By on June 3, 2016

Spending hours or days negotiating for a vehicle can be a taxing experience, so reaching an agreeable price feels like a big accomplishment for car shoppers. It seems reasonable to let your guard down and relax as you enter the F&I office to finish up the paperwork, but that can lead to a big mistake.

The finance manager or clerk will start going over the paperwork, representing the car as sold and financed while showing you a specific rate. You skim through the mountain of paperwork and quickly sign all of the forms so you can drive off in your new car.

At this point, most people are brimming with excitement — they show off the car to their friends and family and share pictures on social media — but that jubilation can quickly be deflated with a call from the dealer telling you that the financing has fallen through and you don’t own the car after all.

The dealer tells you that the bank refused the loan and that you need to come back and sign a new contract — or maybe give a bigger down payment — in order to keep the car. You drive back to the dealer to argue that you signed a finance contract for a specific rate that was already approved, but they tell you otherwise and pull out a “Conditional Delivery Agreement” from that stack of papers you signed to prove their case.

This type of agreement is also known as a “Spot Delivery” agreement, and is used in cases when a dealer is unable to get immediate approval for a customer.

Spot delivery can be a legitimate tool — it allows dealers to deliver a car when immediate approval is not possible or if there are stipulations that need to be met, but it’s also an easy way to abuse customers with poor or little credit.

Spot delivery agreements were a great tool in the days of faxed credit applications and for off hours sales on nights and weekends, but they’re no longer necessary to keep a dealership efficient and should become a thing of the past. The advent of online services like DealerTrack, CUDL, and RouteOne allow dealers to get an answer to a credit application within minutes and have the deal finished up before the customer leaves the lot.

These online services will approve many customers with good credit but may return a denial or pending answer for customer with bad or no credit. Pending applications can be turned into approved applications if certain stipulations are met, but many times they require a call to a bank that may only operate during standard business hours. Some dealers will make a judgement call and spot the car based on a checklist provided by a lender, then wait for the next business day to call the bank and get final approval.

Legitimate dealers will quickly resolve these pending applications and may ask the buyer to provide a pay stub or other document to prove income and get the deal finished up on their original terms.

Predatory dealers will often present a deal as financed even if they have received denials across the board, just to get the customer into the car. These dealers may offer favorable rates in order to “puppy dog” the customer — i.e., to have them fall in love with the car and agree to less favorable terms at a later time.

dealership

Once the car is in the possession of the customer, these dealers will shop the deal around and try to find a lender that will take on the loan. These new deals often end up with subprime lenders and cost the customer much more than initially agreed or require more money down. Once the customer is notified that they need to come back and re-sign the contract, they may threaten to get a lawyer or keep the car without signing a new contract, but the dealer usually wins. They can threaten to repossess the car because the deal was never funded.

The laws for spot delivery contracts vary wildly from state to state, but in many states the dealer can legally repossess the car since they still own it. Predatory dealers count on the fact that many of these buyers will have an emotional attachment to their new car and will sign a new contract at double or triple their initial interest rate just to keep it. Customers unable or unwilling to sign a new contract will often lose their new car to a repo, and could even lose a down payment or trade-in since many of these dealers will charge rental fees (for the time spent with the car) and recovery fees (to bring it back to the lot).

On the flip side, many dealers can get caught up in spot delivery issues if the customer knowingly misrepresents their credit and income. In some cases, customers with bad credit may come in and embellish their credit application in order to get approved. They may state their yearly income as being $50,000, when in reality they may only make $30,000. These cases might also get a pending approval, since they will have a stipulation to prove the higher income.

Savvy finance managers will ask for a pay stub in order to match the income and write a spot delivery to get the customer into the car. If one isn’t available, they’ll have to make a judgement call of how honest the person is and whether to spot them or risk losing them to the next dealership down the road.

If the customer is unable to meet the stipulations and provide proof of income, the deal may require more money down or a co-signer, and can cause many issues for the dealer if the customer is unwilling to cooperate. Trade-ins add another layer of complexity if there is more negative equity involved than the customer initially presented. The deal can get even more complicated for dealers in states with strong consumer protections laws, such as Wisconsin. The law in Wisconsin states that a spot-delivered vehicle must be financed, and, if the dealer is unable to secure funding from an outside lender, they must finance the deal in-house.

The Wisconsin law is a great model to clean up the spot delivery process, but there are risks for all parties involved. The best way to reduce them is not to do a spot delivery at all. Dealers should do their homework and make sure that they have approved financing before a customer leaves the lot, but ultimately it is up to the consumer to protect themselves.

The best way to be informed is to monitor your credit and seek pre-approval for a loan before going to the dealership. Your bank or credit union can give you a firm answer almost instantly and you can be prepared with a rate when you approach the dealer. This allows you to have the upper hand in the finance negotiations and to be sure that your loan can be approved.

The dealer may offer a better rate or incentives for financing through them, and you can take their loan as long as you are sure it isn’t being spotted. You should always make sure that you’re not signing a spot delivery agreement. The easiest way is to just ask the finance manager directly if your deal has been approved and funded.

[Image: Faris/Flickr]

Get the latest TTAC e-Newsletter!

Recommended

95 Comments on “Why Spot Delivery Needs To Go Away, Now...”


  • avatar

    Never let your guard down.

    As you know, I purchase many cars on lease cycles for my Uber – and financing my personal vehicles – to which I rotate every 3 – 5 years.

    Many of these dealers will try to trick you by making a deal look good and then by selling you a vehicle at a higher interest rate – or by making the financing term longer – just because they’ll get kickbacks from their banks/lenders.

    As far as “The customer embellishing their credit”… Car dealers approach this by:

    #1 demanding deposits on vehicles they may or may not even have access to.

    #2 Demanding a credit report.

    Credit reports cost dealers approximately $30 to run, so they won’t run them carelessly like they did back in 2007.

    They’ll get your deposit to cover the cost of the credit check (typically).

    One of the things I recognized at some of these dealers (Hyundai specifically) is that they’ll let you drive away in a car before the ink even dries on your paperwork, just to ensure you won’t go to another dealer.

