New Car Dealer REQUIRES Financing

[mystang52]

I accompanied DD while she was shopping for a new car. She was focused on the Kia Telluride. The local dealer kept pushing financing, by offering a supposed discount. When asked what the interest rate was, he replied "whatever the current rate is. It doesn't matter since you intend to pay it off in 3 months anyway." Both the finance manager and sales manager repeated this obfuscation. We walked.
When the salesman made a follow-up call, DD told him the process felt sleazy and said she just wanted cash-only price. He had to call back, then gave her a higher number unless she agreed to financing, and STILL would not reveal interest rate.
A second Kia dealer, by phone, was a similar experience. There was a happy ending, she got the car from a 3rd dealer without that financing B.S. But this financing requirement is a new wrinkle for me. Does anyone know if this was a fluke, perhaps only with Kia, or is this the latest flim-flam for many new car dealers?
ETA: DD's FICO score is 820 or so.

 

[Bigdawg]

Interesting. DW just bought a fully loaded Kia Carnival. One thing Kia doesn't do well is trade with other dealerships. We had to drive by 3 Kia dealerships to get to the one that had the vehicle she wanted. We were preapproved through USAA. We pay the payment for about 3-6 months then pay off balance with MM funds. Total was right at 50K. We put 25K down. 3 months in and we will pay the balance in a month or 2. I personally hate dealership and bought my VW Atlas CrossSport via CARMAX. Spent less than 45 minutes at the CARMAX when I picked up my vehicle. If I were you guys, I would go for the financing and then pay off immediately. Obviously check to make sure there is no prepayment penalty, etc... Good luck.

 

[PaunchyPirate]

I think it was dealers trying to make their money. And I also would have walked if they weren't prepared to give her the interest rate prior to the sale. The fact that you apparently told them you would just pay it off in 3 months possibly worked against you. I would not have revealed that fact.

I just purchased a car 3 weeks ago. The finance person never even mentioned financing as an option. They assumed I was paying cash or misinterpreted when I told them I hadn't yet made up my mind on how to pay for it.

 

[Going camping]

I went shopping for either a Ford Maverick or Hyundai Santa Cruz this past week. I wanted to pay cash. The reading I did said that cash is no longer king in the car business, but financing provides a lower sale price because supposedly the dealerships get a cut of the interest amount.

When negotiating started I kept all options open and said I wanted to see their interest rates and terms. They came back with two prices. About $1500 more with the 2.99% financing and the lower price with 6.99% financing. I said I liked the lower price deal.

I then asked how much I could put on a credit card. The salesman subtracted the $5K down payment and went to the finance office to recalculated the monthly payment at 6.99%. When he returned I said that I decided to pay cash. The salesman looked shocked and tried to get me to take the payment. I declined. Got the lower price and paid cash for the car.

Ended up purchasing the Hyundai Santa Cruz. So far, we love it!

 

[street]

I went shopping for either a Ford Maverick or Hyundai Santa Cruz this past week. I wanted to pay cash. The reading I did said that cash is no longer king in the car business, but financing provides a lower sale price because supposedly the dealerships get a cut of the interest amount.

When negotiating started I kept all options open and said I wanted to see their interest rates and terms. They came back with two prices. About $1500 more with the 2.99% financing and the lower price with 6.99% financing. I said I liked the lower price deal.

I then asked how much I could put on a credit card. The salesman subtracted the $5K down payment and went to the finance office to recalculated the monthly payment at 6.99%. When he returned I said that I decided to pay cash. The salesman looked shocked and tried to get me to take the payment. I declined. Got the lower price and paid cash for the car.

Ended up purchasing the Hyundai Santa Cruz. So far, we love it!

Interesting! So, I have a vehicle coming inn shortly and was wondering about financing through Ford. I will see if price is better and go from there. If I got a discount on that truck and I took the loan with them when the first payment came, I just pay off the truck. Do you if that would work with the terms of loans through Ford.
I would pay it off anf et the discount on the vehicle.

