BikeRider
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This is from my post on my Civic board. It is very basic, but I put it in language that those 17 yr olds could read. I will continue to update it as I go on:
Disclaimer: This is for informative purposes only, it does not reflect the opinions or thoughts of the owners or members of this forum.
After seeing so many misconceptions float around the forum, I thought I’d offer up my experience as a person on the other side. I have been in the auto industry my entire career, from a Finance Manager, Sales Manager, and now an Underwriter. I know the dealerships point of view, the bank’s, and even the customers, so I understand the business inside and out. I will begin with what to do by showing you what to know before you go to the dealership. Remember, an educated consumer is dangerous, but don’t go in acting like you know everything because you read it on the forum. Over the next week, I will be adding a section per day (work allowing).
OUTLINE:
1. KNOW YOUR CREDIT
2. KNOW WHAT YOU WANT AND KNOW YOUR BUDGET
3 BACKEND PRODUCTS, ARE THEY WORTH IT?
PART 1- YOUR CREDIT
The largest portion of a car deal that drives up a monthly payment and the total of the car’s cost is the APR. You can make the best deal in the world, below invoice even, but if you don’t know your credit, and they write your APR up, you have just significantly increased the vehicle’s cost. It is important that you know your credit and know your FICO scores so that you understand what you can qualify for. I will list a breakdown of how most banks score you based on your FICO, but understand that it is a generalization and your entire credit bureaus would have to be analyzed to determine your actual risk.
550 and below- Good luck getting approved anywhere, state max APR’s will be used (For arguments sake Texas on a new car is 18%)
550-600- Considered the bottom end of the sub-prime market and you too will pay state max APR’s down to about 15%.
600-650- Middle of the sub-prime market and rates will be anywhere from 10%-15%
650-700 Upper sub prime to prime. You can get anywhere from 6%-12%. Occasionally if the banks are “buying deep”, they will lower their standards for the special APR offers.
700-750 Prime, you will qualify for all the special rates that manufacturers offer such as the 1.9% on 2003 Civics from American Honda.
750 and above- Considered Super Prime and pretty much guaranteed to be below 5%,
Regardless of the credit score, the dealer can write your APR higher than what you were approved for . I will show you an example of how you can get screwed. Let’s say you got a 2004 Civic EX coupe at invoice for $17000, and for argument’s sake, that is how much you finance. Let’s say you have decent credit (and the bank approves you for 6% APR). At the same time, the bank also allows the dealer to write the APR up 5pts for some additional profit for both parties.
Written at 6% for 60 months, the monthly payment is $328 and the total of payments is $19720.
Written at 11% for 60 months, the monthly payment is $370 and the total of payments is $22178.
Yeah, the monthly payment is not that big of a deal but $2453 is how much more you’ve paid for the car at the end of the loan.
PART 2 -KNOW WHAT YOU WANT AND KNOW YOUR BUDGET.
Don’t go into a dealership undecided on what you want, or this opens you up to a trick called the bait and switch. For example, if you are going a Honda dealership, know if you are looking for a Civic, Pilot, Accord, etc. I have seen people come into dealerships for small economical cars and walk out with full size SUV’s because the salesman worked them. Also, it is a good idea to know how much you can afford for the monthly payment and how much you are going to put down. Generally, it is best to only assume 15% or less of your gross monthly income. For Example, if you make $3000 month, you should consider a $450 per month payment to be your absolute max. This brings me to my next point……..DON’T TELL THE SALESPERSON HOW MUCH YOU CAN AFFORD A MONTH OR HOW MUCH YOU ACTUALLY HAVE DOWN. The best thing to do is talk sales price on the vehicle, never payment. Sales people lick their chops when people tell them how much they can pay a month and how much they have down. The haggling that takes place regarding payment always includes some extra money for the finance guys to add their back end products, so you need to tell them you want to pay a price, not a payment. Regarding the down payment, generally tell them a small amount down like $0 or $500, then unload you real down payment after you already have an offer from them on the table. Always keep an ace in the hole, believe me, they do.
PART 3- BACK END PRODUCTS, ARE THEY WORTH IT?
The following are backend products and what their purpose is. If you don’t see the backend product on here, it is probably not anything you should consider. Backend products increase a dealer’s profitability almost by double of what they make on the sale of a car, so carefully consider anything other than the car that you buy.
SERVICE CONTRACT OR WARRANTY
Description- Allows you to have protection if the car breaks down, but their will be a deductible.