    When I leased a 2013 Azera with a trade-in Camry, they did this.

    They told me it was getting late and they didn’t want to make us wait anymore. Let me hold it 3 days before returning to sign the paperwork and then tried to hit me with a slightly higher number.

    BUT THEY DIDN’T REALIZE WHO THEY WERE MESSING WITH.

    Long story short: I argued em down to exactly the numbers I agreed on.

    I recently took that car back and leased a Genesis (video coming soon).

    “Income” is also spotty for some people because they don’t realize how much tax is taking out of their paycheck. The best thing to do is simply find out how much their take home is AFTER TAX (gross biweekly pay). Most of these banks/lenders will offer you a slightly lower interest rate ( – 0.5%) if you sign up for direct-debit.

    Direct-debit along with “bi-weekly pay” splits the payment into two and then automatically withdraws the money.

    Be very careful when dealing with these dealers.

    I basically walk in LIKE I OWN THE PLACE, let them check my credit and then have them on their knees trying to close the deal and ensure I don’t go elsewhere.

    All you’ve gotta do is say:

    “Well [insert other car dealer’s name here] said that he’d give me [insert lower offer here] if I bought from him”

    These little import soul-less econobox dealers are in such high competition that they are terrified you may leave Toyota/ Honda/Nissan and go look at a Hyundai (since their cars have Seoul). Or vice-versa.

    And the sad thing is, they are all basically selling the same junk with different badges on them. Silly little 4 cylinder nonsense engines, pathetic CVT conveyor belt transmissions with ho-hum features and me-too appeal.

    Neither Toyota, Honda, Nissan or Hyundai offer anything with superchargers and Brembo brakes.

    • 0 avatar

      Two notes – A credit pull is about $5.00 – at least that’s what I pay on DealerCenter for Experian.

      Second, gross income represents your PRE-TAX earnings.

      • 0 avatar

        I’ve seen higher – $20 and up – but that may have had other fees tacked on.

        #2 Basically, what I’m saying is to look at the actual take home pay before it gets diced up by cellphone bills, cable TV bills, credit card bills, etc.

        People have so many monthly liabilities that add up.

    • 0 avatar
      npaladin2000

      “These little import soul-less econobox dealers are in such high competition that they are terrified you may leave Toyota/ Honda/Nissan and go look at a Hyundai (since their cars have Seoul). Or vice-versa.

      And the sad thing is, they are all basically selling the same junk with different badges on them. Silly little 4 cylinder nonsense engines, pathetic CVT conveyor belt transmissions with ho-hum features and me-too appeal.”

      Not that you’re biased or anything, of course. :)

      *smokes by in the WRX with the non-pathetic conveyor belt transmission.*

      • 0 avatar
        Coopdeville

        True story: My Hyundai Sonata has the least amount of soul out of any car I’ve ever driven. Also it was built in Alabama, so it has very little Seoul in it either.

        I would probably have a life altering experience if I stepped into a 4-door Accord.

        • 0 avatar
          energetik9

          I see what you did there.

          You are Seoul creative. :)

        • 0 avatar

          Not sure which year Sonata you have.

          I had a dream. I’d like to take 4 turbochargers and build a Quad turbo charged Sonata.

          Just to do it.

          • 0 avatar
            Kyree S. Williams

            That’d be pretty sweet.

          • 0 avatar

            You are not very likely to find the space to mount 4 turbochargers to a Sonata and even if it was possible you would need to build a new motor basically from scratch. The 2.0L Theta motor is an open deck design and increasing the size of even the single stock turbo can be risky.

          • 0 avatar
            bumpy ii

            He could bolt 4 tiny snails directly to the exhaust ports, then route them over the valve cover into four little ITBs. Skip the intercoolers and set the blowoff valves for 4 pounds or so. He didn’t say it had to be a bazillion horsepower, or even as much as the stock setup.

    • 0 avatar
      Vulpine

      First off, I don’t lease… ever. Leasing is a waste of money and carries the potential of costing you even more when you return it than expected. You get charged for every mile over the agreed-upon amount but don’t get credit on any miles below that amount in most cases. Granted, you’re given the option of buying off the car at the end of the lease period but even then you could get caught with paying more than you might expect if the vehicle just happens to garner less depreciation than contracted, making its value higher. No, there are simply too many ways a lease can be used against the driver.

      I buy because I plan to keep the car for longer than the typical financing period. I have not bought one ‘new’ car that I didn’t keep for at least 8 years and in at least one case it was over 10 years. My current ’08 vehicle is approaching 9 years old (ordered and delivered in October of ’07.) I sold my ’02 vehicle in ’12 and my ’96 in ’05. A lease is worthless when you take care of your cars and plan to drive them for a long, long time. The shortest time I ever owned any vehicle was just over one year–totaled when somebody tried to cross the highway in front of me and I T-boned them right in the B-pillar, riding the brakes all the way in. Oldest vehicle I ever owned I traded at 20 years old. My ’97 Ranger now sits just over 19 years old, delivered to the dealership in March of ’97. I’m the second owner, personally knew the first, and it has less than 25K miles on it.

      Why should I lease?

  • avatar
    Kyree S. Williams

    It’s just icing on the cake. Dealerships are allowed to do all sorts of egregious things, and this is probably one of the least of them.

    I’ll tell you what, though, dealers get really irritated and belligerent with me anytime I’m helping someone buy a car in person, even though I’m quite polite: “So tell me again why you think a 21% interest rate is preferable to the 7% she got from her bank…”

  • avatar
    Steve_S

    Just go in with a pre-approved check from on of the various online lenders. I always have my financing in hand before I go to sign, if the dealer can give me better numbers great if not I go with the one I’m already pre-approved with.

    The only thing you should ever have to haggle over is your trade-in if you have one, even then you should know the average auction price and have already had it appraised by other local places Carmax and so forth.

    • 0 avatar
      bunkie

      This is your best protection. Most people are simply not built to handle the moment when the salesperson/finance guy goes into the back room to determine the buyers fate. It induces an awful lot of anxiety no matter how financeable you might be I have really good credit and it even got me a bit when I leased my Tacoma through TMC.

