HOW TO NEGOTIATE WITH THE BUSINESS MANAGER FINANCE MANAGER LEASING MANAGER F & I MANAGER
(DIFFERENT NAMES FOR THE SAME PERSON)
KNOWING HOW THE FINANCE MANAGER CREATES A PROFIT FROM YOU WITHOUT SELLING YOU ANYTHING IS EXTREMELY IMPORTANT, ESPECIALLY IF YOU HAVE A MINOR DEROGATORY ACCOUNT LISTED ON YOUR CREDIT BUREAU. UNFORTUNATELY, THE BUSINESS MANAGER IS THE ONE PERSON WHO CAN TAKE YOUR MONEY SOMETIMES WITHOUT YOU EVEN REALIZING IT IS HAPPENING. YOUR CREDIT SCORE IS EXTREMELY IMPORTANT BUT THE BUSINESS MANAGER TENDS TO USE IT AGAINST YOU EVEN IF YOUR CREDIT SCORE IS REALLY NOT THAT BAD. THE CHART BELOW ILLUSTRATES AN EXAMPLE OF A TYPICAL BUY RATE CHART FROM A BANK OR VEHICLE MANUFACTURER TO THE CAR DEALERSHIP EXAMPLE OF DEALERSHIPS BUY RATE CHART FROM A A.P.R. FINANCING BASED ON CREDIT SCORE 700+ IS AN AUTOMATIC APPROVAL SCORE = 700+ 676-699 651-675 626-650 600-625 VEHICLE Brand New 4.99% 5.50% 5.99% 6.99% 7.99% 1 YR OLD 5.50% 5.99% 6.50% 7.50% 8.50% 2 YR OLD 5.99% 6.50% 6.99% 7.99% 8.99% 3 YR OLD 6.50% 6.99% 7.50% 8.50% 9.50% 4 YR OLD 6.99% 7.50% 7.99% 8.99% 9.99% 5 YR OLD 7.50% 7.99% 8.50% 9.50% 10.50% 6 YR OLD 7.99% 8.50% 8.99% 9.99% 10.99%
BANK
< 600 9.99% 10.50% 10.99% 11.50% 11.99% 12.50% 12.99%
RATES VARY FROM BANK TO BANK THIS IS ONLY AN EXAMPLE OF HOW THE SYSTEM WORKS MOST BANKS USE THE AGE OF THE VEHICLE AND YOUR CREDIT SCORE TO DETERMINE YOUR INTEREST RATE THE BUY RATE IS THE INTEREST RATE AT WHICH THE DEALERSHIPS BUYS THE MONEY. THE SELL RATE IS THE INTEREST RATE THE
DEALERSHIP CHARGES YOU FOR YOUR BANK LOAN. THE DIFFERENCE BETWEEN THE SELL RATE AND BUY RATE IS THE DEALERSHIPS PROFIT CALLED THE “FINANCE RESERVE” OR “LEASE RESERVE”. THIS PROFIT IS PAID TO THE DEALERSHIP FROM THE BANK OR VEHICLE MANUFACTURER. A DEALERSHIP CAN “MARK UP” THE INTEREST RATE AS MUCH AS 2 ½ POINTS UP TO 60 MONTHS AND 2 POINTS FROM 61- 84 MONTHS.
