A better rate…only if?

Un meilleur taux...seulement si?


On the point you buy a new car? Need funding? So, be warned. Because it could be that the dealer is trying to go without it a fast. And not only from these dealers of used vehicles a little dubious!

The practice that I’m going to denounce is common among many dealers and dealers of new and used vehicles is well established.

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First of all, I insist here on the fact that not all sellers of vehicles who have recourse to this practice. It is clear that if some of the owners of the dealer object, and other close without a doubt willfully blind eye to the unscrupulous practices carried out by some of their chief financial officers.

So, what is it? Simply, a decrease in the funding rate in respect of a loan of motor vehicle… if the consumer agrees to obtain insurance that would come “protect” for the whole of the term. Whether it’s life insurance, disability insurance, replacement or an extended warranty.

Here is a concrete example that I was recently exposed to. That of Nancy, who has chosen to obtain a car despite of their credit rating damaged. She has set her sights on a small Honda Civic, with an equipment minimalist. Initial cost of the car? Around 22 000 $. Now, because Nancy already has a bankruptcy in his credit, he will have to have recourse to a second chance at credit. He stands therefore at the dealer, the portrait of a financing at a rate of 14,99%, over a term of 84 months. The car that cost a little more than $ 25,000, including taxes, would require in the end a total sum that slightly exceeds the $40,000.

However, the finance director and offers him a solution which ” it deems fit “. A rate lowered to 9.99%, provided, however, that the loan is protected in the same way as the car for the full duration of the term of funding. This means a insurance replacement, life insurance and disability as well as an extended warranty that will come, according to the statement of the chief financial officer, to reassure the bank, so that the latter provides a rate decrease.

“We don’t do that with all of our customers, but as you seem to be a good person who takes his life in hand, I’m going to make an effort to see that it all works “. Such were the terms of the financial director, who reminded the client the next day to tell him the good news. Now, what was this good news? Approval of credit financing for up to 84 months 9.99% interest rate, which would, however, involve the monthly payment of 601,21 $. Total cost of this Civic LX : 50 502 $. Or if you prefer, $ 10, 000 more than if the client had simply chosen a financing rate 14.99%.

In the list of additions include a life insurance of 1 950 $, a disability insurance 2 820 $ and an extended warranty to $ 2,250, as well as a replacement warranty of 1 635 $. Then, as if this was not enough, the client has also added an anti-rust treatment at 899 $.

The lie

You can find without doubt that the financial manager of this Honda dealership has weighed very hard on the pencil. He literally abused a client is naive for his own benefit , without thinking two seconds to the real needs of the latter. I am also of this opinion.

Now, there is nothing illegal in this practice, even if it is not moral. However, the financial markets authority is categorical. It is illegal and deceitful to assert that a financial institution requires the purchase of the product in the mind of a rate reduction. Never a finance company that it would not require such conditions, which brought in the court of the dealer’s discretion or not to offer a rate decrease.

Understand that in the case above stated, the chief financial officer has voluntarily elected to increase the funding rate 14.99%, then put pressure on the client by making him promise all the benefits of the products needed to lower a rate that, eventually, would go back to a reasonable level. In other words, the dealer could very well offer him back to the base rate to 9.99%, without having to embark on a long episode that is misleading. Of course, the profit generated by a funding to 9.99% would have been smaller, but this would then prevent it from providing to the client a portion of these insurance products, that she would be able to choose in all freedom.

Although the client is in a period of “reconstruction” to his credit, he is actually careful to protect themselves. That it does so through its own insurance company or its dealer, the choice is up to them. Now, he was obliged to take all products into believing that the bank required so that we can lower the rate of funding, it is unacceptable. And it is on this point that I insist. Because several of the dealers will try to make you believe that they can lower the rate with the purchase of one or more products, sometimes pushing the thing up to involve the decision of the financial institution. And attention, we can’t do that in second chance credit. A personal friend has faced this same ploy when buying a used car, it was funding to 4.99%, 2.99% on the purchase of an extended warranty.

Understand that the dealer gets a commission on the sale of a financing. The higher the rate, the more it pays. Thus, it is the dealer who, knowing that it is possible to offer a lower interest rate, enter into the transaction at a rate which is not anticipated, then propose products even more to pay for. By selling these, he then agrees to lower his commission on the financing. A little sacrifice compared to the gains he will make by selling insurance products and guarantees.

Keep in mind this. Never a bank in a lower rate of funding due to the purchase of products. The decision always comes back to the dealer, which has agreements with the financial institutions, who knows their products and knows very well how to juggle with them. Because, yes, the funding is also a product. A profitable product, like all the rest.

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