DCC

I was at the local Audi dealership talking about financing either a TTQ or a S4...
I found out that the balloon plan has a higher interest rate because...just because...
I don't see anybody else (Acura, BMW, Ford, Toyota) doing this...why is there a premium when one wants to go the balloon way?...

Dan

finance whiz

With the balloon payment option, the title is yours so you can get whatever insurance you choose. With standard leasing Audi owns the title and dictates a minimum amount of insurance, which is much higher than anyone would normally get. So, Audi figures that when you own the title, you will get less insurance than someone leasing. Therefore, if you get into a really bad accident, there's a greater chance that you won't have enough insurance. As a result, there's a greater chance that you'll default on your payments to Audi. Audi knows this; so they charge a higher rate to make up for the higher credit risk that they bear. How's that for a long-winded answer to a simple question.

Scott D.

Quite good. Thanks!!

boxster

I used to work for Ford Credit. Their rates were higher on balloons because of the increased credit risk.

dhodory

The fact that there would be higher credit risk would NOT be attributed to anything to do with insurance coverage. All financial entities that lease or lease/loan or outright loan on vehicles purchase "gap coverage". Gap coverage covers the financial entity just in case the car is totaled and the insurance coverage does not pay off the vehicle.

Where higher credit risk might come into the picture is that with the Audi Premier Purchase Plan, Audi Financial Services is essentially making you a 7 or 8 year loan (3 years on the "lease" portion and 4 or 5 years on the "buy" portion), and then guarrantees you it will keep the payment the same over the remainder of the "buy" part of the loan. The longer the loan, the greater the uncertainty. Greater uncertainty means greater risk. Greater risk means higher interest rates (either on the payment OR the balloon).