• Dealers will try to make up any loss in the car’s real value by charging full price on your next car, add-ons, or financing. This reduces your chance to bargain, since they need to recover the money somehow!
• Usually, all servicing must be done at the dealer’s shop as part of the deal, and it often costs more than other places.
• The contract will have “return rules” that limit the kilometres driven and allow only normal wear and tear. If you don’t follow them, the guarantee could be cancelled or you’ll have to pay extra.
• There will be a ‘sunset clause’ – a date the guarantee offer must be taken up by or it will lapse. This may encourage you to consider upgrading your vehicle earlier than you would like to.

You can use independent tools like Red Book (www.redbook.com.au) to check how certain car models lose value over time. This helps set realistic balloon amounts on loans without getting stuck in deals that might not work for you later.
One of our skilled finance brokers can help you out and offer various loan types and setups