# Bizarre auto financing rules, or bizarre sales bullshit? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [December 22, 2015, 11:50am UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087 "2015-12-22T11:50:45Z")\ **Posts on this page:** 10\ **Page:** 3
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 24, 2015, 3:20am UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/41 "2015-12-24T03:20:12Z")
> [@Boyo\_Jim](#): > > I don’t think I understand exactly what you’re saying here. But first, I did not misunderstand what was said, nor was I misled (I think), I sat down with the finance guy today and we went through the terms of the loan pretty much dollar by dollar. The warranty is gone and there are no other costs that have been thrown in. The APR remains unchanged The loan was exactly what I expected it to be given the swap of the warranty for the option package. He had it all printed up and ready for my signature, but I told him I am still thinking about it. Because of the holidays, I told him I would decide by next Monday. > > Yes it is. It’s Chase. I think of it as a traditional bank, though it does all kinds of stuff like financing credit cards. But perhaps you have a different understanding of the term. No standard bank is offering 1% financing on car loans. This is an incentive rate being supported by the manufacturer. Possibly Chase is _servicing_ the loan, but the interest rate is most assuredly being bought down by Mazda to move the vehicle. The “extended warranty gets you financed” story you are being told is BS so you will stick with the warranty until he gets his commission and warranty sale bonus. I would absolutely double check whatever he’s telling you with the dealership manager. If you get the same nonsense from them you may want to reconsider the deal. ---
**Author:** ![Boyo\_Jim](https://avatars.discourse-cdn.com/v4/letter/b/87869e/32.png) [@Boyo\_Jim](https://boards.straightdope.com/u/Boyo_Jim)\ **Post date:** [December 24, 2015, 3:32am UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/42 "2015-12-24T03:32:58Z")
You already said you’re not a banker. How do you know what a “standard” bank does or doesn’t do? How is Chase not a standard bank, and BTW, what exactly is a standard bank. And why should I care if Mazda has some deal with Chase that allows Chase to make auto loans at lower rates than they might otherwise, so long as I’m the beneficiary of that lower rate? I’ve already seen the written details of the loan, and it is exactly as I’ve been led to believe, and they would have been delighted for me to sign it as is today. I chose not to – yet. You seems certain they’re running some kind of scam, apparently without any evidence or even relevant business background. Why is this? ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 24, 2015, 4:19am UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/43 "2015-12-24T04:19:21Z")
> [@Boyo\_Jim](#): > > You already said you’re not a banker. How do you know what a “standard” bank does or doesn’t do? How is Chase not a standard bank, and BTW, what exactly is a standard bank. And why should I care if Mazda has some deal with Chase that allows Chase to make auto loans at lower rates than they might otherwise, so long as I’m the beneficiary of that lower rate? > > I’ve already seen the written details of the loan, and it is exactly as I’ve been led to believe, and they would have been delighted for me to sign it as is today. I chose not to – yet. > > You seems certain they’re running some kind of scam, apparently without any evidence or even relevant business background. Why is this? I’m not a banker thus the cautionary note, but I am familiar enough with financing in general and rates of return that I feel confident that no commercial bank is whimsically going to decide that less than 1% (.09 per your note) rate of return is sufficient for investors. You’d have to be taking crazy pills to believe this. Zero percent (or super low percent) financing is fairly common in buying new cars. That rate is basically “bought down” by the financing arm of the manufacturer. Basically they are discounting the financing rather than the price of the car to move it. This makes perfect sense because there are probably as many or more people looking for an affordable payment vs those looking for a bottom line cash deal. The main thing I’m addressing is what your OP asked, which is if there is rational financing linkage between getting an extended warranty package and the arms length financing of the car loan. There is not. The only online information that addresses this purported linkage treats it as a common sales “scam” or false presentation by the car dealer. If you want to believe the linkage is real and necessary it is entirely your prerogative. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [December 24, 2015, 5:33am UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/44 "2015-12-24T05:33:52Z")
> [@Boyo\_Jim](#): > > You already said you’re not a banker. How do you know what a “standard” bank does or doesn’t do? How is Chase not a standard bank, and BTW, what exactly is a standard bank. And why should I care if Mazda has some deal with Chase that allows Chase to make auto loans at lower rates than they might otherwise, so long as I’m the beneficiary of that lower rate? > > I’ve already seen the written details of the loan, and it is exactly as I’ve been led to believe, and they would have been delighted for me to sign it as is today. I chose not to – yet. > > You seems certain they’re running some kind of scam, apparently without any evidence or even relevant business background. Why is this? Well, i work in Bank Security and Anti-Money Laundering. Loan compliance is a side area. Cant say i am a expert in all facets. But- No, _Chase_ is not gonna lend you $ at 1%, when a mortgage is 4-5X that. Having also sold cars for a time, i can also say I can say that extended warranties are \*mostly \*a scam, but not 100%. They are about 100% marked up, if not more. I think they are playing games to get you to buy the warranty. It is _just possible_ they had to run the loan back past the dealership guy, when the terms where changed. Sure. But you should get the same deal. ---
