Dealer Reserve

Anyone catch the 60 Minutes piece on Dealer Financing? The Finance
guy can add 1 - 3 percentage points (or more) to your loan and get a
check (dealer reserve) from the finance company for the extra profit.
3% could be a couple thousand dollars extra on a $20,000 car financed
for 60 months. I assume this is mostly done with people who don't
qualify for factory financing. Or maybe don't know they qualify for
factory financing. People with mediocre credit might qualify for
14.9% financing but be written up for 17.9%. One ex-employee said
they would bump people as much as they could. One lady got taken for
$7,000.

The finance guy would tell the customer he was getting the "best
possible" financing. The dealer they interviewed smiled a lot and
said customers know that everything is negotiable (again and again).
If they didn't get a better deal somewhere else then that was the
"best possible" deal there were going to get there. Not telling the
customer about the additional charge seemed quite ethical to him.

This has nothing to do with Honda dealers specifically, but you have
to be careful everywhere.

Do The Math Yourself,
Roadie Roger

 

I saw this 60 Minutes piece.

As much as I loathe car dealers, I thought the guy speaking for car dealers had
a point: People are free to arrange their own car financing. He has no
obligation to do the research for consumers. He's trying to make a living.

His comment that "the best deal" available was the "deal on which all parties
agreed" was slippery. Yet, only if people do not read and take their budgets
seriously would they go into a car dealership thinking the car dealer was trying
to give them a break.

As far as targeting minorities: This comes up with home loans, too. I don't
think it's entirely clear that minorities are paying higher rates because of
their skin color or because they simply do have lower credit worthiness, based
on income, past credit history, etc.

The "60 Minutes" piece didn't carry as much weight as I think its producers
hoped it would. At most, it was a "Consumer Reports" worthy report. Which is
saying a lot, actually. Just no legal scandal, IMO.

 

Honda dealer tried to charge me 10% interest on a car loan. I told them that I
should get a better rate. They bs me with bad credit score. I told them I was pre
approved for a car loan with much better rate from a bank. They then changed their
tune and offered me a better rate then the bank. The finance guy bs me for 2 hours.
I didn't tell him that I used to work in loan industry.

The finance guy from Mazda tried to con me. During negotiation, he agreed to the
rate I asked. He went to get approval from his boss. He came back with a payment,
not rate. I confronted him that the payments were much higher than the rate we
agreed. He walked away and came back with the right payments.

Car loans are very dirty. Two of my co-worker recently get bad deals. They don't
care after my friend confronted them with the bad deals they got. Those victims
won't know that that they got raped if my friend didn't tell them. The fed seems to
do little about car loans.

I used to work in a wholesales home mortgage company. We underwrote home loans. We
were the lender. The minority get hit hard with points from the brokers. The
processing department turned away loan application that had too much points.
Basically, we returned applications that clearly raped the applicants.

In the underwriting department, the minority get excessive special treatments. It
was grossly reverse prejudice there, really sickening to me. If you were a minority
and your loan application denied, the application had to go through 2 more
underwriting to try to approve the loan. If you were white, you only got 1 chance.

Here are the pieces about mortgage that you should know.

1. Points are percents of your loan. 1 point = 1% of you loan.

2. Brokers charge you points or application fee for your application. They send your
loan application to lenders. They get to choose whom your lender be. In a sense,
they'll give you their best deal, not your best deal.

3. You pay for all fees.

4. Brokers will pay your fees if and only if they get special deals from the lender.
Those loans where you don't pay any fee will end up costing you more in interest.
Brokers get a fat commission from those deals.

5. The higher the interest rate on your loan, the higher the points the lender give
the brokers.

6. Brokers get points from you and your lender. Don't be fooled when they say they
do you a favor.

7. Your credit score qualify you for a certain rate. There used to be 2 tiers. The
really high score qualify for the lowest rate. The rest get the lower rate. Few
people qualify for top tier rate.

8. Direct loan application to a lender get you decent rate, better than average
brokers. The best rate is from a dedicated broker, hard to come by.

9. The best deal you get is what your broker offer you, not the lender. Your chance
of getting a best deal is slim.

 

It works both ways.... I have perfect credit and when purchasing a vehicle
from Chevy, I told them I didn't want their GMAC financing as my bank had a
better rate than 4.4% they were offering (i lied)... The sales guy went
and hung out with the sales manager so I opened my book. (Always take
reading material). He came back in about 5-10 mins and asked if I would go
with GMAC if they matched the made up number I came up with of 3.5% for 60
months. I reluctantly agreed.. HAHAHAHA and signed immediately!

So when Chevy was offering the $3500 rebates or $1000 rebate and the
financing of 3.5%... I got both! $3500 and 3.5% But you have to be a
stone faced liar... which I can do, no problem. I know its all a game, and
this time the consumer won!

But, yes, you have to know what the numbers should look like before you walk
into a dealership.

Keith

 

This isn't news. That 60 Minutes thinks it is, is why I stopped
watching 60 Minutes about 20 years ago.

Anyway, take my advice to heart: buy the car from one guy in one
transaction, and buy the money from someone else in a completely
separate and unrelated transaction.

In other words, don't use the car salesman or dealership to arrange the
financing. Arrange it yourself.

That's not so hard, is it? I've been telling people this for many, many
years.

