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Guaranteed Future Value – what’s the catch?

A common incentive offered by car manufacturers is to guarantee the future value of their car. It seems like a good idea, so what does it all mean? What should you be aware of?

Simply put, this is a sales tactic that attempts to leverage your fear that your new car will fall drastically in value, especially when your finance contract has a balloon payment (i.e. a large final repayment at the end of the finance contract).

It also puts the dealership in a position to ‘control the second market’ by forcing you to come back to them for your next purchase, effectively giving you less choice and often under the guise of ‘supporting their brand’.

If you are considering this type of guarantee, take time to review all your options and consider the following important points when making your decision:

  • You may have less choice next time you want to trade this car as you must return to the same dealer.
  • If you elect to go to another dealership, and your balloon payment is above the ‘real market value’, you may have a negative equity position and may need additional finance to assist paying the remaining debt.
  • Dealers may seek to recover any shortfall in the ‘real value’ of the car by charging full retail price on your next purchase, accessories, finance etc. This means you may have fewer opportunities to negotiate on price as the money must come from somewhere!
  • Generally all maintenance must be completed by the dealership’s workshop as a condition of the offer, often at a higher cost than competitors.
  • There will be ‘return conditions’ on the contract capping kilometres travelled and allowing for only ‘fair wear and tear’ on the vehicle. Failure to comply will void the offer or may require you to pay a ‘make up payment’.
  • There may 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.

Independent resources such as Red Book (www.redbook.com.au) can be used to see how specific car models depreciate over time and help ensure balloon values on finance contracts are realistic without locking into arrangements that may not suit you in the future.

An experienced finance broker is well placed to assist you and will have access to a variety of finance options and structures that can be tailored to best suit your needs. So if you are considering upgrading or purchasing a car, contact us today!

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