Lender will buy your car after four years under new loan program

Bills folded in shape of auto

Last fall, Ally Financial unveiled a new form of vehicle financing that works as a traditional auto loan but allows the buyer to sell the vehicle to Ally after four years.

The rollout of Ally Buyer’s Choice started in just a handful of states. Now the program is available in 29 states with plans for future expansion.

Here's how Buyer's Choice works:

-- This program is available on new 2011 or 2012 Chrysler or GM vehicles purchased through a participating dealership.

-- You must take out a 60- to 84-month auto loan under the Ally program. (The interest rate will be the same as under a standard Ally auto loan.)

-- Your interest rate will be determined based on the auto loan term, your creditworthiness and other factors. There is no down payment requirement.

-- After 48 months, you can sell your vehicle to Ally at a price determined before you purchase the vehicle. If you want to keep the car, you'll continue making your monthly payments.

Ally calculates what it will pay you based on a 48-month residual value.

As a general rule, after 48 months, a car’s residual value will probably be less than half of what you paid for the car.

However, Ally says what it pays will at least cover your remaining auto loan payments.

Ally says its program provides "the best of both worlds for customers who want the advantages of both buying and leasing."

While this might be true, Buyer’s Choice does come with some tradeoffs:

-- You could pay more in sales tax through Ally Buyer’s Choice than you would with a traditional lease.

-- Since monthly payments on a lease are generally lower than monthly payments on a purchase, you might end up paying a premium for flexibility if you decide to sell in the 48th month.

-- While new vehicles often come with dealer incentives, some dealer offers are specifically excluded from special Ally financing deals like Buyer’s Choice.

Buyer's Choice is available in Alabama, Arkansas, California, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Mississippi, Missouri, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, Wisconsin and West Virginia.

Ally's financing program has evoked comparisons to Hyundai's Assurance Trade-In Value Guarantee.

The latter program originally covered all new Hyundais, but it now applies only to three of the company’s higher-end vehicles: Genesis, Genesis Coupe and Equus.

Under Hyundai Assurance, buyers are told at the time of purchase how much they can receive for their vehicle in trade-in value after they’ve owned it for 24 to 48 months.

That trade-in amount must be put toward the purchase of a new Hyundai financed through Hyundai Motor Finance (HMF).

If the vehicle is worth more at trade-in time, the consumer will receive a higher price. But if the consumer drives the vehicle more than 15,000 miles per year or subjects it to excessive wear, Hyundai will lower the guaranteed value.

Ally Buyer’s Choice offers buyers a much larger selection of vehicles, but the only time buyers can sell the vehicle to Ally is in the 48th month.

And Ally’s program offers greater flexibility in that if you decide to ditch the vehicle after 48 months, you sell it to Ally and you’re done -- you don’t have to trade it in for another GM or Chrysler car.

Similar to Hyundai’s guaranteed price, Ally’s predetermined price comes with some caveats.

If you choose to sell the vehicle to Ally, a third party will inspect it. Excessive wear and tear or excessive mileage will reduce the predetermined sale price.

Also, while Ally’s offer is guaranteed, it may not be the best offer you can get.

Unlike Hyundai, Ally will not increase its predetermined sale price if your vehicle has a higher than expected value after 48 months. You might have to sell your car elsewhere to get the best price.

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