F&I office: Business -- or monkey business?
By Karen
M. Kroll • Bankrate.com
OK, you've settled on the car you want and the price
you're willing to pay for it. You're done, right? Not quite. You probably
still need to meet with one other person -- often referred to as the
F&I guy (or gal), the dealer's finance and insurance manager.
Watch out!
Remember: The dealer never stops looking to make money.
"Most people think of the F&I guy as a financial adviser.
But they're salespeople," says Philip Reed, author of the Edmunds.com
book, Strategies for Smart Car Buyers. "Their purpose is to
maximize the deal."
Negotiations with the salesman are almost all verbal.
But after you reach a handshake agreement, a different person takes
that agreement and puts it in writing.
"The transition can be dangerous," adds Reed.
It's time to stay focused, examine the contract and
avoid these mistakes:
Buying into dealer financing:
Some dealers may imply that you have to work through their finance
department. You don't. If you can obtain better terms elsewhere,
there's no reason you shouldn't.
Not reading the contract:
It sounds basic, and it is. Even so, many people fail to
do it. "Most people spend more time analyzing a watermelon
in the grocery store than they do reviewing a contract for a $30,000
car," says Jeff Ostroff of ConsumerNet Inc., the Fort Lauderdale-based
firm that publishes carbuyingtips.com.
Tired of negotiating, many assume the written contract will reflect
all the negotiations that already have occurred. That's not always
the case.
"In the dealership, you need to understand everything
you sign on the contract," says Mark McCready, director of
pricing strategies with carsdirect.com,
Los Angeles.
Mistaking a lease for a purchase:
An unscrupulous car dealer may slip a "lease to own"
contract in front of you when you think you're buying a car. That
may be how the monthly payment got so low. Many lease contracts
are lease-to-own agreements, but that's not the same as buying the
car. With a lease, you're paying the amount that the car is depreciating.
To purchase the car at the end of the lease term, you may have to
make a large balloon payment or refinance.
Failing to research extended
warranties: Extended warranties (aka, service contracts)
kick in once the warranty that comes with a new car expires. For
some drivers, it makes sense to know they're protected if anything
goes wrong. Before purchasing an extended warranty, however, keep
these pointers in mind:
-
Recognize that no regulations force
you to purchase an extended warranty.
-
Know what the original car warranty
covers. Most are good for at least 36,000 miles and/or three years.
It's only after this period that the extended warranty kicks in.
-
Look for a manufacturer's warranty,
rather than a dealer or aftermarket warranty. A manufacturer's
warranty is good anywhere in the country that the car is sold,
says John Honiotes, vice president of automotive operations with
Autobytel Inc., Irvine, Calif. A dealer warranty may require
you to use a specific dealer for all car repairs.
-
Make sure an aftermarket warranty
company is a viable business. "There's no promise they'll
stay in business," says Mark Perleberg, lead automotive expert
with NADAguides.com,
Costa Mesa, Calif. You don't want to pay for a warranty only to
find the company behind it isn't around when you need it.
-
Check the terms. Eva Rosenberg,
publisher of taxmama.com,
says she once almost signed a warranty that required her to pay
a $200 deductible for each visit. "We were hit with a shock,"
she says. While Rosenberg was able to negotiate the removal of
the clause, her experience emphasizes the importance of closely
reading the contract.
-
Know what the extended warranty
covers. The best is a bumper-to-bumper warranty that includes
a free loaner car while your car is in for repairs, says Rosenberg.
Purchasing insurance you don't
want: Finance managers often push for you to buy insurance
policies, such as gap
insurance. This pays you if your car is stolen or totaled, and
you owe more than it is worth. Say your car is totaled and you owe
$15,000, but your auto insurance company will pay you only its current
value of $10,000. You'd be responsible for the $5,000 to pay off
the loan. Gap insurance would cover that difference.
In some situations, this makes sense. In others, it's
a waste of hard-earned cash. Sometimes your regular auto insurance
policy already includes this coverage. Crunch the numbers before
you enter the F&I office.
Another type of insurance, credit
life insurance, will repay the balance of your loan should you
die before it's paid off. Again, you'll need to logically think
through your financial situation to see if this makes sense for
you.
Agreeing to front-load the
interest: Some car loans will require you to pay all the
interest upfront, meaning you'll be hit with extra interest charges
if you prepay the loan. Make sure your loan has straight amortization,
advises Rosenberg of taxmama.com. That way, your payments will cover
the principal as well as the interest.
Paying for extras you don't
want: A dealer may throw into the car purchase agreement
any number of extra products, such as fabric protection, pinstriping,
undercoating and VIN etching. "They're ridiculous," says
Reed of Edmunds.com. Most car shoppers can apply their own fabric
protection for hundreds less than the dealer will charge, and all
cars are undercoated at the factory. VIN etching refers to the practice
of etching the car's vehicle identification number (VIN) into different
parts of the car, such as the window. Most industry experts say
it doesn't offer much protection against thieves, but if you want
this, you can spend about $20 and 20 minutes etching your car yourself,
says Ostroff of carbuyingtips.com. Dealers may charge several hundred
dollars.
Trading in a car you haven't
paid off: Trading in a car on which you still owe money can
be dangerous for several reasons. First, your pocketbook will take
a hit, as you may still be paying off your old car, even as you're
paying on the new car you're leasing or purchasing. Also, you'll
be spreading that existing balance -- and paying interest on it
-- over the life of the new loan instead the few months you had
left on the old loan.
What's more, a few dealers have used this technique
to scam customers, explains Ostroff, by not paying off the balance
on your trade-in. When customers eventually hear from the bank about
the delinquent payments, the finance managers offer to pay off some
of the balance, but try to shift the remainder back to the customer.
"It's another way for them to squeeze a few more payments from
you," says Ostroff.
To avoid this, make sure you obtain an agreement in
writing that says the dealership will completely pay off your old
loan within 10 days of the date of the agreement, he recommends.
Failing to prepare: Preparation
and stamina can help you navigate the negotiation process with the
finance manager. Do your homework. Know your credit score, know
what interest rate you should qualify for; know what the cars you
like are going for; and know what extras you will and won't pay
for. Make sure your contract reflects your wishes. Then, remain
on your toes when you get to the finance manager's office.
"It's like a chess match, "says Ostroff.
"You want to think ahead about what they are going to say.
Then you want to figure out how to debunk it."
Karen M. Kroll is a freelance
writer in Minnesota.
-- Updated: Jan. 12, 2005
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