A car loan is a fairly straightforward financial transaction; to buy a new car, you agree to pay a lending institution a monthly amount to cover the principal and interest over a set period of time.
What isn’t simple is that some cars depreciate faster than others, which potentially changes the value of the asset you’re buying before you finish paying it off.
What doesn’t change is the loan amount or monthly payment, and more than one new car buyer has found themselves stuck with a car they didn’t like, simply because they owe more money on the loan than the car is worth as a trade or even a private sale.
The Detroit Free Press reports that Ally Financial is introducing a new type of car loan that has the potential to give buyers peace of mind. Called “Buyer’s Choice,” the loan guarantees a buy-back price after 48 months, ensuring that buyers won’t be left without options after four years of payments.
At the end of month 48, Buyer’s Choice customers have the option of selling the car back to Ally for a predetermined price, guaranteed to be at least the remaining balance of the loan. As with a conventional car loan, Buyer’s Choice customers can also sell the car on their own, assuming the car’s value is greater than the loan balance.
While Hyundai has a similar deal under its “Hyundai Assurance” banner, its program applies only towards Hyundai models traded in on newer Hyundai models. In other words, there’s no provision for a buyer to jump brands, which gives Hyundai a captive group of consumers.
The Ally program, on the other hand, applies to any General Motors or Chrysler vehicle, and it’s valid on loans ranging from 60 to 84 months. The Buyer’s Choice loan program is being rolled out in five states (California, Florida, Illinois, New York and Texas), but it’s likely to be expanded if it proves successful.