New Car Dealer REQUIRES Financing

[Chuckanut]

There’s a way of calculating loan payments so that interest is front loaded. I think it’s called Sum of Digits or something similar. Anyway, it makes prepaying the loan a rather useless strategy since much of your early payments are weighted more heavily to interest and less is weighted towards the principle. Make that’s their idea?

 

[rk911]

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.

I'd still write a nasty-gram to the CEO of KIA, America. Unethical sales tactic IMO.

 

[euro]

There’s a way of calculating loan payments so that interest is front loaded. I think it’s called Sum of Digits or something similar. Anyway, it makes prepaying the loan a rather useless strategy since much of your early payments are weighted more heavily to interest and less is weighted towards the principle. Make that’s their idea?

That sounds REALLY shifty! But yeah, I'm sure that if it is legal, it is done routinely.

 

[ShokWaveRider]

Just another buyer beware money making scheme. They do not give the loans; they get kickbacks from the companies that do. Fall for it at your own peril.

Simply, go someplace else.

 

[Chuckanut]

That sounds REALLY shifty! But yeah, I'm sure that if it is legal, it is done routinely.

Here is information on Sum of Digits also known as the Rule of 78.

“ If the borrower pays off the loan early, this method maximizes the interest paid by applying funds to the interest before principal. The Rule of 78 is designed so that borrowers pay the same interest charges over the life of a loan as they would with a loan that uses the simple interest method. But because of some mathematical quirks, they end up paying a greater share of the interest upfront. That means if they pay off the loan early, they would end up paying more overall for a Rule of 78s loan compared with a simple-interest loan.[1][2]”

 

[MTB4me]

Last two cars I bought, I used the Costco car purchasing program. Fairly straightforward with the Hyundai and Subaru dealers I dealt with. May not have gotten bottom dollar, but reasonably good deals nonetheless. Paid cash for both. Did my best not to laugh at the finance droids when they tried to sell me extended warranties. Probably spent less than an hour or so at each place.

 

[CaptTom]

My system used to be like others here. Shop around on line to select a few candidate models, then contact dealers on-line or on the phone to find out who is willing to work with me on price.

I'd also always insist on "sleeping on it" before signing anything. I've walked out of places which didn't respect this requirement, even though it was the first thing I said to the salesman.

I wonder if any of that still works, when the most popular models are flying out of the showrooms as soon as they come in, or are back-ordered for months.

I also always used to negotiate a cash price up front. If I needed to finance, I'd have that all set up with a bank ahead of time, and tell the dealer that if they could beat that I'd listen.

Again, it sounds like this strategy might be a relic of the past.

One thing hasn't changed though, is how sleazy car dealers are. I have a few good stories about that, but if we all shared those, this thread would never end!

 

[pb4uski]

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.

Can't you just say I need to know the I interest rate and if you don't tell me I'm walking out the door and you'll never see me again other than when my complaint about your nondisclosure is heard by the relevant authorities... and leave it at that.

 

[Chuckanut]

That is a weird story.

Years ago after some mild haggling, I bought a Camry. Toyota was offering 0% 5 year loans. When I told the sales rep I was paying cash he looked at me and simply said “Chuck, it’s free money”. I got the point. My next car had had a 0.9% 5 year loan. I took that deal also. When inflation plummeted to the area of 2% for the last three years of the loan, I lost bragging my rights. Oh well….

 

[mystang52]

Can't you just say I need to know the I interest rate and if you don't tell me I'm walking out the door and you'll never see me again other than when my complaint about your nondisclosure is heard by the relevant authorities... and leave it at that.

DD fully intended to pay cash, but if financing made the deal worthwhile she would have considered it. So when they dilly-dallied she just pressed them about the all-cash price.

 

[donheff]

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.

Could be. My last two cars were Lexus SUVs. I just mentally prepared for a tedious Finance Department walk through. Same deal:, no, no, no, no... They all tell me they are required to go through the whole list, blah, blah. It isn't worth fighting to me. The biggest PITA is unfreezing the three Major credit bureaus. I do it so infrequently that I always worry I will not be able to work it out.

 

[RE2Boys]

My 27 year old son purchased a "new" car (actually two year old used vehicle) last November and I was with him. During the negotiations, they offered to take $2K off the price if he financed it, even though he was looking for a cash deal with trade-in.


He took the offer, paid off the loan in less than two months, cost him a little over $100 in finance charges. They repeatedly asked him to wait three months to pay it off supposedly to improve his credit history, but there was no incentive to wait that long. His credit score is over 800.


He missed an opportunity to write his second check ever. He does all finances with cash or electronically.

 

[braumeister]

The biggest PITA is unfreezing the three Major credit bureaus. I do it so infrequently that I always worry I will not be able to work it out.

I've never had to do that. Always just pay with a personal check and drive it away. I have never been questioned.

 

[badatmath]

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.

Well IDK really but they pushed it hard some 40 years ago when I got my first car. . .

If I wanted to pay cash I'd just leave and go somewhere else. Plenty of choices. The fact that car dealers are so unpleasant keeps me happily driving older cars!

 

[pb4uski]

My 27 year old son purchased a "new" car (actually two year old used vehicle) last November and I was with him. During the negotiations, they offered to take $2K off the price if he financed it, even though he was looking for a cash deal with trade-in.


He took the offer, paid off the loan in less than two months, cost him a little over $100 in finance charges. They repeatedly asked him to wait three months to pay it off supposedly to improve his credit history, but there was no incentive to wait that long. His credit score is over 800.

He missed an opportunity to write his second check ever. He does all finances with cash or electronically.