      Two cars back, we did pre-arranged financing through a national bank. They issued us a check with a blank amount (not to exceed a given amount) with a fixed rate and no “gotchas”. Just find your car, negotiate the deal and fill out the check. There’s nothing like the feeling of power it gives you when negotiating.

      • 0 avatar
        JuniperBug

        You should try paying in cash for a feeling of real power.

        Last year my 72 year-old dad drove his 150k mile beater, that he’d been driving ever since it wasn’t one, wearing his Costco cargo pants (he likes the pockets) to the Subaru dealer and picked out a nicely optioned Forester for just under CAD 40,000 OTD up here. It was fun watching the salesman’s reaction, upon asking how he planned to finance, when my dad answered, “No financing. Cash.”

        Similarly, I got a kick when a coworker of mine, upon mistaking my clean but old convertible for a new one (it’s not the only time that’s happened – most people can’t tell the difference between an old Miata and a new one if they’re not standing side-by-side), and told me: “That’s a nice car. But how long until you pay THAT off.” He was surprised when I replied, “Oh, that was paid for a long time ago.”

        Financing can make sense for lots of people in lots of situations, but I learned early on – from my first good mountain bike at 14 to my first car at 18 and nearly everything else since – that there’s a feeling of freedom associated with being able to pay for your stuff without being reliant on anyone else. Even when it makes sense financially, that’s not a feeling I like giving up if I don’t have to. For example, I’ve never felt that feeling of anxiety you describe, because when you have the sum required already in your pocket, YOU decide your fate.

        • 0 avatar
          krhodes1

          The best time to borrow money is when you don’t need to. Banks will fall all over themselves to compete for a meagre scrap of interest these days. When the interest rate is less than the rate of inflation, you are a fool to pay 10’s of thousands in cash.

          The time value of money is a very real thing.

          • 0 avatar
            bumpy ii

            Skipping past the F&I office, and the certainty of owning a vehicle in any financial circumstance also has a value.

          • 0 avatar
            krhodes1

            @Bumpy ii

            Whether you pay cash, your check, or your bank’s check, you still have to deal with F&I to sign the papers.

            If you have a low to no interest note, AND you have the same amount of cash in the bank, you can pay that note off at any time. But in the meantime, you still have use of the cash for other things if need be. Seems like a no brainer to me. And as I keep saying, the time value of money is a very real thing. A dollar today is worth more than a dollar tomorrow, – I sure as heck don’t want to use my today’s dollars to pay for something before I have to.

          • 0 avatar
            DenverMike

            Who says I don’t have more cash, for when I need cash? Why do you assume a cash buyer *zeros out* their bank account?

            And it’s not as if YOU have they money laying around anyway, gathering dust.

            YOU have a substantial penalty by pulling 10s of thousands out of a tax shelter.

            I also agree, owning everything outright is a great feeling, especially when you’re not living on a predictable, fixed income.

            I don’t call someone a “fool” just because they handle their finances differently.

        • 0 avatar
          duffman13

          @JuniperBug

          I did that with both my S2000 purchases. The first one, I sold my RSX-S and bought a similar age/mileage/condition one for $2k on top of the sale price privately. After I totaled that one, I got an insurance payout $3k over my purchase price, and I put another $1k down on a newer, lower-miled example.

          The one thing I will say is at least in a private sale, meeting a stranger with close to $15k in my pocket in an envelope is a disconcerting feeling no matter how above board the seller seems to be.

          • 0 avatar
            JuniperBug

            When I say “cash,” I don’t mean it quite that literally. Even my then-12-year-old Miata was paid to the private seller with a certified bank draft.

            What I meant is that it’s a nice feeling to pay for stuff outright – no loan, no lease, no BS.

    • 0 avatar
      duffman13

      @Steve_S

      I posted this yesterday in Bark’s column and I’ll reiterate it:

      The last time we purchased, we did exactly what you’re suggesting. I had a blank check for 2.25% from USAA for the loan. The dealer still had us fill out a credit app for their records, but did not bother to run it – the finance guy said it wasn’t worth it, as in all likelihood at best they could match the rate. I said no to all the other garbage the finance guy was required to offer, and we were out the door from finance before the car was even done with final prep. This method is the best way to go when buying used.

      The only caveat I have to this is that if you’re buying new and are not credit challenged, many incentives require you to use manufacturer financing, so you may be stuck with it if you want the best OTD price. Always be ready to do the math of incentive rate vs cash back too, as the total cost over time often skews to the cash back plus higher interest rather than the 0% offer.

      It still behooves you to secure financing beforehand on a new car purchase if you are credit challenged though.

      • 0 avatar

        Having your financing done and in place before visiting F&I is the easiest thing in the world to set up and gives you such tremendous power. For our most recent purchase, our credit union delivered a 2.6% rate for a five year term for a 2015 or newer vehicle (it was a used 2015 vehicle we were looking at). But I told the dealer straight up I’d prefer to finance with them, and lo and behold, a 2.33% rate dropped into our laps.

        That’s how I do financing. The local bank and credit union rate is the stop-loss rate; i.e. the worst I will do. Then I step into F&I and still see if they can do any better. It’s no skin off my back. I’m just bringing more firepower to the front. It’s win-win for me.

  • avatar
    iNeon

    Straw deals! Do straw deals next!

    And the overnight test drive!! That’s how they get ya.

    • 0 avatar

      Straws are everywhere around here since we have a large illegal immigrant population in the South. The one guy that has a green card buys for all his cousins and friends.

      • 0 avatar
        iNeon

        Straw deals bother me only because they aren’t totally legitimate. They happen everywhere– what *really* bothers me is when the people I work with recommend a customer buy a new car and immediately let their old one get repossessed because it has too much negative equity.

        Some people will do anything to have a new car.

  • avatar
    bikegoesbaa

    If I could only give one piece of advice to a prospective car buyer it would be “arrange your own financing before you ever set foot on a dealership”.

