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Guaranteed Future Value Explained

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

Simply put, this is a sales tactic that attempts to ease your concerns that the new car you are buying will fall drastically in value by guaranteeing the value of the car at the end of the loan term. This is offered under the guise of ‘supporting their brand’ and while it may seem attractive when your finance contract has a balloon payment, remember, it comes with conditions attached to it. It also puts the Car Dealer 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.

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:

  • Your ability to negotiate a lower purchase price on your new car may be limited as the Dealer seeks to offset any potential loss in providing the guarantee.
  • You will have less choice next time you want to trade in your new car as you must return to the same dealer to avail of the price guarantee.
  • Setting unrealistic balloon payments against price guarantees (in excess of a cars real market value) can leave borrowers trapped in an endless cycle of financing to cover the shortfall.
  • Dealers will seek to recover any shortfall in the ‘real value’ of the car by charging full retail price on your next purchase, accessories, finance etc. You will have fewer opportunities to negotiate on price …’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 require you to pay a ‘make up payment’.
  • 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.

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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