By Tony Iorio
The Finance Dept. in the car dealership, otherwise known as the "Business Office" or the "F & I Dept." has only ONE JOB; To make sure you walk out with the HIGHEST PAYMENT POSSIBLE!
That nice, friendly person behind the desk in the Finance Office who is offering to arrange your car loan "so you don't have to be bothered with it" is truly a "Wolf in Sheep's Clothing!" And he or she is usually working on a straight commission pay plan!
Trust what I tell you. I was a trained and very experienced, straight commissioned F & I guy!
When you negotiate a car deal based on your monthly payment the dealer is going to quote you a "loaded payment." This means any payment quoted to you is going to contain a plethora of profit builders for them. . .at your expense, of course!
What the car dealers don't want you to know is that they make as much, and often more money from arranging the car loan then they do on the car deal itself! This is because when they arrange the loan it will include a higher Interest Rate, (that is, higher than you can get on your own) and often Credit Life & Disability Insurance and an Extended Auto Warranty.
Here's how it works:
When you let the dealership arrange your financing they will receive a Kick-Back from the bank equal to a certain percentage of the Amount Financed! The higher the interest rate the F & I person can talk you into - and often you won't even know what rate they're using - the higher the Kick-Back is going to be. The Kick-Back could be as high as 10% or MORE of the total amount financed.
For example, if you were financing $20,000 the bank or finance institution that the dealer is associated with will be Kicking Back as much as $2,000 or more to the car dealer.
That $2,000 is packed into Your payment! In other words you're paying it! Needlessly! Just to line the car dealer's pockets.
You can avoid this rip off by arranging your own car loan before you ever step foot in the car dealer's showroom. You can either arrange it through your own bank or credit union or go to Car Financing Tips. This way you can avoid getting caught up in the car dealer's trap!
If you do allow the dealer to arrange your loan there's an excellent chance the dealer will add Credit Life & Disability Insurance to the loan - very often without your knowledge - and this will increase your payment significantly. It's your choice to get this coverage or not, but you should at least know about it first! Most of the time they will just try to sneak it in on you.
There are two kinds of Credit Insurance that the Finance Person will try to slip in on you. Credit Life Insurance is the first. This covers you in case you should die before your car loan is paid off! If you have an auto loan in your name with Credit Life on the loan and you die before the auto loan is paid off, The insurance will pay off the balance.
If there are two names on the car loan like a husband and wife you can get Joint Credit Life to cover both people.
The second kind of Credit Insurance is called Disability or Accident and Health. This coverage is very expensive, and it covers you in the event that you become disabled through sickness or injury and are unable to work.
This coverage will make your payments for you until you get back to work. You usually have to be disabled for at least 15 to 30 days before you become eligible. Also, there is much fine print for pre-existing conditions.
Now don't get me wrong! Many people think these coverages are a good idea. It's just that the car dealers usually earns 50% of the price of this coverage as commission which can amount to thousands of dollars in the dealer's pocket. That money is buried in your car payment! So you're paying for their commission!
Now as for an extended auto warranty I personally think it's a good thing to have as long as you don't get grossly over charged for it. You can learn more about extended auto warranties at Extended Warranty Tips.
However, when you allow the car dealer to include a warranty in your payment - and again, they may pack it into your payment without you even knowing about it - they are going to mark it up substantially! I have personally seen car dealers mark-up extended warranties as much as $2,500. That's $2,500 over and above their cost!
If that's not bad enough, you are at there mercy as to the quality of the warranty itself. There are only a few good extended warranty companies out there. Most of them aren't worth the paper they are written on. To find out the only two warranty companies I can recommend to you with a clear conscious go to Extended Warranty Tips.
So now you see all the different ways the car dealer can make money on you in the Finance Office. There are other products they might try to pack into your payment such as Gap Insurance, rustproofing, window etching, stereo upgrades, alarms, paint sealant and on and on it goes!
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