What to do.. Advice needed

[GC GTS Aero Kit]

When I have a car allowance if I dont use it on my vehicle I pay tax on it

[Righty]

Originally Posted by Gir

You should pay your "balloon" up front if you want to keep monthly payments down. A balloon payment is just a way to make your effective interest rate much higher then what they advise.

For example, take a $34,000, 5 year loan with $7,000 balloon at 10%. You end up paying $515 a month, and pay almost $13,000 in interest (33% of the value of the loan on top)

If you paid the balloon up front, meaning a $27,000 over 5 years at 10%, you pay $570 a month, but only $7400 in interest (just over half as much).

And that's why balloon payments are one of the biggest loan scams going around.

It's no new idea that paying more upfront will lower your repayments and lower your interest paid. However sometimes you can't always pay up front - on that theory, just pay for the whole car in cash and get zero interest?

A balloon payment is a good way of moving a lot of 'bulk' payment to the end of your loan, rather than the start, personally i did mine at both - I put on decent deposit and also opted for balloon. This reduced the monthly costs significantly.

After looking at both loan terms, the balloon option means my TOTAL payable amount would be $2,845 more than if i had done full finance without the balloon. However, if i did not have the balloon, I would be paying an extra $217 every month, which would be $2,604 every year out of my pocket.

To me, it's more valuable to have the extra cashflow now, as with my (reasonably) secure job, i can account that in 5 years time i'll be earning more money than i do today. Therefore, in 5 years, that $2.8k is actually less valuable to me, than $2.6k is to me this year.

So while in the long run I know that i will pay slightly more, the extra cash flow to me right now is more important.

[m0nty]

Originally Posted by Gir

You can claim depreciation and travel, which is based off the value of the car, not what you took a loan out on.

I believe interest paid each year is also. The car must have a business use percentage also though. Not just travel to and from work. That doesn't count.