    Many dealership tactics just collapse when you’re not beholden to them for the loan.

    I don’t feel all that much sympathy for a buyer who opts to make a five-figure purchase without doing enough basic homework to discover this. It’s not a secret.

  • avatar
    nsk

    There’s a difference between a spot delivery and a spot delivery scam.

    In 2010 at MB of South Atlanta I took the car home on a Friday afternoon and on Saturday morning received a call from the finance manager saying I had to return to the dealer because “the bank” had actually turned down the financing. I knew my credit was top tier, so the whole situation seemed fishy. I was active on internet forums then and quickly learned it looked like a spot-delivery or yo-yo scam. I ended up financing the car from a hometown bank for a half-point less than the dealer.

    A couple weeks later, I penned a letter to the dealer GM expressing my disgust about the finance process. The GM called me back, apologized, and emphasized that the place never spot-delivers cars. I’m still not sure whether the thing was a scam or not, but 1) I’m not buying a car from that place, and 2) the advice in the penultimate paragraph of this post is gospel.

    • 0 avatar
      sirwired

      Wow. If a dealership did that to me, and it was at all an option, my response would be “Okay, keep the *bleep!*ing car!” With my shiny new pre-approved financing I’d definitely be buying the car somewhere else.

      • 0 avatar
        Kyree S. Williams

        This.

      • 0 avatar
        notwhoithink

        Typically with spot delivery you do have the option of just returning the car and walking away. The dealers are hoping that you’ve already showed it off to everyone and built an emotional attachment to the car so that you WON’T do that, and they may try to play hardball with you on it, too. But the bottom line is that if you both sign an agreement at 2.5% and they want to change the terms to 3.5% (or whatever) you are under no obligation to accept the new terms.

        TBH, the easy way to tell if it’s a scam or not is to tell them you’ll swing by your bank/credit union on the way in to get your own financing. If they’re screwing with you they’ll probably balk at that because they don’t want to lose the financing kickback.

      • 0 avatar
        nsk

        I considered that. But since it was a new car that had already begun depreciating when I added 50mi to a 0mi odo, I thought it wiser to keep the car but finance separately, rather than trying to shove the car back to South Atlanta and then restart the buying process at another dealer.

      • 0 avatar
        RHD

        If I had a deal and they called me back to say it didn’t go through, then they just loaned me a free car for a day or two. There are more cars for sale than buyers, so they just wasted a lot of time and are about to get a car with a couple of hundred more miles on it than it had yesterday, and no commission to boot.

  • avatar
    tsoden

    When I was dealing for my Santa Fe… I actually got the car for a full day before I committed. My wife and I put over 200KM on a vehicle that only had 8KM on it.

    The funny part is that when we signed on the purchase, I assumed we were buying the car we test drove. Turns out we got another new one with less than 10K on it.

  • avatar
    sirwired

    Where consumers REALLY get hurt is not the fact they have to turn in the new car they’ve just showed off to all their friends; they really get hurt when the dealer has anticipated this will happen and has already unloaded the trade-in. Now the consumers can’t give back the car even if they wanted to, unless they can complete the purchase process all over again quickly enough.

  • avatar
    slance66

    I’ve never even heard of this. I guess it really doesn’t apply to me, with my 815 beacon score and ability to pay cash if needed. Why would anyone agree to take delivery before financing was approved and finalized? That is indeed shady, and I suppose confirms what people say about having your own financing lined up before shopping.

    • 0 avatar
      duffman13

      Depending on the dealer, customer, and a variety of other factors, sometimes getting finance approved after 5pm or on a weekend is what can cause this.

    • 0 avatar
      dal20402

      I have taken a spot delivery of a car once. It was at 8 p.m. on the Friday before Memorial Day weekend. But the deal was a factory 0% loan, and the dealership (during the worst of the GM bankruptcy days) was desperate to get rid of the car, so I didn’t expect any shenanigans. And I didn’t get them. Went back on Tuesday, signed the final paperwork, and it all said what I expected.

  • avatar
    dukeisduke

    I paid cash for my 2013 Tacoma, but the salesman didn’t want me to do that – he said I should invest the money, and take a financing deal (I didn’t, and instead wrote a check for the vehicle). I’ll bet he got a kickback on financing. The F&I guy did get me to buy a ToyotaCare 8/75 warranty, a 5/unlimited ding and dent policy (I’m getting ready to use that) and a 5/unlimited tire and wheel policy (I’ve already gotten one free $175 tire out of that) through GST, the distributor in Houston. The warranty stuff started out at $2500, but I kept saying no until it got down to $1100. The ToyotaCare warranty alone is worth $700, so I got the other two for $200 apiece, and I’ve already just about gotten my money back on the tire/wheel thing.

    • 0 avatar
      notwhoithink

      Dealers do make money on the financing if they arrange it themselves. At this point most sales deals have margins that are thin enough (due to competition, availability of info on the Internet, deals like TrueCar and Costco discounts) that they can make as much or more from what the F&I guy sells as they can from the actual sale. They get a bonus for selling add-ons like warranties, GAP insurance, etc. They get a bonus from the lender for arranging the financing, and some lenders will even let them tack points onto the approved loan rate that go to the dealer. Because of this dealers LOVE to arrange the financing. In the old days paying cash could get you the best purchase price, but nowdays you can often get a lower purchase price if you agree to the dealer financing. That’s not a problem for you if the dealer can beat your pre-approved interest rate (you did get pre-approved, didn’t you?). In that case it’s a win-win. But if you’re not an informed consumer it could totally end up biting you in the ass.

      If you’re dealing in cash, a lot of times the dealer will still prefer you to finance. If they give you a better sale price to do so then you can finance the loan (make sure there is no prepayment penalty) and then pay it off immediately. Most salesmen will tell you to wait at least 3 months before paying it off because if you pay it off earlier than that the dealer loses their kickback/commission on the financing, but you’re free to do whatever you want as long as there is no prepayment penalty.