 

[zinger1457]

The finance departments can be sleazy. When I purchased a Honda CRV the finance guy was trying to get me to purchase a $1000 warranty upgrade package. Showed me the numbers with and without the warranty for 36 month 2.99% financing and it was only $10/mo more with the warranty upgrade. Kept telling him the math made no sense and he finally admitted he made a mistake and used a higher interest rate when calculating the cost without the warranty. Came close to walking but had already negotiated a good trade in and price for the car.

 

[Going camping]

Interesting! So, I have a vehicle coming inn shortly and was wondering about financing through Ford. I will see if price is better and go from there. If I got a discount on that truck and I took the loan with them when the first payment came, I just pay off the truck. Do you if that would work with the terms of loans through Ford.
I would pay it off anf et the discount on the vehicle.

I had thought about taking the financing and paying it off if the dealership wouldn't allow the lower price without actually going through the financing.

The reading I did said that sometimes financing departments take up to 60 days to get your loan ready to be paid, all the while you will be accruing interest from day one. That way they get 2 months of interest regardless if you pay the car off.

With the manufacturer and dealer incentives plus the lower financing price, I got the car for under sticker even including taxes and fees. I also noticed the car lot packed with cars. I don't think buying is as robust as previous years so you may be able to negotiate a good deal.

 

[ncbill]

dealers get a payment if you take the OEM financing so they want you to take it.

they'll often ask you to wait 3 months before paying it off so they don't have that payment clawed back by the manufacturer.

it's often in your best interest to take the financing, even if you have to make a few payments.

 

[street]

Thank You all for the insight.

 

[Midpack]

Maybe only tangentially related, but I bought a 2022 Hyundai in late 2021 and told the dealer I was paying cash. They did hard sell financing but I wouldn't agree. Despite paying cash, a credit check was mandatory, which forced me to unfreeze our credit ratings for 24 hours. I protested since I was paying cash, but there was no way to buy the car without going through the credit check. It was still Covid times when just finding an inventory car for sale was difficult, and leveraging between dealers wasn't an option.

I assume it was just another way for them to hoover up private data to sell...

Fortunately I dumped that car, won't be buying from them again anyway.

 

[PaunchyPirate]

dealers get a payment if you take the OEM financing so they want you to take it.

they'll often ask you to wait 3 months before paying it off so they don't have that payment clawed back by the manufacturer.

it's often in your best interest to take the financing, even if you have to make a few payments.

I've been asked to wait 3 months before paying it off. The last time by a Ford dealer. But there was no wording in the contract that required it. I paid it off when the first payment was due. My guess is that the dealership did not get all of their kickback on the deal.

 

[LateToFIRE]

dealers get a payment if you take the OEM financing so they want you to take it.

they'll often ask you to wait 3 months before paying it off so they don't have that payment clawed back by the manufacturer.

it's often in your best interest to take the financing, even if you have to make a few payments.

You beat me to the answer. I've had some exposure to the inner workings of auto financing, and these payments from manufacturers to dealers are called subvention payments. The payments and incentives can take various forms, from direct commissions to lower loan rates. I am guessing from the behavior of the dealers in question, that they receive some type of commission for originating a car loan or lease.

The auto makers do this for three key reasons:

(1) It's rare for anyone [meaning anyone who is not a participant on this forum] to pay cash for a vehicle. Most buyers shop and compare monthly car payment rather than sticker price. So, whatever car makers can do to lower the car payment (longer loan maturities, lower rates, etc.) increases sales.

(2) Car makers believe that providing the loan/lease ties you, the buyer, to them, so there is better chance of selling you your next vehicle. As the lender, this allows them to keep close tabs on you and figure out when you're ripe for a trade-in, new vehicle, etc.

(3) The lending arms of car companies can actually be profit-centers - until they are not - but that's a longer topic irrelevant to this thread.

 

[RetiredAndLovingIt]

They won't give you an interest rate without running your credit so that might be why if you would not let them do that. Most dealers will tell you to finance and pay the entire balance off after a couple of months to qualify for any special Kia financing. They get their commission and you get a better rate if you have good credit.
It's been a while since I bought a new car but I always planned my purchase for the last day of the quarter or year when they seemed more eager to get the sale done. I started about a month prior and just chat back and forth and let them know what other vehicles I'm considering and let them come to me with the offers. I got my last fully loaded Mitsubishi Sport SE for 7K less than sticker back in 2014.