DEALERSHIPS MAKE MONEY WHEN YOU FINANCE OR LEASE WITH THEM LET US LOOK AT A FEW EXAMPLES:
THE CAR Your Credit Score Amount Financed # of Mos
BUY RATE 4.99% 5.99% 6.99% 8.50% 9.99%
12.50%
Buy Rate Monthly Paymnt
SELL RATE 6.99% 7.99% 9.49%
11.00% 12.49% 15.00%
Sell Rate Monthly Payment
New 1 YR 2 YR 3 YR 4 YR 5 YR 6 YR
729 680 669 630 612 540 710
$40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $15,000
84 72 60 60 60 48 36
7.99%
$565 $511 $594 $513 $425 $399 $470
10.49
$603 $545 $630 $544 $450 $418 $488
Dealers Profit Rate 2.00% 2.00% 2.50% 2.50% 2.50% 2.50% 2.50%
Dealers Profit Amount $3,192 $2,448 $2,160 $1,860 $1,500 $912 $648
RATES VARY FROM MANUFACTURER TO MANUFACTURER THIS IS ONLY AN EXAMPLE OF HOW THE SYSTEM WORKS
MOST MANUFACTURERS USE YOUR CREDIT SCORE AND A TIERING SYSTEM TO DETERMINE YOUR INTEREST RATE
THE TIERING SYSTEM ASSIGNS A TIER BASED ON MULTIPLE CRITERIA SELECTED BY EACH VEHICLE MANUFACTURER. SUCH CRITERIA INCLUDES BUT IS NOT LIMITED TO: YEARLY INCOME, TIME ON THE JOB, TIME AT RESIDENCE, VEHICLE DESIRED, DOWN PAYMENT, PAYOFF ON TRADE-IN, AMOUNT FINANCED OR LEASED. AN EXAMPLE OF A DEALERSHIPS BUY RATE CHART
FROM A VEHICLE MANUFACTURER
SCORE 700 +UP 676-699 651-675 626-650 600-625 550-599 < 550 A.P.R. FINANCING BASED ON CREDIT SCORE 700+ AND TIER 0 IS AN AUTOMATIC APPROVAL TIER 0 TIER 1 TIER 2 TIER 3 TIER 4 4.99% 5.50% 5.99% 6.99% 7.99% 5.50% 5.99% 6.50% 7.50% 8.50% 5.99% 6.50% 6.99% 7.99% 8.99% 6.50% 6.99% 7.50% 8.50% 9.50% 6.99% 7.50% 7.99% 8.99% 9.99% 7.50% 7.99% 8.50% 9.50% 10.50% 7.99% 8.50% 8.99% 9.99% 10.99% TIER 5 9.99% 10.50% 10.99% 11.50% 11.99% 12.50% 12.99%
TIER SCORING IS DONE BY COMPUTER AND CAN NOT BE CHANGED BY A CREDIT ANALYST. THE ONLY THING THAT CAN CHANGE THE TIER SCORING IS MORE MONEY FROM THE CUSTOMER USED AS ADDITIONAL DOWN PAYMENT (THIS WILL ALWAYS LOWER THE TIER), CHANGING TO A LESS EXPENSIVE VEHICLE, SHORTEN THE TERM OF THE LOAN OR LEASE, REDUCING THE PURCHASE PRICE OF THE VEHICLE. THE FINANCE MANAGER MUST CALL THE CREDIT ANALYST AND REVIEW THE CHANGES. THE CHANGES MUST BE INPUTTED INTO THE COMPUTER BY THE CREDIT ANALYST TO SEE IF THE TIER CHANGES. IF THE TIER DOES NOT CHANGE THEN THE CREDIT ANALYST CAN CONTINUE ENTERING DIFFERENT CHANGES TO SEE WHAT IT WILL TAKE TO CHANGE THE TIER. OFTEN A LOT MORE MONEY DOWN WILL LOWER THE TIER THUS LOWERING THE INTEREST RATE AND YOUR MONTHLY PAYMENT.
THERE ARE BUY RATE CHARTS FOR:
1. REGULAR FINANCE RATES FROM BANKS 2. LEASING RATES AND RESIDUAL VALUES FROM MULTIPLY BANKS (ALL BANKS HAVE DIFFERENT LEASE RATES AND DIFFERENT RESIDUAL VALUES) 3. REGULAR FINANCE RATES FROM VEHICLE MANUFACTURERS 4. SPECIAL LOW A.P.R. FINANCE RATES FROM VEHICLE MANUFACTURERS 5. SPECIAL LEASING RATES AND RESIDUAL VALUES FROM VEHICLE MANUFACTURERS
WHEN YOU GET THE “BUMP” IN MONTHLY PAYMENT BY THE BUSINESS MANAGER
THE BUSINESS MANAGER WILL TAKE ADVANTAGE OF YOU IF YOU HAVE EVEN ONE 30-DAY DELINQUENCY. THE BUSINESS MANAGER PRINTS YOUR CREDIT REPORT AND SHOWS YOU WHERE A FINANCIAL INSTITUTION REPORTED YOU 30-DAYS DELINQUENT. YOU ARE UNSUSPECTING AND A LITTLE TAKEN BACK ABOUT THE DELINQUENCY ON YOUR CREDIT BUREAU. THE BUSINESS MANAGER TELLS YOU IT IS GOING TO BE $20.00 A MONTH HIGHER BECAUSE YOU DID NOT QUALIFY FOR THE BEST POSSIBLE RATE. UNFORTUNATELY THE BUSINESS MANAGER IS NOT TELLING THE TRUTH. YOUR CREDIT IS EXCELLENT AND ONE 30-DAY DELINQUENCY WOULD NEVER CHANGE YOUR INTEREST RATE. BUT, YOU DO NOT KNOW ANY BETTER AND FEEL AWKWARD SO YOU JUST ACCEPT IT.