      • 0 avatar
        dukeisduke

        Since my intent was to pay cash, I didn’t bother with pre-approval. I still think I got a good deal, because the first dealer I went to didn’t want to meet my out-the-door target (he was $611 too high. So my wife said, “Let’s go to dealer number 2”, and they met my number. My wife did the negotiating, because she’s tougher than I am. My salesman got moved to the used car side a month later, and I still wonder if it was a demotion, for giving away too much.

        • 0 avatar
          sirwired

          Generally the used-car side of the dealership makes way more money than the new-car side, so no, it wasn’t a demotion.

          (Most dealership profit on new cars comes from F&I and the service dept. On the actual purchase itself, margins of just a few hundred are very common.)

  • avatar
    SCE to AUX

    It’s best to manage your life in a way that produces good credit, regardless of your income.

    Every day, predators take advantage of people who lack life management skills, and car buying is just one pretty mild example. Credit card companies, pimps, drug dealers, landlords, small businesses, Hollywood, modeling agencies, and a host of other entities are ready to pounce on people who make poor life decisions – people who haven’t been taught much at home, or who think the world owes them something, or who believe a higher station is life comes easily.

    As for car dealers, just eliminating fluff like paint protection, Scotchguard, and tire warranties would be a good start.

  • avatar

    I used to never, ever spot anyone in a car unless they had a substantial CASH down payment. This was the nature of the area (West Pasco) and the generous levels of truly sub-subprime customers we had.

    The smart dealer spot delivers on a judgement call. I certainly do not do it for subprime loans because the liklihood of these people finding an equivilant deal is slim and if they do, I probably didn’t miss out too much on the $500-down guy anyway.

  • avatar
    npaladin2000

    It’s very simple. Walk in with your own financing, from your own bank. They aren’t out to screw you, they actually want to keep you happy. And the only way the dealer gets to finance you is if they can beat the rate you already have. They try to bump you back up later, and you still have your approval from your bank.

    I NEVER go car shopping without a pre-approval from my credit union. This last time I didn’t actually need it: the car dealer beat them by half a percent. But it’s still better to have and not need.

    • 0 avatar
      Kyree S. Williams

      Absolutely. I remember when my mother bought her Sonata a few years ago. She’d come in with a pre-approval from her credit union for a low interest rate; it must have been 2.9% or something like that. The F&I guy looked up the approval and said, “No, your credit union actually approved you at 5.2%.” Of course, the guy was reluctant to show us proof of that, because he’d generated the same 2.9% approval and was trying to bump up the interest rate—common practice—and keep the difference. Mom called the credit union, and it was still the original 2.9%.

      You can have a really good experience with the sales team, but the F&I guy will almost always eff it all up by being sleazy, pushy and dishonest.

      • 0 avatar
        Coopdeville

        The problem is that in most new car dealerships all the profit has been squeezed out of the front end and now has to be to be made on the back, and all the pressure to make money on a deal rests on F&I’s shoulders. Therefore you have the “best” moneymaker salesperson in the store in that office, and like in so many professions, the best moneymaker is not always the most honest person.

        IMO it takes a truly exceptional and gifted salesperson to make a lot of money honestly. Those people are certainly out there, but many recognize they can make a lot more money in business-to-business, industrial sales, or real estate. There aren’t enough of those to go around to fill every F&I office, so you get these ridiculous horror stories.

        • 0 avatar
          Kyree S. Williams

          Part of me understands marking up the interest rate or offering overpriced warranty and GAP products, because there is little money at the front-end, like you said. New cars, in particular, don’t carry much profit for the dealer—although my mother’s car was a year and a half old when she bought it—and for that meager profit, they carry a lot of risk and overhead.

          The other part of me thinks that if dealers have to resort to such tactics to make money, maybe it’s because their sales model is antiquated and needs to go away…or at least be allowed to compete with other sales models, like factory-direct sales.

          But, like I said, I do understand the dealership’s position. Between my pre-arranged financing and general aversion toward any F&I products, they don’t stand to make much money from me. So I, in turn, make the process as seamless and as quick as possible. I already know which car I want, which options I want on that car, whether or not they have or can get it, and what I’d like to pay. So it’s worth their time…because it takes so little time. It’s the same as one of my web design clients. A $200 website *is* worthwhile for me…if I can complete it inside of a day.

          • 0 avatar
            notwhoithink

            Your second paragraph hits the nail on the head. If your business model is so messed up that you can’t make decent money without being sleazy then you need a new business model. Time for manufacturer-direct sales channels. Take all of the bonuses and incentives that the manufacturers offer to dealers and offer 50% of them to consumers who buy direct. The manufacturer keeps more money and the customer pays less for the car. Everyone wins (except the people with the obsolete business model).

          • 0 avatar
            Coopdeville

            It probably is time for a shake up, or beyond time, but the dealer lobbying network is second to none. Maybe as well it should be, because dealerships, like it or not, employ a LOT of people.

            My biggest concern to the direct factory sales approach is what happens to my trade? Is everyone forced to sell privately? That won’t ever work. Am I forced to go get competing offers from used car stores and sell my car to them first? What if I have a lien and need that freed before I can sell the car to the used car store? What if I’m underwater but still insistent on trading?

      • 0 avatar
        Quentin

        When I purchased my wife’s MINI last month, the dealer told us that they couldn’t beat the interest rate that my credit union offered. No pressure. They even gave me the customer cash incentive on top of the discount I negotiated when I ordered the car in the first place. The customer cash incentive wasn’t announced until after I negotiated the price and ordered the car, so it really wasn’t explicitly called out in the deal. So far, I’ve been very pleased dealing with them.

  • avatar
    energetik9

    I’ve never even heard of this, but I often stick with my bank for financing because of the service and they are always competitive.

    I can see how a desire for instant gratification and delivery/possession sets the conditions for this.

  • avatar

    The customer is the first to agree to a spot delivery, without having confirmation that he is approved or not.

    Dealers that direct the bulk of their financing towards the same financial institutions, also have leverage towards these folks to have credit apps approved.

    If a customer prefers to accept the word of the business manager that he will be approved, its the customers decision and choice.

