BMW's captive adds balloon note feature on i3 EV

BMW Group Financial Services aims to take advantage of i3 customers that will qualify for a federal income tax credit of up to $7,500.
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BMW Group Financial Services plans to launch a new feature for its OwnersChoice balloon note payment plan that will apply only to the BMW i3 electric vehicle.

The idea is to take advantage of the fact that eligible buyers of an electric vehicle often qualify for a federal income tax credit of up to $7,500, said Mike van Bemmel, general manager of sales analytics for the captive finance company.

Under the new feature, called OwnersChoice with Flex, BMW Group Financial Services will advance BMW i3 customers up to $7,500 in anticipation of the tax credit.

The amount -- which the customer has to repay at the end of the plan's term, which is typically 36 months -- is applied to the balloon note, which serves to reduce the customer's monthly payment.

The i3 goes on sale in the United States in May.

In general, balloon notes can be compared to leases. In a lease, the customer finances the difference between the upfront cost and the predicted residual value. A higher residual value means a lower monthly payment. The lender's name stays on the title. At the end of the lease, the customer can either turn in the car or pay the residual and keep it.

In a balloon note, the balloon note amount is analogous to the residual value in that a higher balloon note means a lower monthly payment.

Unlike with leases, the customer's name goes on the title in a balloon note deal. Under most balloon notes, customers must repay the balloon note or else refinance it when they purchase their next vehicle -- even if they return the car.

BMW Financial's OwnersChoice is different from most balloon notes, van Bemmel says. On a standard OwnersChoice balloon note, the captive allows the customer to turn in the car and walk away at the end of term. "In other words, returning the vehicle to us at the end of term satisfies the balloon they owe us," van Bemmel says.

"There are balloon products on the market that do not provide a walk-away option. In other words, the customer has to pay off the balloon or refinance the balloon," van Bemmel says. "OwnersChoice and OwnersChoice with Flex are different than these products as both products provide the customer with a walk-away option."

Unique to the BMW i3 will be OwnersChoice with Flex, the "flex" part being the customer's ability to add another $7,500 to the balloon note. Over a typical 36-month term, a $7,500 reduction works out to reducing the payment by $208 per month. That helps make balloon note payments competitive with a lease payment, the captive said.

Customers who opt for OwnersChoice with Flex must repay the flex amount at the end of term, whether they purchase the car and keep it or turn the car in, van Bemmel says.

The base price for the i3 is $42,275, including shipping. With a two-cylinder gasoline engine range extender, it's $46,125.

You can reach Jim Henry at autonews@crain.com.

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