nm, dp
Wow, I had one too. When my dishwasher went out, I called the “insurance company” and they had a new dishwasher shipped to my house that day, and a technician was sent out when it arrived to install it. While he was there, he noticed the garbage disposal wasn’t up to par, contacted the insurance company and they authorized changing that too. I think the seller paid $295.00 for that warranty, so it was far from a rip off.
No, there are no banking rules that make them do this. That dealership may have their own 'rules".
It is possible that the bank or financial institution has its own internal policies that require this. Specifically, they’re looking at loan-to-value.
The warranty is likely to be either transferable (increasing the resale value of the car) or refundable (decreasing the amount owed if they have to repo), so yes, they may well exclude it from their calculations or account for it differently. The bank then is comparing the loan amount on the car itself, excluding the warranty, to the value of the car. Say for example they will loan up to 95% of the value for somebody with your credit score. The value of the car is $20K, you want to borrow $18.5K; that’s less than 95% so you’re good to go. Now you want to borrow $19.5K for a slightly different car; does that option package increase the value of the car sufficiently that you are still under the 95%? Maybe, maybe not, so they want to look at it again.
Ok, that’s a better rationale than I came up with. I don’t know if it’s true, but at least it makes sense to me. And unless someone who has personal experience in banking as it relates to auto loans shows up, I think yours is the best answer I’m going to get.
Wait – you’re asking if a car salesman is telling you lies?
Are you serious?
Maybe not lies – inexplicable stories that don’t lead to them making more money off me.
I refer you back to post #9, with cites and everything.
As someone who worked in banking for 15 years, I can tell you that a lender looks at 2 things when evaluating a loan - the value of the collateral and your perceived ability to repay. The lending contract will state that you cannot alter the collateral in any way that will decrease it’s value. Insurance, for example, helps protect the lender’s interest in the collateral and is required by the contract to be maintained at a set minimum for the life of the loan. If you let your policy lapse the lender has every right to buy a policy on their collateral and add the premium to your loan payments. If a warranty were considered as part of the collateral value (which it is not, but for the sake of argument), the lender would protect their interest contractually by requiring said warranty to be maintained for the life of the loan and assert their right to buy one for you should you let it lapse.
Car loans have been around a long, long time. Lenders are not going to allow such a loop hole as “buy the warranty to increase the loan amount then cancel it later”. Pure, utter BS.
I must disagree. My extended warranty on my 9 year old Honda Ridgeline just paid for a rebuilt transmission and new transfer case. Total cost was about 3 times the cost of the warranty. Prior to this it also repaired the tailgate latch mechanism and a new heater fan. It was also a third party warranty that allowed me to choose who fixed the vehicle. The in all cases the repairs were done at a Honda dealer, I bought the truck used from a Subaru dealer.
I don’t think what you are saying contradicts what I said.
Every extended warranty I’ve dealt with included the provision that if it were financed, any refund for cancellation went back to the lienholder. From the finance company’s perspective, a third-party warranty doesn’t particularly matter to them: if you keep it, the collateral is more valuable, and if you cancel it they get the money.
What may play into this is if the finance company itself is selling the warranty (my credit union, e.g., actively markets warranties for used car purchases, as they are a reseller for one of the big aftermarket firms). In that case, they stand to book a profit on the sale of the warranty too, so if your loan is on the bubble for approval, that extra profit might be enough to tip the scale. If your loan application clearly doesn’t meet their standards, then a warranty won’t make a difference, but if you’re really really close, it might give them a reason to say yes.
In the case at hand, I think the car salesman probably oversold the potential benefits of buying the warranty, but then again used car salesmen do have a certain reputation.
The OP may also have misunderstood or been misled about canceling the warranty. Sure, he can cancel the warranty after the loan is approved to include the warranty; the loan will still go through on the same terms, but the disbursement to the warranty company won’t be made, or the company will refund to the bank. The cash won’t be paid out to the OP.
Why do you think you know this is true?
Yeah, he could be taking out a loan because all of his money is tied up in investments that it doesn’t make sense to liquidate.
How about just the classic bait & switch ‘oversight’?