 

A very good tactic. When I bought my Accord EX last summer, I talked
with the salesman for at least 1 1/2 hours after my test ride (which
lasted 45 minutes, BTW - it's his time!). I had numbers from the 'Net,
which they wouldn't even approach, so I thanked him for the test ride &
his time and left, saying I needed to check other dealers). Walking away
from the deal is a very powerful negotiating tool.

I got a call from him the next afternoon telling me his good friend the
sales manager had authorized him to meet the 'Net figures, which he did,
so I bought the car.

Fighting fire with fire - kudos to you for negotiating at their level.

 

Doesn't it depend on who's offering the best deal?

 

In my search for a Hyndai for my in-laws in Vegas, (I'm in L.A.) Metro
Hyundai told me there would be $l,800. in fees, not including the sales
tax! When I asked him to itemize these "fees", the first one was window
etching for $375. I had to ask him twice if it was required by law. It
isn't. The cops are doing it for free there. The second charge was for
'transportation' from the auction. The salesman had already admitted it
was a car bought at that dealer and then traded in for the newer style
Sonata.

Needless to say, I moved on from that transaction and found a nice car
for thousands less than what that dealer was willing to do.

That's why every car deal I do is with money I've secured away from the
dealer.
A lease? Never!

 

I suggest bringing a PDA with a loan calculator program on it when dealing
with the finance department. When I bought my civic with Honda financing,
1.9% promotion, the payment looked high, I calculated the numbers and the
monthly payment was about 20 dollars high. I asked the finance guy what the
discrepency was and he said "Oh, that's insurance in case something happens
when you die so your family wont have to pay for it." I said "No thanks!"
What a little sneak! I was bitter, this guy tried to stick me with omething
without my knowledge!

 

so? dont finance at the dealer. get pre-approved at a real bank.

 

unless your credit is "tits", you arent going to get a special rate from the
stealer.

 

Private party. Cash.

That's really the only way to get a deal. How you get the money -
that's often as simple as taking out a personal loan at your bank.
Nobody's going to beat that after all the payments and nonsense
is factored that you'd be in for with a car loan.

Another advantage is a loan can be paid back early or in as
much or little as you need - as long as the minimum payment
per month is met. You have X dollars to pay off and the
quicker you do it, the less interest you accrue.

A typical auto loan is fully amortized so that if you win the
lottery and want to pay it off, you still owe the full $30K
on that $24K car. It's basically robbery coming and going.

Yes, it often does mean a $4-$8K used car, but there are many
superb examples to be found out there this way.

Oh - you also don't have to get full coverage on the car if you
use a personal loan or pay cash.

 

A very old and true story. Anyone who cars about their finances should
comparison shop financing just as much as they do the vehicle price.
Better yet, save up your $$$ and pay cash come new car time. I've done that
for many years now and it works.

John

 

Very good idea - they'll try to put something over on you, boosting your
real cost, until you've signed all the papers & driven off the lot (no
guarantee that's the end, either, there's always the "you didn't qualify
for the lower rate so you have to pay 14% & you can't return the car
because it's a used car now" scam). I caught my dealer fiddling with the
rate (I was pre-approved by Honda Financial, but they don't guarantee a
rate) which would have bumped my monthly payment +$10. Don't yield an
inch - no reason you should, after all "it's your money". I also endured
repeated attempts by the Business Manager to sell me the extended
warranty, to the point where I told her if she brought it up again I was
going to take my certified check for the balance and go home. They
ultimately completed the deal and gave me a 3.64% rate.

BTW, never answer the "how much of a monthly payment can you afford?"
question, never! Talk in terms of the principal amount, the term and the
rate - they determine the monthly payment & there's no CR insurance
hidden in there. Besides, no reason to pay $300/month if you can get the
car for $250/month.

 

"tits"?

 

No way! Don't ever sign for a loan which has a prepayment penalty.

 

||1.9% promotion, the payment looked high, I calculated the numbers and the
||monthly payment was about 20 dollars high. I asked the finance guy what the
||discrepency was and he said "Oh, that's insurance in case something happens
||when you die so your family wont have to pay for it." I said "No thanks!"
||What a little sneak! I was bitter, this guy tried to stick me with omething
||without my knowledge!

There is a federal law against requiring credit life insurance.
This practice comes pretty close to stepping over the line.
Rex in Fort Worth

 

That's not what I said. What they do is calculate the full interest
into the loan and you make payments on the new total. Other than
a credit union, even the banks do this. There's no point in paying
it off early, either, as the loan is front-loaded so that you are
paying off interest only for the first year or two.

They even do this on home loans 80-90% of the time. It's very hard
to find a simple interest loan anymore other than personal lines
of credit, which is why I recommended it.

 

My favorite quote in this situation is: "If it's $237.82 a month, then
that's what it's going to be."

The monthy payment scheme is the worst scam of all. Show me a balance
and the interest rate. Calculate payments from that.(any decent
calculator or PDA can do this)

 

Was that credit insurance in case you died, or "gap" insurance, to cover
the difference between the loan amount and the value of the car that your
insurance company would pay if you car was stolen or totalled?

A friend had a six month old VW totalled out by a drunk driver. She had
the gap insurance, which cost more than I thought it was worth, I seem to
recall $19 per month. But it paid the $2500 difference between her loan
balance and what her car insurance paid for the car.

I thought about my next door neighbor, with a Mitsubishi, $0 down, $0 per
month for two years. What would the insurance company payoff be if that
car were totalled at 23 months and 50,000 miles, compared to the loan
balance with nothing having been paid toward the original loan.