We at the SFCDA feel drivers considering buying a medallion should
be clear on how balloon payments work, and how much they cost.
Balloon payments allow a medallion holder
who purchases a medallion, to make low monthly payments and still go home with money. This is achieved by making a loan at
the monthly payback rate of a much longer term loan, but it all must be paid back in a much shorter time, in this case 3 years,
and then refinanced.
The maximum loan amount from the credit unions is 80% of the medallion cost, or $200,000.
Here's a couple examples from the San Francisco Credit Union's website sanfranciscofcu.com/loans/taximedallion_loan.htm of the balloon payments available, and what you'll actually be paying after 3 years.
If you were to take
a $200,000, 25 year balloon payment loan at 7.25%, your monthly payment would be $1,446. This means you'd pay back at the
monthly rate of a 25 year loan with the same interest, but you have to pay it off in 3 years.
At the end
of 3 years, you will have paid $52,056, but will have only paid off $8,360 of your principle loan. You then have to refinance
$191,640 at a probable new interest rate. You will have paid the bank $43,696.
If you take out a $200,000,
15 year balloon payment loan at 7%, you're monthly payments would be $1,798. After 3 years you will have paid the bank $64,728
and only paid off $24,175 of your principle. You will have paid the bank $40,553.
Your overall income might
rise slightly by having a medallion and you might be better off now, but in 10 or 15 years, when you normally would have gotten
your medallion, you'll still be making balloon payments and splitting your income with the bank.
anyone considering this option to keep this in mind.
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