Our Products / Consumer Vehicle Balloon Loan
1) Portfolio Management for Balloon Loans
CULA has developed Seamless, an Internet-based program that helps the credit union validate balloon loans and manage its balloon portfolio. This program contains extensive reporting features and a wide variety of balloon maintenance functions. Because the credit union connects to Seamless through the Internet, all information entered, stored and maintained happens in real time. The credit union can also access a wide variety of archived data on its balloon portfolio, such as month end and ad hoc reports and electronic copies of balloon files. Through Seamless processing a balloon has never been easier, and the communication between CULA and the credit union is streamlined and efficient. Seamless is the avenue to a simple and structured balloon portfolio.
CULA’s Balloon Loan has some clear advantages specifically designed to meet the needs of your credit union member.
The Concept of Balloon Loans
In Balloon Loan financing, one only pays for the estimated amount the vehicle depreciates. In other words, for what is “used” of the vehicle’s worth during the Balloon term. With regular retail financing one pays for the entire cost of the vehicle over the term of the loan.
In essence, a Balloon is the agreement to use the vehicle for a specific period of time. During this time, all monthly payments are required to be paid. A member agrees to maintain the vehicle, pay annual license and registration, pay any applicable taxes, maintain insurance and return it with no more than the agreed upon mileage and normal wear and tear. A member may also have the right to purchase the vehicle at the end of the Balloon, or simply turn it in to CULA for disposition. They may also choose to trade in the vehicle.
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2) Features and Benefits to the Member
A) All Fees Disclosed
All fees are fully disclosed on the contract, giving the member additional peace of mind.
B) No Down Payment Required
There is no down payment or security deposit required as part of The Credit Union Balloon loan.
C) Simple Interest Calculation
Simple Interest is the fairest lending calculation methodology which helps keep the member’s payoff balance lower.
D) No Early Termination Penalties
Many balloon loan programs still impose penalties, even thousands of dollars if the loan is paid off early. Because the Credit Union Balloon Loan is simple interest, there is no front-loaded interest owed should the loan terminate early. The member is required to payoff the outstanding loan balance through a trade or purchase.
E) Adjustable Mileage Limit
Annual mileage of 12k and 15k are available as well as custom mileage above 15k. A custom mileage loan can be created with mileage limits that fit each member’s personal driving patterns.
F) More Options at Maturity than a Conventional Loan
With The Credit Union Balloon Loan, the member has many options available; purchase and keep or purchase and sell at any time, convert to a conventional loan, find someone to assume the loan, trade-in at a dealer, or turn in at the maturity date.
G) Long Term Test Drive
A balloon loan term can be viewed as a long-term test drive. If the vehicle is worth less money that the residual at the end of a loan, the member can turn-in the vehicle and not be liable for market devaluations. If he has equity, he can buy the vehicle for the balloon value and then he buys a good quality car of which he knows the history.
H) Member Assistance at Maturity
The credit union member is contacted prior to the expiration of his/her loan by CULA’s customer service representative. The customer service rep works with the member regarding her maturity options and how to conclude her responsibilities based on her selected option at the end of the loan. The turn in options are discussed at the time of Balloon Loan-end contact, beginning 120 days prior to the scheduled termination date.
I) GAP Insurance Included
GAP stands for Guaranteed Automobile Payoff. If a member’s automobile is totaled or stolen and the member’s insurance has offered a fair market value settlement for the vehicle, GAP can pay the difference between the settlement amount and the loan payoff amount. In order for this to occur, the member must be in compliance with the Balloon Note agreement. Damages that do not result in a total loss are not eligible for GAP coverage.
Member Responsibilities with GAP
- All payments, late charges, NSF fees, and other charges due at the time of the loss must be paid by the member
- The member must pay the deductible under the primary insurance carrier policy
- The member is responsible for any amounts deducted by the primary insurance carrier from the Actual Cash Value (ACV) settlement that were not a direct result of the loss to the vehicle (For example, ACV might be reduced because of carpet stains or excess mileage on the vehicle.)
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3) Reasons people are using Balloon financing
- A lower monthly payment by 20-40%
- A new car more often
- Less initial cash outlay
- More car for your money (get a better car for the budgeted payment)
- Generally less maintenance costs
- More safety features in a newer car
- Latest technology in newer vehicles
A) Balloon versus a Regular Loan
Below is a comparison. One in which a new vehicle is purchased and one in which the same exact vehicle is financed with a Balloon. To keep this scenario consistent, there is no down payment in either situation.
| Vehicle: |
2007 Honda CR-V, 5 Door 4WD EX |
| MSRP: |
$24,300.00 |
| Loan Amount: |
$21,205.23 |
| Interest Rate: |
5.25% |
| Residual: |
44% |
| Term: |
48 months |
| |
BALLOON |
LOAN |
| Monthly Payment: |
$296.65 |
$501.76 |
| Total Payments: |
$14,239.20 |
$24,084.48 |
| Difference in monthly payment: |
$205.11 |
Imagine the opportunities the extra $205.11 could have — invest in a credit union IRA, relief of credit card debt, a vacation, or discretionary spending. At the end of the Balloon, one could simply turn in the car and get a new one.
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4) The End of Term Process
The End of Term Process is designed to promote education of members to assist them in making informed decisions regarding their End of Term (EOT) options. Member education includes CULA’s end of term brochure and personal teleconsulting by one of our expert customer service representatives. At balloon loan end, the member can:
A) Purchase the vehicle
The member buys a good quality car of which he/she knows the history.
B) Trade-in or sell, resulting in a payoff at the credit union
As a convenience to the member, he/she can use the car as a trade-in at the dealership of choice. With this come several benefits. By using his/her vehicle as a trade-in, the member will avoid paying possible excessive wear and tear or mileage overage charges. The member is still liable for the car until a full payoff is made at the credit union. The best way to ensure a complete payoff is by obtaining written confirmation regarding trade-in value from the dealership.
The member may also sell the vehicle at the end of term and keep any equity he/she may have.
C) Turning in the car
The member can turn in the vehicle and walk away. The member will pay a disposition
fee as stated on the Borrower’s Option to Surrender agreement and will be billed
for any excessive wear and tear, or mileage overage as well as other fees
and taxes as stated in the Balloon Note agreement.
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