mrfredo82

Your help is greatly appreciated my friend

DRG

Unlike a lease payment, which is a combination of a depreciation portion (cap cost minus residual divided by # of months) and a money factor portion (cap cost plus residual, all times the money factor), Premier Purchase is a type of loan. Instead of a residual, there's a balloon payment due at the end (or you can return the car as the balloon). Just find a loan calculator that allows for a balloon payment, plug in the cap cost, balloon and interest rate and see the result. You're basically paying down a loan, but slowly such that you're left with the balloon amount as your balance at the end of the term. This means that, compared with a standard loan, your average balance is higher and thus your interest portion is higher as well.

David

mrfredo82

I cant find any online, do you have a link for one?

TM

The calculations were done by our accounting system- it should be simple interest for the term, at 4.7%. The only thing I don't understand about the whole thing is whether you pay interest on the balloon the whole time or not- I'll have to check into that.

I see what you mean about putting the difference between the amount financed and the residual into a loan calculator- just remember it's 35 months, not 36 (the balloon is the 36th payment) and I don't know (I'll find out) what the exact calculation is to get to the number I gave you.

mrfredo82

Sounds great,let me know what you come up with.

TM

The premier purchase is calculated the same way as a lease:

depreciation part of lease:
(sale price - residual)/ (term of lease)

interest portion of lease:
(sale price + residual) * (money factor)

Add the depreciation and the interest and you get your payment.

In order to convert APR to money factor, divide the APR (in decimal form- 4.7% = 0.047) by 24. The reverse to convert money factor to APR.

You pay interest on the sale price AND the residual. While that sounds bad, it really depends on your priorities- finance charges are much higher on a premier purchase if you decide to exercise the balloon at the end of the term. If you plan on buying and keeping your car for over 5 years, then traditional financing is a better bet.

If you plan on trading your car in every 3 years, then premier purchase might be a better alternative than traditional financing or leasing for a few reasons- the out of pocket total cost for a premier purchase (without exercising the balloon) is lower for a 3-4 year term. Also, premier purchase works out better usually compared to leasing because you don't pay any leasing fees. This all holds true as long as the APR for premier purchase is comparable to the leasing rates. If leasing has a promo and they drop the money factor significantly, then leasing can be better than premier purchase, although you always have to put money out of pocket on a lease due to all of the fees involved. Rolling the fees into the lease make the payment significantly ($40-60/month) higher.

Hope this helps.

mrfredo82

Are they included in the sale price of the car? Or would you take sale price * tax rate / term of lease and add to depr. and finance?

And by sale price you mean price of the car + options correct?

TM

mrfredo82- I got wrong info from senior personnel- shoot me an email and I'll email you the PDF file from VW Credit that gives you the exact calculation for premier purchase.

Taka Mizutani
tmizutani@donrosenimports.com