Weird experience at Carmax today

[tooleman694]

So my auto lease is about up, so I thought id go down to carmax and trade it in for a cheaper car.

My credit has taken a few hit lately so iv been looking to downsize and I figured id probably get hit with some bad terms but I need a car so ill deal with it.

So after the test drive we look at the numbers, he adds in the extended warranty and the bad news come up they want a good amount down. So im like I don't got that cash right now, I say since the down payment is the same amount as the warranty price.... cant we just take off the warranty and ill have to put down zero? Isnt that how LTV ratios work. He said no and taking off the warranty would not change a thing. So I walked out.

Is that right????

[pipeguy]

You were right to walk out !

Warranties are expensive, usually not worth it especially from a dealer and a major money maker for the seller. If you "finance" the warranty you make it even more expesive and the dealer makes even more money.

Now it maybe that for your loan to be "bought" the lender wanted to see some skin in the game so you were both committed and have equity (which is questionable). Even if that's the case (lender requiring money down), they could have told you that rather than adding a overpriced warranty to the loan principle.

[tooleman694]

But even if I had skin in the game, once you add in the warranty the loan would be more then if I had less skin in the game with a small down payment and no warranty.

The whole just pisses me off. At least I still got some time left on my lease to work this out. If it comes down to it, ill save the cash for the down in the coming months.

But if the LTV math worked as I thought it did, Carmax would have made a sell tonight.

[Ragelog]

Based on my experience they provide approvals based on terms offered. It is the bank requiring a down payment to approve the loan not Carmax. Adding or removing a warranty won't change the requirement. I recently purchased a car and ended up going with DCU but I had 3 approvals wih 0 down and other that required down payment. If you change to a cheaper car and they resubmit maybe you'd get a different result but I am not sure.

[tony01]

As stated the lender not Carmax issues the approval. While based on many factors the approval will be for $XXX and based on the approval the dealer can add Gap and extended warranties. 

I've working in automotive retail for 30 years and have always purchased an extended warranty. Be careful and read what the warraty covers vs. what the finace person says.

Good luck

[StartingOver10]

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@tony01 wrote:

As stated the lender not Carmax issues the approval. While based on many factors the approval will be for $XXX and based on the approval the dealer can add Gap and extended warranties. 

I've working in automotive retail for 30 years and have always purchased an extended warranty. Be careful and read what the warraty covers vs. what the finace person says.

Good luck

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I understand what you are saying - that the approval is based on a monthly payment amount. However, a dealer can not add Gap and Extended Warranties to the contract without the buyer's explicit permission and approval.

Gap is generally substantially less expensive when purchased at your insurance co rather than at the dealer. Why pay the dealer all those extra fees?

As to Extended Warranties - you are right. The F&I person frequently overstates what is covered under the warranty. The only way to know for sure is to read the actual warranty policy and compare it with others. Not normally possible in the finance office - so just skip it and get a warranty after the purchase when you can make an informed decision.

[tony01]

I do agree with your points, Gap and warranties are clearly spelled out on the finance contact as optional products. 

In my experience the vast majority of buyers are not in a position to put out additional cash for these products. GAP is an insurance product and the pricing has state/federal controls. The largest price difference I've seen is less than $25.

Extended warranties while not an insurance product needs to be in line with lender rules (this protects the end user). Best way to determine if a warranty is any good? Read the section on what is not covered.

When shopping third party aftermarket warranties I've discovered that pricing is in line with dealerships. This is driven by competition. 

[pipeguy]

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@tony01 wrote:

As stated the lender not Carmax issues the approval. While based on many factors the approval will be for $XXX and based on the approval the dealer can add Gap and extended warranties. 

I've working in automotive retail for 30 years and have always purchased an extended warranty. Be careful and read what the warraty covers vs. what the finace person says.

Good luck

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Are you behind or ahead on the cost of the warranty vs repairs?  

I've purchased over 40 cars/trucks in my lifetime and I've never purchased an extended warranty that generally covers "systems" already covered by the manufacturers warranty. If these policies are such a good deal why is it that the F&I will start you off at $2995.00 and continue to discount it to say $995 over the course of saying "no thank you" 10 times?

Many if not all auto insurance companies either cover GAP or offer the policy for a small cost - on the last used car I purchased for the wife, the F&I guy snuck in there $795 for "GAP" insurace after I had said no no no thank you no at least 6-8 times - I hit the roof after I got home and took a closer look at the papers (yes I know, my fault) - the dealer refused to refund the $795 so I went to the lender, GM and BBB - they credited the cost to the principle of the loan (basically a refund). My insurace company covers "gap" and when I sold that car this past December I was not upside down.

Gap insurance and extended warranties are just over priced F&I tactics to make more money off the sales for the dealer - I'll add "in my opinion" having bought my first new car in 1971 I have a bit of experience buying and owning cars.   

In either case, no F&I add-on product is required by the loan. If a dealer gives you that nonsence, get up and walk out.

Edit add:  Based on a bit of research, "some finance compaies" require GAP, but I assume if thats the condition of getting a loan, your interest rate is going to be a greater concern because primamy lenders don't. 

http://www.edmunds.com/car-loan/gap-insurance-how-it-impacts-your-car-loan-or-lease.html

http://www.bankrate.com/finance/insurance/car-gap-insurance-is-it-right-for-you.aspx

[tony01]

Congratulations on your 40+ purchases. In my 30+ years in the business I personally sold about 2,500 vehicles and as a owner of a dealership the number goes to the 10s of thousands.

GAP is offered by many sources and the price is controlled by the market and state. Warranties help the new owner with peace of mind as a vehicle ages. These are optional and are offered, never forced on customers of good dealers.

I would strongly recommend to everyone to read the finance contract before signing vs. having others fight battles for your mistake. You can always avoid a finance contract by paying cash (this way you will never be underwater).

Car Dealers shouldn't be singled out for offering products, shopping on Amazon today, after selection I was offered additional items. It's just business. As for pricing, how is it that if I get a shirt cleaned at a hotel it $12 and $2 at my local dry cleaner?

Some/many car buyers need the protection that GAP and aftermarket warranties provide. The dealership offers these services.

[sccredit]

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@tony01 wrote:

I do agree with your points, Gap and warranties are clearly spelled out on the finance contact as optional products. 

In my experience the vast majority of buyers are not in a position to put out additional cash for these products. GAP is an insurance product and the pricing has state/federal controls. The largest price difference I've seen is less than $25.

Extended warranties while not an insurance product needs to be in line with lender rules (this protects the end user). Best way to determine if a warranty is any good? Read the section on what is not covered.

When shopping third party aftermarket warranties I've discovered that pricing is in line with dealerships. This is driven by competition. 

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GAP and "extended warranties" are both technically insurance products.  There is no regulation on pricing on them .  My credit union offers GAP for $295, the dealer $700.  I've seen some dealers offering GAP for close to $1k.  There is no regulation on the pricing. 

Edit to add that in CA a F&I person must carry an insurance license