THE MONTHLY PAYMENT IS RAISED $20.00 AND YOU SIGN THE CONTRACT. YOU JUST GOT RIPPED OFF FOR $20.00 TIMES THE TERM OF THE CONTRACT. 36 MONTHS IS $720.00 OR 60 MONTHS IS $1200.00 ADDITIONAL PROFIT GENERATED BY THE BUSINESS MANAGER. THE BUSINESS MANAGER IS PAID 20% OF WHATEVER PROFIT HE GENERATES. $1200.00 TIMES 20% IS $240.00 COMMISSION FOR BUMPING YOU UP IN MONTHLY PAYMENTS. THE BUSINESS MANAGER IS ONE OF THE HIGHEST PAID EMPLOYEES WORKING IN THE DEALERSHIP USUALLY SIX FIGURE INCOMES.
WHEN THE BANK APPROVES YOU BUT FOR A HIGHER INTEREST RATE
THIS CAN DEFINITELY HAPPEN IF YOUR CREDIT BUREAU SHOWS SEVERAL ACCOUNTS ALL WITH MULTIPLE DELINQUENCIES SUCH AS 30-DAY, 60-DAY AND 90+ DAYS LATE. WHEN THE BANK APPROVES YOUR LOAN OR LEASE IT WILL BE AT A HIGHER INTEREST RATE BECAUSE OF THE RISK THE BANK IS TAKING GIVING YOU THE MONEY. WHEN THIS HAPPENS TO YOU, PLEASE DO NOT FORGET THE BUSINESS MANAGER IS TRYING TO GENERATE ADDITIONAL PROFIT. YES, THE BUY RATE TO THE DEALER GOES UP BECAUSE YOUR CREDIT CAUSED IT TO GO UP BUT HE IS STILL MARKING UP THE MONEY.
HOW CAN YOU TELL IF THE BANK OR THE BUSINESS MANAGER RAISED THE INTEREST RATE
THE BUSINESS MANAGER WILL ALWAYS ATTEMPT TO RAISE THE INTEREST RATE TO CREATE ADDITIONAL PROFIT WHETHER OR NOT THE BANK RAISED THE INTEREST RATE TO HIM OR NOT. SOMEONE WITH EXCELLENT CREDIT WITH ONE 30-DAY LATE PAYMENT WILL GET THEIR MONTHLY PAYMENT RAISED ONLY SLIGHTLY. THE BUSINESS MANAGER DOES NOT WANT TO RUFFLE TOO MANY FEATHERS. HE WILL SIMPLY CATCH YOU OFF GUARD ABOUT YOUR ONE DEROGATORY ITEM AND NOT TAKE TOO MUCH ADVANTAGE FOR FEAR YOU WILL WALK AWAY FROM THE DEAL ALTOGETHER. SOMEONE WITH POOR CREDIT WILL GET THEIR MONTHLY PAYMENT RAISED A VERY LARGE AMOUNT. WHY? DO NOT FORGET THE BANK IS RAISING YOUR INTEREST RATE AND SO IS THE BUSINESS MANAGER.
IN MOST CASES THE BANK IS INCREASING THE INTEREST RATE 2% TO 5% PLUS THE BUSINESS MANAGER IS GOING TO TAC ON HIS 2% TO 2 ½ % PROFIT. SOMEONE WITH POOR CREDIT WILL HAVE THEIR INTEREST RATE CHANGE ANYWHERE FROM 4% TO 7 ½% HIGHER THAN ORIGINALLY QUOTED. THAT WILL TRANSLATE INTO $50-$120 MORE PER MONTH.
DO YOU JUST HAVE TO ACCEPT IT?
NO!
