Rene September 22, 2017 No Comments

One of the programs that has taken off in recent years is the Guaranteed Future Value Program. The initiative, which is provided by a select range of car manufacturers, provides motorists with some degree of clarity surrounding the resale value of their car. Each manufacturer will provide their own tailored version of the deal, with some key terms including the mileage per year, loan duration, and the methodology behind the car’s residual value.

More than 10 different car manufacturers are currently participating in the program. Predictably, since these car companies need to make up their margins elsewhere, the deals are contingent upon financing arrangements offered by the auto makers or their affiliated partners. Therefore, if one is purchasing a vehicle using external financing, the deal is not applicable. Similarly, paying for a car in cash will also rule you ineligible to participate in the Guaranteed Future Value Program.

Furthermore, the other notable aspect of the deal is that the financing arrangement must include a residual or balloon payment. This helps as far as ensuring low monthly repayments. Therefore, it is particularly beneficial for those in a position where they may need to manage cash flow. The balloon payment is that made at the end of the loan period as the last repayment where the vehicle is being retained. With the guaranteed value in effect, the risk that the final balloon payment is more than the residual value of the car is removed.

Should the car be worth more than the actual guaranteed value by the end of the lease, you also stand to receive the windfall between the two values. Or put it towards a trade in with the same manufacturer. A premium valuation may arise due to low kilometres, supply and demand, vehicle condition and so forth. When the loan ends, you also have the flexibility to trade in the vehicle, return it, or retain it. Therefore, the Guaranteed Future Value Program is a form of financing which removes a vast deal of uncertainty and shifts the risk to the manufacturer, particularly for vehicles which depreciate rapidly.

The downside of course, is that you’re not building up a position of equity through this type of agreement. You are practically leasing the vehicle, and then, usually returning it upon conclusion. It’s also easy for motorists to lose the possibility that they could achieve savings by negotiating a discount on the retail price of the car, as opposed to reclaiming a larger value at the end of the loan. Cars subject to this type of program are often not necessarily up for negotiation, at least like other models.

Also, one needs to pay particular attention to the mileage they clock up, as this will work against the residual value. Most of the manufacturers will charge you at a rate once you exceed the threshold. This means your guaranteed vehicle value could diminish pretty rapidly. Similarly, damage to the car will also pose a challenge on this front, with the car required to be returned in a specified condition, and also serviced via the network stipulated by the auto maker. Don’t think you can skirt around this either, as the car companies will conduct a thorough appraisal before the loan expires.