    • 0 avatar
      nsk

      No, the customer is not the first to agree to a spot delivery. In my circumstance, I signed a document indicating “this is your rate” not “this is your rate subject to tomorrow’s horoscope.”

  • avatar
    Land Ark

    Lots of people pushing the pay cash or bring a check line of thinking. And while that can make a lot of sense, it doesn’t always put you in a good position as the buyer.

    I bought a car last year and paid cash and it was obvious that the dealer wasn’t willing to give me as good of a “price” as I could get if I financed. I say “price” because they make money elsewhere on those deals but give you a lower “price.”

    Secondly, if it’s the right car, they are far more likely to not want to sell to you because they feel like it would qualify someone with bad credit for it and command a much higher price including the back end money they’d get. So you could potentially cash yourself into a more expensive deal.

    • 0 avatar
      Kyree S. Williams

      This is true. It’s always best to compare options. Sometimes, the manufacturer or dealer-sourced financing makes it less expensive in the long run than it would have been. Still, if you can bring a check or have some guaranteed form of payment on which to fall back, you have more leverage.

    • 0 avatar
      sirwired

      I agree with this. If the dealer will give you a better price for taking his overpriced financing, it can be a perfectly rational thing to take! I’d gladly accept a decent discount on the car in exchange for, say, a 7% loan. Of course, as soon as the ink was dry on the title, I’d re-finance the car through my Credit Union (which offers excellent new-car rates for any car under two years old, IIRC.)

    • 0 avatar

      I ran into this with a used car. Walked into a Toyota dealer to buy a used T and C took a test drive it was a little over budget but figured I could bring them down the 800- 1000 bucks to hit my number. First problem they informed me they need to tag on another 800 or so in fees. Next issue, offer my cash offer now lower due to fees, salesman goes to used car manager who walks over (now I have to give this guy points for honesty) and says I kept that car in a trade instead of going to auction because it would be great sub prime fodder I’m pretty sure I could finance it to some one at over 10% apr this is tax season you know, I wouldn’t take any thing under full ask plus full fees. I said OK and left never heard from them again.

  • avatar
    sirwired

    It’s eye-opening the number of financial tricks and scams targeted at the poor (and this is certainly one of them.) You’d think that this really wouldn’t be a fertile ground for scams, since poor people, by definition, are not flush with cash. (Remember the old crack about robbing banks “because that’s where the money is”?) That’s not to say people with money don’t get hit with scams, but when they do, they generally are not “kept down” by them.

    If you are poor, getting trapped into paying more than you planned for your car can HURT, in a way that somebody solidly in the middle class could just shrug off.

    It’s hard to fully understand how expensive it can be to be poor if you’ve never been poor. For instance, this particular dodge would never happen to me; my credit is so good that my credit union (Pentagon FCU, who has some of the best auto-loan rates in the country) simply mailed me a pre-approval check out of the blue for a car up to $50k. (I was actually not happy about this, “live check” pre-approvals make me nervous; sending unsolicited credit isn’t even legal for revolving accounts.)

    If a dealer did this to me, I’d give him the finger and buy my car elsewhere, going so far as to rent while I was shopping if I couldn’t get my trade back. If you’re poor with sub-prime credit? If the dealer’s already dumped your trade (or if the reason you got a new car is because the old one was undrivable), what do you do? You need a credit card to rent a car, you need free time to shop for one, and if you have a job that will fire you for taking an unscheduled day off and you aren’t sick, what do you do besides capitulate to the dealer’s demands? What’s that gonna do to your plans to dig yourself out of the hole of being poor?

    • 0 avatar
      npaladin2000

      Perhaps you’re mixing up cause and effect here? Maybe the reason WHY they’re poor is because they’re bad with money and keep falling for scams that drain them of it?

      • 0 avatar
        sirwired

        While I’d be willing to admit that financial irresponsibility or gullibility is more frequent amongst the poor vs. the wealthy, it by no means is a universal cause of poverty.

        For instance, the most common causes of Bankruptcy? It ain’t overspending on a house, or digging yourself deep into hock with credit cards. The most common causes of bankruptcy are medical debt and disability.

        Once your credit is shot (maybe you got laid off or outsourced, or ended up in dire straits for some other reason), you are shifted into an entirely different financial system that is far more expensive than what the middle-class enjoy. Instead of a checking account, it’s either fee-heavy pre-paid debit or check cashing stores. Instead of taking out a fast line of credit at Firestone to pay for a needed new set of tires, it’s a payday or title loan. You want a sensible used car so you can commute to your new job? Welcome to Buy-Here-Pay-Here JalopyMart, ’cause no bank is gonna touch you! Car’s in the shop? Instead of a rental for under $30/day, you get to take taxis everywhere! Come down with the flu? No paid sick leave for you! If you are lucky, you can FMLA, if you ain’t, you get fired.

        • 0 avatar
          npaladin2000

          It might not be “universal” but it’s definitely going to be a factor. Call it financial Darwinism maybe, but while some may have landed in that situation through no fault of their own, others are just not bright enough to have money. Or in some cases, air. ;)

      • 0 avatar
        Kyree S. Williams

        Two things about that:

        1) A lot of people are poor or make poor financial decisions because their parents never taught them not to just run up credit cards and take out ridiculous amounts of debt as soon as they were able. It sounds like common sense, but when schools don’t teach about finances and you have no fiscally-responsible people around you, it’s easy to perpetuate the generational curse of poor finances. Many more are poor because of a sudden calamity, like a debilitating illness or the loss of an income-earning partner/spouse.

        2) It costs money to save money. I know so many people who get into a situation that they know will utterly f*ck them over or cost them more money in the long run, but it’s their only choice at that moment. They know they’re buying a car from a sleazy dealership that will eventually get repossessed or break down and become a driveway ornament, but they go for it anyway because it will at least float them for five or six months…as opposed to having no transportation at all. For the truly poor, it’s all about preserving the status quo. There’s not a lot of room to improve or consider how today’s decisions will impact you even a month down the road.