 

[mystang52]

OP here. I always say that if a car dealer says something that is true, it's just coincidence. The manager at that first dealer we went to said that in New Jersey prepayment penalties are illegal. So presumably no issue with paying it off as soon as the car is delivered. But in the next breath he kept saying how DD could just pay it off in 3 months. I guess that's the cut-off for their kickback. In any event it just seemed too slimy for my and, much more importantly, DD's taste.

 

[DrRoy]

I haven’t run into this, but never shopped a new Kia. Not surprised, though.

 

[Stormy Kromer]

I'd rather go to the dentist than sit in a closer's booth at a car dealership.

I remember buying a car back in the 1980's and was dealing on a car and got within $500 with the dealer. The actual owner of the dealership. I pulled out my checkbook and told him I'd write a check right now for my price. He took it. He typed up the sales slip and I drove it home in 10 minutes.

Last year DW was buying a used car and the dealer offered us a $500 discount if we DIDN'T pay cash and financed it instead. We did and paid it off as soon as the payment book arrived. That process took half a day.

Don't even get me started on the extended warranty sales pitch. Or the tire protection plan or the interior damage protection.....

Its easier to buy a house.

Next time I buy a car I'd like to take some of you with me.

 

[timbervest]

I have bought my last several cars in the following way:

1. Check out the make model and features I want on line
2. Test drive a few
3. Check out values on TruCar
4. Email around to several dealers throught their online sites or fleet sites asking if they have the specific car with features and color etc I want in stock
5. If so ask for a price by email
6. Visit the best one to check out the car ask about incentives
7. Confirm price (I have the email) and if they fudge or try to add on, walk
8. Evaluate if financing gets a discount
9. Choose financing or cash
10. Decline all pressure for upsales
11. Sign
12. Drive away

The process has been amazingly painless.

 

[Aerides]

We walked.

That's what I would have done, quickly, and barely given them any time if they called back.

 

[Zathras]

I applaud you for walking away.
Dealers act like this because they are allowed to and it works often enough.
My last purchase, without a dealer, took 10 minutes. No question about the price at any step, cash or finance.

 

[braumeister]

Sometimes they're pretty good about it.
I bought a new car last month and kept a mental note of all the wonderful things they "offered" during the transaction.
I just kept saying "No, I'll pass on that" and I never got any response but "OK" and they moved on to the next one. 5 or 6 of them as I recall.
It would have amounted to over $3K of what I considered pure profit for them, but they just let me keep saying no.
This was a Toyota dealer, so maybe they're a bit better than the average.

 

[euro]

OP here. I always say that if a car dealer says something that is true, it's just coincidence. The manager at that first dealer we went to said that in New Jersey prepayment penalties are illegal. So presumably no issue with paying it off as soon as the car is delivered. But in the next breath he kept saying how DD could just pay it off in 3 months. I guess that's the cut-off for their kickback. In any event it just seemed too slimy for my and, much more importantly, DD's taste.

Prepayment penalties may not be that common anymore, but every time I have been in this particular situation, there have been finance charges of SOME kind (origination fees, paperwork fees, whatever they called them) involved. Maybe just a couple of hundred bucks, but they were always there. So, yes, you can pay it off quickly, but it still comes at a cost.

That said, I just bought a new Subaru and had no issue at all declining the financing, declining the extended, super-extended, or mega-extended warranties, etc. I did have to listen to all the pitches, but got pushback when I politely declined each offer.

Finally, I was looking for the most "base" model possible (i.e. base trip level, no fancy packages). They did not have one on the lot but brought one in from 50 miles away (salesperson himself drove it back after work!). So, they seem to have a pretty good exchange program going.