I've had similar experience on the first part, where the dealer wanted me to make a few months of payments before payng off the loan. It has nothingt a t all to do with the borrower's credit history. I think it has to do with that if the loan is paid off too quickly then the lender might try to clawback the initiation fee/commission that the dealer received for arranging the financing since it was a sham.

On the last part, by paying cash or electronically, he is missing out on saving 2% on all his purchases and also the protections that using a credit card provide. He should get a 2% cash back credit card, use that for all his purchases and have it set up to autopay the full balance every month. If he spends $2k a month then his rebate would be a cool $480 a year... free, easy money... what's the matter with that?

 

[SecondAttempt]

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.

I think an offer of credit must include interest rate, amount borrowed, total number of payments, and total of payments to be a lawful offer. Personally I would state that then walk and say they will be reported.

I've always been a difficult customer for car dealers. I arrange financing with a bank in advance and refuse to discuss anything but a cash price with the dealer. After the cash price is agreed in writing I give them an opportunity to offer financing. In a couple of cases they have offered better terms and I have financed through the dealer.

Just remember, the buyer is always in charge. You can always walk away.

 

[SecondAttempt]

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.

I think an offer of credit must include interest rate, amount borrowed, total number of payments, and total of payments to be a lawful offer. Personally I would state that then walk and say they will be reported.

I've always been a difficult customer for car dealers. I arrange financing with a bank in advance and refuse to discuss anything but a cash price with the dealer. After the cash price is agreed in writing I give them an opportunity to offer financing. In a couple of cases they have offered better terms and I have financed through the dealer.

Just remember, the buyer is always in charge. You can always walk away.

https://www.consumerfinance.gov/ask...n-lending-disclosure-for-an-auto-loan-en-787/

You are entitled to the TIL disclosure before signing a contract.

 

[CaptTom]

...He should get a 2% cash back credit card, use that for all his purchases and have it set up to autopay the full balance every month...

That's my strategy. I was surprised when I recently bought a new (used) truck. They wouldn't take a check as a down payment. But they would take a credit card. I whipped out my 2% cash back card and made the largest down payment they'd accept. It almost felt like I'd got the better of a car dealer, for a change.

...I arrange financing with a bank in advance and refuse to discuss anything but a cash price with the dealer. After the cash price is agreed in writing I give them an opportunity to offer financing...

That was always my approach, but after reading this thread I question it. If the dealer is making a chunk of their profit off the loan origination, then they'll quote a higher price for a cash purchase.

 

[mebden]

I did this back in 2021 on a 2020 vehicle I looked it up online and it was actually rental truck with very low miles on it like 10000 miles. I got the price emailed to me that we had agreed upon over the phone and it was 0% interest for the whole loan thru them but when I got there to pick the vehicle up and they tried to get me to sign a piece of paper that said I would not pay the loan off for at least 3 months. I told them I will walk if I need to sign this as the salesman said they get $3000 just for me to take the loan and not pay it off for 3 months. Well long story short I didn't sign the paper took their loan which cost me $50 dollars for them to write it up and I got the price we agreed on and signed papers and left with vehicle on a Monday paid the whole loan off by the following Monday and got a call from Finance dude and he said you know by you paying of that loan we lost that $3000 for you paying it off in less than 3 months and I just laughed and said maybe next time you will quit trying to be so sneaky with your loans up front.

 

[ShokWaveRider]

I have never had a car loan in my life, neither has my DW. Now I lease which is kind of like a loan I suppose but I do not think of it as that. So, dealers do not even think about offering it or any other items for that matter. I never have ever put up front money down on a lease either, I only consider $0 Down, $0 Cap reduction lease deals. I think of a lease more like a car rental.

 

[Texas Proud]

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.

I always say that if I need a long term warranty then I do not need to buy their car.... it SHOULD not have problems....

 

[ERD50]

.... they tried to get me to sign a piece of paper that said I would not pay the loan off for at least 3 months. .... paid the whole loan off by the following Monday and got a call from Finance dude and he said you know by you paying of that loan we lost that $3000 for you paying it off in less than 3 months and I just laughed and said maybe next time you will quit trying to be so sneaky with your loans up front.

If I were quick enough (I seldom am), I'd have said, "then why didn't you offer me $1500 to *not* pay it off in 3 months? We'd both be $1500 ahead!"

But really, they want you to do something that costs you to help them, but they give you zero motivation. The heck with 'em. It's not like they did anything to earn your respect or anything, just the opposite.

-ERD50

 

[aaronc879]

I bought a new Kia in March of 2022. That was when inventory was low and there was no negotiating below MSRP on anything. The price was MSRP regardless of financing or cash but they insisted I get a financing quote. It was a good rate but I still paid cash. They seemed unhappy about that. I guess, as another person said, the dealership must get a cut of the interest. Despite that very minor issue I have no problems with Kia in general or my Seltos specifically after the first 2 years.

 

[rk911]

That sounds REALLY shifty! But yeah, I'm sure that if it is legal, it is done routinely.

Back in 2003 we bought a new Jeep Wrangler. This was when all of the car companies were touting 0% interest. We negotiated the price we were happy with and we were prepared to pay cash...but...0% interest for 36-mos. We weren't nearly as well off then so it was a very tempting offer.

The total sales price was divided by 36 and that was the monthly payment. The 36th payment was a bit more or less than the other 35 but the total payments equaled the bottom line. Other than moving autos off the sales floor I don't see how that advantaged the dealer.

 

[kingle]

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.

A similar thing happened to my daughter at a Toyota dealer. The dealer gets a lift on originating the financing. Yes, you can pay it off in 3 or 6 months. But, we found a little misleading on the advertised price as nothing was stated about financing. And similar to your experience they wanted a $1000 more for the car if you paid cash or brought your own financing. The rate from Toyota Motor Finance was at least competitive.