        • 0 avatar
          dal20402

          Kyree, all the wisdom is in this comment. Thumbs up.

          Basic financial management really needs to be part of the standard public school curriculum, and it should be taught sometime in middle school.

          • 0 avatar
            wstarvingteacher

            It was taught when I was in high school. How to balance a check book and how to calculate the cost of a loan. Handy stuff to know. Of course I graduated in 1961 and frankly don’t remember such a course for my son. Things do change when you are required to teach to the test and not to student needs.

      • 0 avatar
        notwhoithink

        The #1 indicator that a person will be poor in this country is the same the indicator that they will be wealthy: their parents. If they come from a poor family they will almost without exception be poor. If they come from a wealthy family they will almost without exception be wealthy. If they come from a middle class family then they might be able to break into the top 1% or end up poor, but most likely they’ll stay right where they were born.

        You get your financial sense from your family. You get your values instilled by your family. You follow the examples set by your family. If you don’t have positive financial role models or the benefits of a solid financial education then you are going to do poorly with finances.

    • 0 avatar
      notwhoithink

      The poor may not be where the money is, but when it comes to financial situations they are typically the least educated/sophisticated (i.e., easy to trick) and also have the fewest options. So you’ve got pretty much a captive audience that has no idea how badly they’re being screwed. As long as you glad-hand them the entire way and treat them like a big shot many of them will sign whatever you put in front of them.

      • 0 avatar
        Kyree S. Williams

        Again, plenty of them—especially people who aren’t at their first car-buying rodeo—know perfectly well that they’re being screwed; it’s just that being screwed is preferable to not having a car at all. But if you think they don’t realize that someone with more money would pay less for the same item…they definitely do. The lenders (who are often times the dealerships themselves) that they end up with typically treat them like garbage and remind them of that fact every day.

        • 0 avatar

          Yeah it’s a combination of factors really. I have very well educated parents and was taught about money (Dad has a masters in Economics), but I have found myself in dumb financial circumstances a number of times. I have used high interest credit cards to pay bills I could have negotiated later or delayed but I didn’t think of that at the time. I have also got caught in lots of medical debt despite being insured most of my adult life, not much you can do about that other then earn more. But I have also on a few occasions had to help people stuck in positions worse then mine (neighbors friends) and some truly have no idea how financial things work (rent to own furniture comes to mind ) of course they also had some tricks to teach me like which unpaid bills would show up on your credit report and which would not. It’s easy to generalize but really there are many factors that create the problem. Education would be a good start, but not the only solution.

  • avatar
    seth1065

    not to defend the F&I guy or girl but when I bought my VW wagon I was in and out of the F&I office in 15 minutes, just say no, he understood I did not want any extra’s all I had to say was no, a bunch of times, my sales giy was great the F&I guy understood I was not gonna buy any extras deal done.

    • 0 avatar
      Kyree S. Williams

      That was the *one* time I had a good experience in the F&I office, too, but I knew the owner of the dealership:

      “Do you want the paint protection plan?”

      “No.”

      “Do you want GAP insurance?”

      “No.”

      “Do you want the extended warranty?”

      “No.”

      “Okay; let’s get you out of here.”

    • 0 avatar
      sirwired

      I think I was trapped in F&I for a half-hour the last time. I got pushed with Replacement Value insurance, an overpriced extended warranty, wheel/tire coverage (that one actually would have paid off) and my favorite: $400 for Teflon Paint Protection.

      Here’s how that conversation went:
      Me: Don’t insult my intelligence.
      F&I: What do you mean?
      Me: How do you get it to stick to the car?
      F&I: ???
      Me: The thing about Teflon is that nothing sticks to it, right?
      F&I: Sure! That’s why it’ll do such a great job protecting your paint! Contaminants just slide right off!
      Me: To get Teflon to stick to fry pans, they have to be dipped in acid, sprayed with the coating, and then baked in a high-temp industrial oven. You aren’t doing those things to my car, so how are you getting the Teflon to stick?
      F&I: …
      Me: It’s just some car wax with Teflon in it, isn’t it?
      F&L: …
      Me: And it’s going to come off the car in a few months just like wax, so can we move on?

      • 0 avatar
        npaladin2000

        That’s why I sometimes call it the As Seen On TV Office. One time they literally tried that.

        F&I:”You know that new Simoniz protection they have for cars?”
        ME:”You mean the one in the infomercial where they light the fumes above the paint on fire? Yeah, I’ve heard of it, why?”
        F&I:”….never mind” *x-es out page and throws it away*

    • 0 avatar
      healthy skeptic

      F&I: “So here are five different plans you can buy.” Explains GAP protection, extended service plans, windshield insurance. (Really?)

      ME: (thinking) Taken together, these would nearly double the price of the car.

      ME: “I think I’m good, thanks.”

      F&I: “So most people opt for..” (indicates a couple of plans).

      ME: “Cool.”

      (long silence)

      After some more back and forth:

      F&I: “Wait until you have to get brakes fixed on the BMW. Whoa boy.” Shakes his head and rolls his eyes to indicate the enormity of the cost.

      ME: (thinking) That’s funny, they sure didn’t mention the high cost of BMW brake repair during the sales portion.

      ME: “I guess I’ll find out.”

      F&I: (laughs mirthlessly)

      After some more back and forth, during which I refuse everything.

      F&I:”So if you’re not interested in any of these plans, I just need you to circle the original monthly payment and sign your initials.”

      ME: “Sure.” (knowing full well this is just some kind of tactic to get people to reconsider)

      I take the pencil and circle the original, F&I-free monthly payment about 10 or 12 times, grinding the lead into the paper hard enough to break the point. I sign my initials.

      ME: “There you go.”

  • avatar
    Zykotec

    I still don’t understand why people are so keen to buy an off the shelf car and take it home the same day. It’s not like there’s not going to be another identical car in the dealership next week, or month, or year? You can just leave the dealership and come back later. Offcourse there will be the odd exception where a dealer wants to get rid of a plum-crazy Cuda that some old lady has traded in for a Prius to save gas, but for the most part, go home, think about it, play with the online configurators, order one in the colour you want, get decent financing etc.