 

[427Vette]

I usually buy used vehicles that are a year or two old with super low miles. I remember one time I found the right vehicle with all of the options and the low mileage that we wanted. I contacted the dealer, spoke with a salesman who I got along with really well. We set up a time to take a look. I explained to the salesman that I didn’t even bring my checkbook with me, I never do when I am just looking. If it’s a good deal right now it will still be a good deal tomorrow after I sleep on the decision. Everything went great, it was the perfect vehicle, we agreed on a price without too much BS. I explained that we’d come back the next day and complete the deal. He said that the sales manager wanted to speak with us first. I wondered why The sales manager came to the office and stood in the door way. He kept badgering me about buying the vehicle right then. Admittedly I get a little edgy and very standoffish when pressured. After listening to this clown for a while and explaining my intentions I asked him why he won’t shut up and let us leave. He said that statistics show that if we left right then that we wouldn’t ever come back. I reminded him that I didn’t have my checkbook. Then I said here is another stat for you “ if you open your mouth and utter just one more word I am not ever coming back”. He opened his mouth and I grabbed my wife’s arm and headed for the door he was blocking. At first he didn’t move but I am 6’1” and 245 pounds and visibly ticked off at this point. I honestly thought it might come to blows while I busted through the door. I felt a bit like a cornered wild animal and I was ready to physically move him if needed. We marched out the door with the guy following and apologizing the whole way. By the time I got to their driveway my phone was ringing. I never answered it. About a week later the friendly salesman that I liked called me and asked what my thoughts were on that truck. I explained that I needed a call from the owner with an apology then I may think about buying it. A few minutes later the owner called and apologized over and over saying how this has never happened before and that the sales manager had been with them for 20 plus years… He then took $2500 off the price and gave me free oil changes and tires for life if I’d come back. It wasn’t my angle to get a good deal, I just really thought it was a poor practice and wanted to speak my peace to him. I thought about it a few more days then contacted them to write up the deal. The only thing I said was if I even see that sales manager when I am there I am leaving and NEVER coming back. I peered in every office as I walked throughout the dealership. He was no where to be found. It took about ten minutes to write the check, do the paperwork and leave. This is and upstanding GM dealership owned by the same family for generations. I could understand if this happened at a sleazy used car lot. It seemed odd to me. I wonder if that approach works on others?

 

[Zathras]

This is a Podcast I heard years ago. Very well done, IMO.
https://www.thisamericanlife.org/513/129-cars

It is a look inside a car dealership working towards their monthly quota.

 

[rk911]

I accompanied DD while she was shopping for a new car. She was focused on the Kia Telluride. The local dealer kept pushing financing, by offering a supposed discount. When asked what the interest rate was, he replied "whatever the current rate is. It doesn't matter since you intend to pay it off in 3 months anyway." Both the finance manager and sales manager repeated this obfuscation. We walked.
When the salesman made a follow-up call, DD told him the process felt sleazy and said she just wanted cash-only price. He had to call back, then gave her a higher number unless she agreed to financing, and STILL would not reveal interest rate.
A second Kia dealer, by phone, was a similar experience. There was a happy ending, she got the car from a 3rd dealer without that financing B.S. But this financing requirement is a new wrinkle for me. Does anyone know if this was a fluke, perhaps only with Kia, or is this the latest flim-flam for many new car dealers?
ETA: DD's FICO score is 820 or so.

It's been a minute or two since we financed a car but IIRC the interest rate is required by law to be disclosed to the borrower prior to signing on the dotted line. Not only would I walk I'd make it a priority to notify the Mfg., the Federal Trade Commission, the state atty general and anyone else I could think of. The very best anti-septic is sunlight.

 

[mystang52]

It's been a minute or two since we financed a car but IIRC the interest rate is required by law to be disclosed to the borrower prior to signing on the dotted line. Not only would I walk I'd make it a priority to notify the Mfg., the Federal Trade Commission, the state atty general and anyone else I could think of. The very best anti-septic is sunlight.

For sure, when it came time to sign and seal the deal, they would tell the interest rate. But before this deal was agreed to, they kept pooh-poohing the interest rate, dismissing it because they knew DD would pay it off immediately.
They were just trying to seal a deal beforehand. It was only in a subsequent call that they told DD they would only give the best price if it included their loan. As I wrote in a subsequent post, she ended up buying it from a different dealer.