**Author:** ![slash2k](https://avatars.discourse-cdn.com/v4/letter/s/439d5e/32.png) [@slash2k](https://boards.straightdope.com/u/slash2k)\ **Post date:** [December 24, 2015, 6:28am UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/45 "2015-12-24T06:28:40Z")
> [@Boyo\_Jim](#): > > You already said you’re not a banker. How do you know what a “standard” bank does or doesn’t do? How is Chase not a standard bank, and BTW, what exactly is a standard bank. And why should I care if Mazda has some deal with Chase that allows Chase to make auto loans at lower rates than they might otherwise, so long as I’m the beneficiary of that lower rate? The [average interest rate on 60-month loans on new cars](http://www.bankrate.com/finance/auto/current-interest-rates.aspx), as I write this, is in the range of 4.3 to 4.4 percent. If you are receiving a rate substantially below this when you have less than great credit, then somebody is subsidizing the rate. That’s not necessarily a bad thing, nor is it a scam, but it does change the economic incentives for the various players here, and it is worth your while at least to understand what those incentives are and who is motivated to do what. Chase is a perfectly fine standard bank, but it’s also a bank that operates as the captive financial arm for auto companies. In fact, Chase and Mazda [do have a deal](http://www.autofinancenews.net/the-chase-mazda-hookup-a-golden-opportunity/). Chase isn’t loaning you the money purely based on your creditworthiness, because your value to Mazda is an inherent part of the deal. That means, for example, that if you brought your own financing from an independent bank, you’d probably end up paying hundreds or thousands of dollars less for the car, because then the price of the car doesn’t have to include whatever subsidy Mazda has to pay Chase to get you that below-market rate. That may or may not be enough to offset the higher interest your credit union would charge you, but you should consider the possibility. > [@Boyo\_Jim](#): > > You seems certain they’re running some kind of scam, apparently without any evidence or even relevant business background. Why is this? I don’t think it’s a scam, and I don’t think astro or others think it is either. However, I do think there is a possibility that you are being manipulated into a deal that maybe isn’t the best deal you could get under the circumstances. They’re out to make money off of you, and you need to know all of the ways in which they plan to do so, which extend beyond merely the purchase itself. > [@Boyo\_Jim](#): > > I don’t think I understand exactly what you’re saying here. But first, I did not misunderstand what was said, nor was I misled (I think), I sat down with the finance guy today and we went through the terms of the loan pretty much dollar by dollar. The warranty is gone and there are no other costs that have been thrown in. The APR remains unchanged The loan was exactly what I expected it to be given the swap of the warranty for the option package. He had it all printed up and ready for my signature, but I told him I am still thinking about it. Because of the holidays, I told him I would decide by next Monday. The way I read your initial explanation, I thought you understood it to be that if the bank approved you for $20K ($18.5K for the car and $1.5K for the warranty), and then you decided not to buy the warranty, it was still going to be a $20K loan, meaning that there was an “extra” $1500 out there that could go in your pocket. That ain’t happening. If you decided not to buy the warranty, they’d only disburse $18.5K, and then you’d have your 60-month loan paid off in 55 months or whatever. If I misunderstood your understanding, then I apologize. ---
**Author:** ![Boyo\_Jim](https://avatars.discourse-cdn.com/v4/letter/b/87869e/32.png) [@Boyo\_Jim](https://boards.straightdope.com/u/Boyo_Jim)\ **Post date:** [December 24, 2015, 12:41pm UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/46 "2015-12-24T12:41:09Z")
> [@slash2k](#): > > … The way I read your initial explanation, I thought you understood it to be that if the bank approved you for $20K ($18.5K for the car and $1.5K for the warranty), and then you decided not to buy the warranty, it was still going to be a $20K loan, meaning that there was an “extra” $1500 out there that could go in your pocket. That ain’t happening. If you decided not to buy the warranty, they’d only disburse $18.5K, and then you’d have your 60-month loan paid off in 55 months or whatever. If I misunderstood your understanding, then I apologize. No, that would be almost as if they were paying me not to buy something. I’m not _that_ dumb. I just couldn’t understand why a bank would approve a loan for X dollars and then need to scrutinize it again and re-approve it for a loan of X-Y dollars, treating it instead as if it were a loan for X+Z dollars. ---