YOU DO NOT HAVE TO ACCEPT IT! WHEN YOU APPROVED AT ONE NEW CAR DEALERSHIP THROUGH THE VEHICLE MANUFACTURERS FINANCING SOURCE OR LEASING SOURCE, YOU ARE APPROVED AT EVERY NEW CAR DEALERSHIP FOR THAT MAKE OF VEHICLE. YOU CAN NEGOTIATE THE BUSINESS MANAGERS MARKUP OF 2% - 2 1/2 % OF THE INTEREST RATE. OTHER DEALERSHIPS MAY BE WILLING TO ONLY TAKE ½ % - 1% MARKUP ON THE MONEY. PLUS YOU MIGHT EVEN GET A BETTER PRICE AT ANOTHER DEALERSHIP. YOU CAN FIND WAYS TO LOWER THE INTEREST RATE FROM THE BANK. THE BEST METHOD IS PUTTING ADDITIONAL MONEY AS A DOWN PAYMENT WHICH LOWERS THE BANKS EXPOSURE AND ALSO LOWERS YOUR INTEREST RATE. YOU CAN RE-NEGOTIATE THE PRICE OF THE VEHICLE. LOWERING THE PRICE WILL LOWER YOUR MONTHLY PAYMENT. YOU CAN SHORTEN THE TERM OF THE LOAN OR LEASE. IF YOU CHANGE A 72 MONTH LOAN TO A 60 MONTH LOAN THE INTEREST RATE WILL DROP. IF YOU CHANGE A 48 OR 39 MONTH LEASE TO 36 OR 24 MONTH LEASE THE RATE MAY DROP. YOU CAN CHANGE TO A LESS EXPENSIVE VEHICLE AND THUS LESS MONEY BEING FINANCED OR LEASED WHICH WILL LOWER THE INTEREST RATE. IF YOU WANT THE ORIGINAL VEHICLE YOU PICK OUT THEN YOU SHOULD WORK BOTH ENDS TO LOWER YOUR INTEREST RATE. #1 GET THE DEALER TO GIVE UP 1%-2% OF HIS MARKUP. #2 PUT ADDITIONAL MONEY DOWN TO LOWER THE INTEREST RATE FROM THE BANK. SUCCESSFULLY NEGOTIATING BOTH WILL DROP YOUR INTEREST RATE ABOUT 4%.
AFTERSELL PRODUCTS SOLD BY THE BUSINESS MANAGER
EXTENDED WARRANTY
THE MANUFACTURERS EXTENDED WARRANTY (SERVICE CONTRACT) IS THE ONLY WARRANTY TO EVER CONSIDER. DO NOT PURCHASE AN EXTENDED WARRANTY IF IT NOT FROM THE VEHICLE MANUFACTURER. INSURANCE BASED WARRANTIES ARE NOT WORTH THE PAPER THEY ARE WRITTEN ON. ALL MANUFACTURERS EXTENDED WARRANTIES HAVE A RETAIL PRICE BOOK PRINTED BY THE VEHICLE MANUFACTURER. YOU SHOULD ASK TO SEE IT. BUSINESS MANAGERS CAN SELL EXTENDED WARRANTIES FOR ANY PRICE THEY ASK. ALWAYS ASK TO SEE THE MANUFACTURERS RETAIL PRICE LIST FOR A FACTORY WARRANTY. YOU CAN NEGOTIATE THE PRICES LISTED IN THE MANUFACTURERS WARRANTY PRICE BOOK. HOWEVER, THE PRICES DO NOT HAVE HUGH MARKUPS. YOU CAN NEGOTIATE ABOUT 20% TO 30% OFF OF THE MANUFACTURERS RETAIL PRICE FOR THE WARRANTY AND THE DEALER WILL STILL MAKE A PROFIT.
(L A & H) LIFE, ACCIDENT & HEALTH INSURANCE
THIS INSURANCE IS COMMONLY SOLD ON FINANCE CONTRACTS. IT WILL PAYOFF THE BALANCE OF THE LOAN IN THE EVENT OF YOUR DEATH. IT WILL ALSO PAY YOUR MONTHLY PAYMENTS IF YOU ARE HURT AND CAN NOT WORK. THE PROBLEM IS THAT THIS INSURANCE IS INSANELY EXPENSIVE. THE DEALERSHIP MAKES A 50% PROFIT ON THE PREMIUMS. YOU CAN GET TERM LIFE INSURANCE AND DISABILITY INSURANCE MUCH CHEAPER FROM YOUR INSURANCE MAN.
ALARM SYSTEMS
ALARM SYSTEMS ARE USUALLY NOT WORTH HAVING IN YOUR VEHICLE. THEY CAUSE MORE PROBLEMS THAN THEY ARE WORTH. ALARMS DO NOT PREVENT THIEVES FROM STEALING YOUR VEHICLE.
LOJACK
LOJACK IS AN EXCELLENT PRODUCT. IT IS A HOMING DEVICE THAT LEADS POLICE DIRECTLY TO YOUR VEHICLE IF STOLEN. LOJACK RETRIEVE RETAILS FOR $595.00 BUT YOU CAN NEGOTIATE ABOUT 25% OFF.