Ford Motor Credit is looking to change the face of auto finance.
The captive’s new financing product, Ford Option, which is slated to launch in the fall in tandem with Ford Motor Co.’s all-electric Mustang Mach-E, is a hybrid between a retail installment contract and a lease, a company spokeswoman confirmed with Auto Finance News.
“Ford Option is designed to support the launch of Mach-E with a financing option that’s as innovative as the vehicle itself, offering consumers a way to finance Mach-E with a retail purchase plan with a final balloon payment,” spokeswoman Margaret Mellot said. “It’s designed to offer customers the ownership features of traditional retail financing with the benefits and flexibility typically associated with leasing.”
Contract terms will run at 36 or 48 months, with a final balloon payment at the end of the term. A balloon payment is a large repayment of the outstanding principal balance at the end of the contract, as the loan will not fully amortize as with a standard retail installment contract. The Ford Mustang Mach-E starts at $43,895 and can extend beyond $60,000 for the GT model, according to Ford’s website.
At the end of the contract, customers will have three options: return the vehicle as if it were a lease —mileage, wear and use terms will all be built into the contract; renew the contract by trading in or selling the vehicle and applying any equity toward another Ford vehicle; or keep the vehicle and pay the final balloon payment. Consumers will also be able to refinance the balloon payment into monthly installments. Finance and insurance products, such as GAP insurance or service contracts, will also be eligible to be financed under the Ford Option program.
While the Ford Option is billed as a hybrid lending product, the contracts will be considered retail installment contracts and remain on Ford Credit’s balance sheet. The captive will also offer traditional retail contracts on the Mach-E.
Ford Credit’s Ford Option is positioned to be the first of its kind. Electric-vehicle manufacturer Tesla is the only other OEM to offer a financing product exclusive to EVs through its financing arm, Tesla Finance. However, Tesla Finance only offers a traditional leasing model in 40 states on a 36-month term — retail contracts must be secured through different lenders — on its Model 3, S, and X models, according to the company’s website.
Yet, consumer adoption of the new program remains to be seen. Traditional leasing, which was introduced in the 1950s and ‘60s by major OEMs, didn’t gain popularity until the ‘80s, and currently accounts for only about 30% of the total finance market.
It is unclear whether Ford Credit will expand the Ford Option financing product to other vehicle models, but the captive plans to release additional details about the program closer to launch, Mellot said.
Ford Credit had an outstanding portfolio of $54.9 billion, according to the OEM’s first-quarter earnings report.
— Additional reporting by Garret Reich
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