**Author:** ![Boyo\_Jim](https://avatars.discourse-cdn.com/v4/letter/b/87869e/32.png) [@Boyo\_Jim](https://boards.straightdope.com/u/Boyo_Jim)\ **Post date:** [December 24, 2015, 12:50pm UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/47 "2015-12-24T12:50:51Z")
> [@astro](#): > > …The main thing I’m addressing is what your OP asked, which is if there is rational financing linkage between getting an extended warranty package and the arms length financing of the car loan. There is not. The only online information that addresses this purported linkage treats it as a common sales “scam” or false presentation by the car dealer. If you want to believe the linkage is real and necessary it is entirely your prerogative. You’re right, there clearly isn’t a linkage, but it’s close to the story they started with. The inexplicable parts in my mind was why they didn’t stick to that story – why, after the loan including the warranty price was approved, they didn’t lift an eyebrow when I told them to remove the warranty price from the deal. And why they had to re-approve a loan for a lesser dollar amount than the one they had already approved. ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 24, 2015, 7:17pm UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/48 "2015-12-24T19:17:31Z")
> [@Boyo\_Jim](#): > > You’re right, there clearly isn’t a linkage, but it’s close to the story they started with. The inexplicable parts in my mind was why they didn’t stick to that story – why, after the loan including the warranty price was approved, they didn’t lift an eyebrow when I told them to remove the warranty price from the deal. And why they had to re-approve a loan for a lesser dollar amount than the one they had already approved. Based on your description below I don’t think the ext warranty is being treated as “additional insurance” as he describes. This is nonsense. It’s also (I suspect) not being looked at the same way as the wholesale value of the car by the lender in terms of being an asset. I don’t think they are looking at it as 1500 worth of value internally, so your math of 20,000 - 1500 war + 1000 options =19,500 is less than 1500 war + 18500 car = 20,000 is not the same equation they are using internally. You dropping the warranty and adding 1000 to the price of the car with option is too them (internally) more expensive than the warranty deal. The story he is telling you supports the intrinsic value of the warranty in your mind as a customer vs telling you "internally the warranty is only valued at 500 cost so your 1000 added option package actually makes the car cost more not less and the financing has to be redone for this additional cost". > [@](#): > > A couple days later he tells me the loan is approved. In the mean time I decide to add an option package. The warranty is $1500 and the option package is $1000, so swapping them means a net $500 decrease in the loan amount. He says he’ll have to run the loan through for approval again because of their bank’s lending policies. I am rather stunned – why would they need to do this when they are being asked to loan less money than was already approved? > > He explains. The bank considers the warranty a form of insurance, and the amount approved didn’t even need to include its cost. IOW, for a $20,000 loan that includes the warranty, the amount they consider for approval is $18,500, and if they approve it they will still loan you the full $20,000. But after swapping out the warranty for the options, leaving a net cost of $19,000 the bank needs to reassess the approval for the full $19,000 amount. The actual loan amount would decrease, but from the financier’s point of view, the amount to approve would increase. While none of this makes sense to me, the revised loan amount did get approved with no change to the APR or any other of the terms. ---
**Author:** ![epbrown01](https://avatars.discourse-cdn.com/v4/letter/e/7ba0ec/32.png) [@epbrown01](https://boards.straightdope.com/u/epbrown01)\ **Post date:** [December 25, 2015, 1:37pm UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/49 "2015-12-25T13:37:25Z")
> [@Boyo\_Jim](#): > > So is this a real thing. or some convoluted scheme to … what, exactly? I don’t know how plainly it can be said - the warranty story is BS. Since you’re changing the loan amount it’s possible he may need to resubmit the paperwork but if you were approved for a higher amount you’re a lock for less. If you’re still enough of a sucker to want an aftermarket warranty once the factory one expires, you’ll find plenty of places willing to take your money three years from now. ---
**Author:** ![Boyo\_Jim](https://avatars.discourse-cdn.com/v4/letter/b/87869e/32.png) [@Boyo\_Jim](https://boards.straightdope.com/u/Boyo_Jim)\ **Post date:** [December 25, 2015, 2:00pm UTC](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087/50 "2015-12-25T14:00:26Z")
> [@epbrown01](#): > > I don’t know how plainly it can be said - the warranty story is BS. Since you’re changing the loan amount it’s possible he may need to resubmit the paperwork but if you were approved for a higher amount you’re a lock for less. > > If you’re still enough of a sucker to want an aftermarket warranty once the factory one expires, you’ll find plenty of places willing to take your money three years from now. Apparently you haven’t read anything I’ve written including the OP post. I never had any intention of buying the warranty, from the first time they offered it. And my questions have nothing at all to do with whether I should buy the warranty. Thanks for your contribution. :dubious: [Previous page](https://boards.straightdope.com/t/bizarre-auto-financing-rules-or-bizarre-sales-bullshit/741087.md?page=2)