Price: $500-$2000
Yes or No?- Usually never needed on a new car because you have a factory warranty giving you a minimum of 36 mos/36k miles. If you want a longer one, wait until your factory warranty expires. It’s a federal law that you are allowed to purchase one from a dealership before the original one expires, no need to finance it. Also, there are independent companies that send you solicitations around the 3 year mark via direct mail.
Refundable from Bank or Company- Yes, generally you can receive a value from the bank or warranty company. Some are even transferable with the car when it is traded. Never believe that a bank “requires” a service contract to be sold to the customer.
GAP OR DEFICIENCY PROTECTION
Description- If the car is ever a total loss, this pays for the difference of the value deemed by the insurance and what you owe to the bank.
Price- $100-500
Yes or No?- If you have a car that generally does not hold its value (Kia, Mitsubishi, Daewoo, most domestic cars that are not sports cars) or your credit is not that great, GAP is a good idea. Deficiencies in the first year can be in excess of $6000 on some cars and the extra $200 can save you thousands.
Refundable from Bank or Company- Yes, generally you can receive a value from the bank or GAP company.
CREDIT LIFE OR DISIABILITY
Description- If at any time you die (LIFE) or are injured (DISABILITY), you will receive a payment from the insurance company to help pay for the car and your injury
Price- I’ve seen people pay from $150 all the way up to $4000.
Yes or No?- NO! These products are actually used at a low %. This is a good way to get upside down in a car or increase the dealerships profit exponentially. If you insist on this product, go to your local State Farm or Allstate agent and they will generally sell the same thing to you for 1/3 of the price.
Refundable from Bank or Company- Yes, generally you can receive a value from the bank or insurance Company.
TIRE WARRANTY, PAINT PROTECTION, SCOTCH GUARDING, VIN ETCHING
Description- These are pretty self descriptive.
Price-$50 to however much they get someone for
Yes or No?- No. All of the products above are not generally considered to be valuable backend products and require the dealer to add these in as part of the sales price. Tire warranties sometimes cost more than a replacement set of tires. Paint protection and Scotch Guarding is generally done at the factories. Cars sold with those two items most of the time have nothing more than the rest of the cars on the lot. The consumer can do VIN etching, there are websites that sell it for $10. It doesn’t add any value, most cars already have the VIN all over the car.
Refundable from Bank or Company- Not Likely and you don’t receive any credit from it when trading or selling.
Disclaimer: This is for informative purposes only, it does not reflect the opinions or thoughts of the owners or members of this forum.
After seeing so many misconceptions float around the forum, I thought I’d offer up my experience as a person on the other side. I have been in the auto industry my entire career, from a Finance Manager, Sales Manager, and now an Underwriter. I know the dealerships point of view, the bank’s, and even the customers, so I understand the business inside and out. I will begin with what to do by showing you what to know before you go to the dealership. Remember, an educated consumer is dangerous, but don’t go in acting like you know everything because you read it on the forum. Over the next week, I will be adding a section per day (work allowing).
OUTLINE:
1. KNOW YOUR CREDIT
2. KNOW WHAT YOU WANT AND KNOW YOUR BUDGET
3 BACKEND PRODUCTS, ARE THEY WORTH IT?
PART 1- YOUR CREDIT
The largest portion of a car deal that drives up a monthly payment and the total of the car’s cost is the APR. You can make the best deal in the world, below invoice even, but if you don’t know your credit, and they write your APR up, you have just significantly increased the vehicle’s cost. It is important that you know your credit and know your FICO scores so that you understand what you can qualify for. I will list a breakdown of how most banks score you based on your FICO, but understand that it is a generalization and your entire credit bureaus would have to be analyzed to determine your actual risk.
550 and below- Good luck getting approved anywhere, state max APR’s will be used (For arguments sake Texas on a new car is 18%)
550-600- Considered the bottom end of the sub-prime market and you too will pay state max APR’s down to about 15%.
600-650- Middle of the sub-prime market and rates will be anywhere from 10%-15%
650-700 Upper sub prime to prime. You can get anywhere from 6%-12%. Occasionally if the banks are “buying deep”, they will lower their standards for the special APR offers.
700-750 Prime, you will qualify for all the special rates that manufacturers offer such as the 1.9% on 2003 Civics from American Honda.
750 and above- Considered Super Prime and pretty much guaranteed to be below 5%,
Regardless of the credit score, the dealer can write your APR higher than what you were approved for . I will show you an example of how you can get screwed. Let’s say you got a 2004 Civic EX coupe at invoice for $17000, and for argument’s sake, that is how much you finance. Let’s say you have decent credit (and the bank approves you for 6% APR). At the same time, the bank also allows the dealer to write the APR up 5pts for some additional profit for both parties.
