Auto Financing : Having the F&I Process Revealed
You have picked your car, made sure you got the best deal but what about auto financing. When it comes to the financial part of the buying process it is possibly one of the most overlooked.
You've researched your vehicle choice extensively, you even got the invoice pricing to be sure you received that extremely fair deal for the car. One part you should pay close attetion to, Total Cost. The total cost of "your fabulous deal", if you're not careful, can be increased by thousands of dollars without you even really being aware by a less than honorable F&I manager.
Auto financing has many faces, hence the name finance and insurance office or F&I for short. All elements of the F&I process have the potential of relieveing your wallets of possibly thousands that didn't need to be lost. There is the actual credit or loan portion which consists of both low interest rate and sub-prime financing. Be aware though extra services and insurance policies are also being sold, extra products such as rust proofing or window tinting being offered for sale and extended warranties from various companies are also being offered. The main goal of all of this is to increase dealer profits, substantially.
For the United States and Canada the auto financing process can happen at different times in the car buying experience. Both of course have the same end result, extra money being spent. This of course is not to say that all money that is spent in the auto financing office is foolish money. The products and services offered do serve a purpose, other than just increasing dealer profits. Many people would not be able to afford a new or even a used vehicle without auto financing, and of course borrowed money costs money. The question is how much money is it really? Thousands of dollars have also been saved with the purchase of extended warranties and other products being offered by lessening the expense of repairs and possibly aiding in the longevity of the vehicles life expectancy. The question we ask though, was that product really a smart purchase?
The credit or loan portion of auto financing as we stated earlier consists of three types of financing. The advertised low auto financing interest rate or "captive financing", which depending on the area and the manufacturer you are purchasing from could just be a lure and higher bank and
, just in case either you or worse they feel you have poor credit and require "high risk" auto financing.
Unfortunately, for our American friends this is a very common problem in auto financing. Estimates show that as few as 6.94% of American car buyers will actually qualify for those special/teaser rates. Some manufacturers require a minimum of a 700 on your credit score and most require that you pay the loan back within a short timefrme.
The other issue that the American car buying public should be aware of is the cost of spot deliveries. Picking up your new vehicle the day you purchase it can seem like an exciting idea, but beware the "subject to financing" clause on your bill of sale. You may drive your new car for up to two weeks and then hear back from the dealer stating you did not qualify for the loan.
Be prepared. Check out your own credit score and apply for an outside loan either at your bank, credit union or online. You are not forced to take the loan but it helps in case you do not qualify for the low APR. For the most part Canadian consumers do not have to worry about this, although knowing your credit rating will still allow you to get the best interest rate possible.
For the car buyers with a less then stellar credit rating in both Canada and the States, credit shopping is one of the most common mistakes made. Going from dealer to dealer and filling out credit applications. The issue with doing this frustrating and labor intensive task is you are actually doing more damage to your credit rating.
Even by only using one dealership and resubmitting applications to various lending institutions, you will do the same damage because each inquiry lowers your credit worthiness. The reason the lending institutions feel your credit worthiness is lower? Simply put, you don't need to shop for credit if your credit is good.
If you feel that you may have some credit issues or you have followed my advice to check your credit score/rating and have noticed some issues, there are lenders that specialize in less than perfect credit. For Americans a credit score of less then 600 and for Canadians with many R ratings that are higher (R3-R9), you may want to investigate this avenue.
Again, if you do qualify for the dealers low APR (annual percentage rate) then you don't have to take the loan from the sub-prime auto financing company.
Another problem that many consumers face when getting dealer financing is extra purchases. Be aware that some F&I managers use your credit rating to force the sale of extra products or services.
The extra products and services offerd for sale in the
F&I auto financing office
are not all bad as we stated earlier, in fact we have witnessed many consumers saving thousands of dollars because of their purchases.
Unfortunately, the forced sale of some products can sour the experience. "Your credit application won't be accepted without this" warranty, rust proofing, extra insurance etc.
The question we ask. Why would a lending institution not approve a loan for a $10 000.00 car but would approve a loan for a $10 000.00 with a $3000.00 warranty and $900.00 rustproofing? It just does not make sense. Of course it makes sense that the F&I manager will work harder to get you approved with these products. Especially considering he/she could personally make upwards of $500.00 in commissions. The managers who use the force sale ruin it for everyone. They sour the consumers, honest F&I managers and honest dealers. Don't allow them to do it to you as well.
Listed below are the most common products and services offered and the pros and cons of each.
Warranties: Many times these can save you extra costs down the road from repairs. Check our links to online warranty companies to get a price to compare to the dealers offerings, but remember do not buy for price alone
Window/Security Etching: I have had a few past clients receive the payout available for their vehicles being stolen. In reality though we believe it is more about padding the dealers pockets
Tire/Service packages: I sit on the fence with these. Some of my clients have saved quite a bit of money because of these and others have never used them once. Check the cost and then tell them you'll let them know in a day or two. If it is more then you feel comfortable with, I would say forget it.
RustProofing: This will extend the life of your vehicles body and therefore we recommend it, but be aware that the occasional "lifetime warranty" on this product is not a lifetime and is riddled with loopholes. My main recommendation is to research competitive pricing and the products quality
Fabric and Paint Guard: Honestly, buy yourself some good quality polish and wax at an auto parts retailer and buy a few cans of Scotchguard. The price of these products is basically all profit.
Life/Loan insurance: These products can sometimes have very inflated prices and riddled with loopholes so research the specific policy being offered. I do think though, that anything that can protect you, especially when you could use some help is worthwhile.
GAP insurance: Get competitive quotes before going to the dealership. If you have put less then 20% down I suggest it. GAP is basically insurance that pays off your deficiency. Explanation: You owe $10 000.00 but the car is only worth $6500.00 when it is stolen or wrecked in an accident. You have to come up with the extra $3500 immediately to pay off your loan unless you have GAP, which will then pay it.
Alarms/Tinting etc.: This is a case by case basis. I get tint on all of our cars but thats because we like it. The big caveat is to check prices because most of these are done by contractors and the dealers substantially mark up their prices, sometimes by more then 100%.