    • 0 avatar
      npaladin2000

      Actually, I have had that happen, but only with used cars. Which means they’re probably pushing the heck out of them with everyone for some reason.

    • 0 avatar
      notwhoithink

      Because people get excited when they’re getting something new. When I bought my first new car I stayed up late that night reading every page of the owner’s manual. We’re a strange breed.

    • 0 avatar
      Chan

      I can afford to buy a car on a whim. I can also afford to keep an old car while patiently shopping a new one, making one or multiple sellers deal hard to get me a favourable price. You know, make them work for my business. This is just a fair game, as it should be.

      I also realise that I am among a small, fortunate subset of the national population.

      When people can barely afford a shiny new car, they attach their hopes and dreams to it. The old car costs more to fix than it is worth, or, worse yet, it no longer functions or has been wrecked. Forget showing off the shiny new car–the owner cannot afford to surrender the new car or “patiently shop for a new car” lest he or she cannot make the next work shift. These people are much more vulnerable to scummy dealer financing and I am not one to fault them.

    • 0 avatar

      I can tell you from working at a dealer and in auto insurance a surprising number of low end car sales are from break downs and accidents which means the car must be replaced now in most cases. The dealership I used to work at had a KIA dealership in it’s group. Most of the trade in’s for them went straight to auction and barely made it up the ramps on the car hauler.

      • 0 avatar
        BrunoT

        You can rent a car from replacment car specialists for about $20/day. I worked for one years back. You can rent from a mainstream company for about $30. Surely it beats making a multi-thousand dollar mistake.

  • avatar
    healthy skeptic

    @TTAC

    This “[happy couple | young woman] buying at the car dealership” stock photo is a repeat.

  • avatar
    Scoutdude

    I’ve got a good yo-yo story from many years ago. It involved the B-I-L or a friend of mine.

    One Sat he and his wife stopped by the town’s only new car dealer a Ford store and “fell in love” with a couple year old low mile F150 4×4 Super Cab. They had a trade that was owned outright and according to my friend in very good condition, but a little high on miles for the year.

    So they made a deal, and even with the trade the dealer said they needed a decent amount of cash down. Everything is fine and dandy and of course he is showing it to family and friends on Sun.

    He gets home on Mon and finds a message from the dealer saying that the financing didn’t go through and that they would have to come in and sign some more paper work and bring a check for $$. Tue he went in and forked over the extra cash and signed up for a bigger payment thanks to a higher interest rate. He did know that he didn’t have the best credit so that didn’t phase him that much.

    Wed rolls around and when he gets back home that day yet another message is waiting saying that loan didn’t go through and he would have to come in and bring his check book.

    Thur he goes back into the dealer and says hey I’ve already given you all of my cash and I just can’t swing that payment that has grown significantly.

    The F&I guy doesn’t back down and apparently wasn’t thinking straight because he let it get to the point where my friend’s B-I-L says “well then keep your truck and give me back my car” and the F&I guy stupidly says OK.

    The story doesn’t end there though, because when they finally bring his car off the lot it somehow 40k miles less than it had last week. Now at the time my friend’s father worked for Ford in the Regional office so it didn’t take long before the dealer was answering all sorts of questions from Ford and Gov’t officials.

    • 0 avatar
      VoGo

      That story brought a smile to my face. But it does beg the question: if his dad worked in the Ford regional office, why did the buyer allow himself to get jerked around in the first place?

      • 0 avatar

        My guess is pride. As mentioned my father worked in banking and finance his entire life. I think I have asked him for financial advice twice in my life, it somehow hurts my pride to do so even thou he is much more knowledgeable then I am.

      • 0 avatar
        Scoutdude

        The guy that got the yo-yo treatment was the Brother in Law of the guy who’s father worked for Ford at the time. By that time my friend was only buying new Fords and letting his Father tell him what dealer to go to and who to talk to when he gets there and of course the proper code to get the employee pricing. .

  • avatar
    Big Al from Oz

    I have found when dealing with a sales person the best way to deal with them is to not allow them to “run” with the flow of the sales process.

    Research and being realistic is the best approach to have. First know how and where you money is coming from. Know what vehicle you want and research the cheapest you can get it for. Know the value of your vehicle in a trade in situation.

    Call the shots for when you want your vehicle. Call all the shots, you are the customer. If you don’t like the person you are dealing with walk away from him/her.

    Remember, be realistic and know what YOU want and expect.

    Call the shots.

  • avatar
    BrunoT

    “Wah, I’m a deadbeat moron with bad credit who is too lazy to get financing approval myself before I go out to buy a new car! There outta be a law to protect me from myself! Wah! I’m impulsive and can’t wait a day or two to be sure! Wah!”

    • 0 avatar
      eggsalad

      If that’s the case, I agree with you. But if the dealer tells the customer it’s a done deal and then calls them back in a few days to tell them it isn’t, that’s scammy.

  • avatar
    eggsalad

    F&I is just a giant scam in general. I negotiated my last deal for a car that was 250 miles away via email and telephone. The sales guy picked me up at PHX. I had a bank draft for the balance in my hand.

    Him: You got to go see the F&I guy.
    Me: No I don’t. I need neither financing nor insurance. Here’s my check, may I please have the car?

    No such luck. You *have* to see the F&I guy because even if you need neither F nor I, he’s also the only one who’s allowed to do the paperwork.

    Well, I sat with the F&I guy basically while he did the papers. I just watched him fill out forms and print them. Distractedly, he asked me, “Do you want the extended warranty for $1200?”

    Me: “Nope”.

    And that was that. This guy knew I had a check in hand. He wanted to get me done so that he could corner the next sucker in to buying stuff.


Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Contributors

  • Matthew Guy, Canada
  • Seth Parks, United States
  • Ronnie Schreiber, United States
  • Bozi Tatarevic, United States
  • Chris Tonn, United States
  • Corey Lewis, United States
  • Moderators

  • Adam Tonge, United States
  • Kyree Williams, United States