Written at 6% for 60 months, the monthly payment is $328 and the total of payments is $19720.
Written at 11% for 60 months, the monthly payment is $370 and the total of payments is $22178.
Yeah, the monthly payment is not that big of a deal but $2453 is how much more you’ve paid for the car at the end of the loan.
PART 2 -KNOW WHAT YOU WANT AND KNOW YOUR BUDGET.
Don’t go into a dealership undecided on what you want, or this opens you up to a trick called the bait and switch. For example, if you are going a Honda dealership, know if you are looking for a Civic, Pilot, Accord, etc. I have seen people come into dealerships for small economical cars and walk out with full size SUV’s because the salesman worked them. Also, it is a good idea to know how much you can afford for the monthly payment and how much you are going to put down. Generally, it is best to only assume 15% or less of your gross monthly income. For Example, if you make $3000 month, you should consider a $450 per month payment to be your absolute max. This brings me to my next point……..DON’T TELL THE SALESPERSON HOW MUCH YOU CAN AFFORD A MONTH OR HOW MUCH YOU ACTUALLY HAVE DOWN. The best thing to do is talk sales price on the vehicle, never payment. Sales people lick their chops when people tell them how much they can pay a month and how much they have down. The haggling that takes place regarding payment always includes some extra money for the finance guys to add their back end products, so you need to tell them you want to pay a price, not a payment. Regarding the down payment, generally tell them a small amount down like $0 or $500, then unload you real down payment after you already have an offer from them on the table. Always keep an ace in the hole, believe me, they do.
PART 3- BACK END PRODUCTS, ARE THEY WORTH IT?
The following are backend products and what their purpose is. If you don’t see the backend product on here, it is probably not anything you should consider. Backend products increase a dealer’s profitability almost by double of what they make on the sale of a car, so carefully consider anything other than the car that you buy.
SERVICE CONTRACT OR WARRANTY
Description- Allows you to have protection if the car breaks down, but their will be a deductible.
Price: $500-$2000
Yes or No?- Usually never needed on a new car because you have a factory warranty giving you a minimum of 36 mos/36k miles. If you want a longer one, wait until your factory warranty expires. It’s a federal law that you are allowed to purchase one from a dealership before the original one expires, no need to finance it. Also, there are independent companies that send you solicitations around the 3 year mark via direct mail.
Refundable from Bank or Company- Yes, generally you can receive a value from the bank or warranty company. Some are even transferable with the car when it is traded. Never believe that a bank “requires” a service contract to be sold to the customer.
GAP OR DEFICIENCY PROTECTION
Description- If the car is ever a total loss, this pays for the difference of the value deemed by the insurance and what you owe to the bank.
Price- $100-500
Yes or No?- If you have a car that generally does not hold its value (Kia, Mitsubishi, Daewoo, most domestic cars that are not sports cars) or your credit is not that great, GAP is a good idea. Deficiencies in the first year can be in excess of $6000 on some cars and the extra $200 can save you thousands.
Refundable from Bank or Company- Yes, generally you can receive a value from the bank or GAP company.
CREDIT LIFE OR DISIABILITY
Description- If at any time you die (LIFE) or are injured (DISABILITY), you will receive a payment from the insurance company to help pay for the car and your injury
Price- I’ve seen people pay from $150 all the way up to $4000.
Yes or No?- NO! These products are actually used at a low %. This is a good way to get upside down in a car or increase the dealerships profit exponentially. If you insist on this product, go to your local State Farm or Allstate agent and they will generally sell the same thing to you for 1/3 of the price.
Refundable from Bank or Company- Yes, generally you can receive a value from the bank or insurance Company.
TIRE WARRANTY, PAINT PROTECTION, SCOTCH GUARDING, VIN ETCHING
Description- These are pretty self descriptive.
Price-$50 to however much they get someone for
Yes or No?- No. All of the products above are not generally considered to be valuable backend products and require the dealer to add these in as part of the sales price. Tire warranties sometimes cost more than a replacement set of tires. Paint protection and Scotch Guarding is generally done at the factories. Cars sold with those two items most of the time have nothing more than the rest of the cars on the lot. The consumer can do VIN etching, there are websites that sell it for $10. It doesn’t add any value, most cars already have the VIN all over the car.
Refundable from Bank or Company- Not Likely and you don’t receive any credit from it when trading or selling.
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