As in, “Sure, we’ll take it off later.” & then they don’t. If you catch it, it was just an oversight, printing the ‘old’ version, “Whoops, sorry.” & if you don’t look over everything line by line, well then sucker, you just bought the warranty you didn’t want.
Either slask2k is right or these guys are the reason car dealers have the reputation that they do. Since it’s a new car, go to/call another dealer & see what they’ll do.
Speaking of Bait and Switch, here’s something that happened to me that I still don’t quite understand.
When I was shopping for a Subaru Forester in 2003, I had an older A4 with lots of miles that I wanted to trade in. Their trade-in guy looked it over and quoted me $7500. The sales guy took that figure and gave me a piece of paper with that quote on it (along with other things we worked out) and I said we had a deal and I’d be back the next day when I had more time.
When I showed up the next day the same sales guy assured me he only offered me $6000 for the Audi. Swore by it. Confused, I presented the handwritten piece of paper that he wrote on, with $7500 clearly written on it. He still denied it, even after agreeing that was his hand writing, saying he did not remember writing that. The manager came in and refused to accept that what I was holding in my hand proved that they offered me $7500 yesterday for the Audi, and that I was not telling the truth, even though the sales guy said, yet again, that was his hand writing, but he did not write it. <?>
I wound up walking out to my car and driving away, while they followed me out berating me for “backing out” of the deal. As I drove away, they were both standing there, glaring at me like I was some incredible piece of shit.
I still occasionally wonder what their goal was - to convince me that the piece of paper in my hand did not exist, or that if it did I was somehow responsible for creating a hand-drawn forgery to put on over on them? That I would for some reason decide it was my imagination and accept their lie to…save face or something?
“Im still pulling myself out of the hole i was in”
I read that as a credit hole, not a “not enough money” hole, FWIW.
I’m not a banker but I think there are some possible explanations. Dr. Jackson is quite correct re the way a normal bank looks at a transaction. Having said this is it *really *a separate bank you are dealing with? Sometimes dealers will use the word “bank” when the financing entity is actually (corporately) in house. The actual majority of profit in car sales is not in the sale of the vehicle but in financing and vehicle service after the fact. The car sale is merely a way to deliver loan and service customers.
.09 percent financing for a person with bad credit is NOT coming from a separate stand alone traditional “bank”. It’s dealer financing in some form most likely supported by some back end incentive from the manufacturer to move product. In this scenario the profitability of the extended warranty in the context of the overall loan will possibly impact their internal decision regarding the terms of your loan. The explanation the salesman gave you re this is gibberish in terms of coverage issues but might actually hold some water in terms of the profit potential you present to them. Plus the salesperson probably gets a nice spiff if you get the warranty so he will say anything plausible to get you to stick with it.
The other issue is that if you have bad credit and are hard to finance for a new car, even internally, the option package will be viewed as simply another 1000 of loan, *not *the net of you dumping the 1500 warranty. If you are (as it sounds like) on the edge of being approved/not approved they will have to re-run the loan and see if the extra $1000 still allows you to buy the car. IMO the warranty gibberish is so you stick with the warranty long enough for him to get paid his bonus for selling it.
This article below addresses the forced warranty scam which sounds remarkable close to what you are being told. The problem for you here is that you probably cannot get a conventional loan with your credit, the manufacturer financing incentive is what tips it in your favor, so even if they are playing head games using dealer financing it still may be your only deal for a new car.
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.
Dealerships make their money on (repair) service.
Salesmen make their money on add-ons.
I think he was trying to pressure you into getting the warranty. He probably figured he could tell you that the bank had “changed their policy”, and since they approved with the warranty now you had to get it. Or something.
On the other hand, it wouldn’t be the weirdest lending rule I’d ever encountered.
Decent rule-of-thumb, but hardly 100% true.
Over at Jalopnik there is a series of articles from a guy who bought a used Range Rover from Carmax, because Carmax offers a warranty on anything they sell.
Or, as he put it, “One of the world’s least reliable luxury cars” with “a warranty longer than the manufacturer ever offered.”
Within the first year, the warranty covered repairs that would have cost more than the 7-year warranty did.
So, if you have intentionally sought out a car known for low reliability and expensive repairs, a warranty might be a good idea. 