What To Expect In The Finance Office At A Dealership

I made the decision this week to tackle one of the hardest topics someone who gives auto advice could possibly broach: The Finance Office at a car dealership.

For a lot of car buyers, the finance office is the most dreaded stop in the dealership. You've agreed on the price of the vehicle, your trade-in has been appraised, and you think you're finished. Then someone says, "Now let's head over to Finance to sign the paperwork."

Almost immediately, people become suspicious. "They're just going to try to sell me a bunch of stuff I don't need."

Having owned dealerships for many years, I understand why people feel that way. But I also think it's unfortunate because the finance office has developed a reputation that's not always deserved.

Here's the truth: some of the products you'll be offered are excellent. Some aren't right for everyone. The biggest mistake you can make is automatically saying "yes" to everything—or automatically saying "no" before you even hear the explanation.

Let's walk through the most common products you'll encounter and talk about who should consider them.

Vehicle Service Contracts (Extended Warranties)

Let's start with the big one. Most people call them extended warranties, although technically they're usually vehicle service contracts because they provide repair coverage after the factory warranty expires. I'm a believer in them—for the right buyer. Today's vehicles are packed with computers, sensors, cameras, touchscreens, turbochargers, hybrid components and sophisticated electronics. Repairs can be extremely expensive once the factory warranty ends.

One mistake I see people make is buying the wrong term. If you drive 25,000 miles a year, don't buy an eight-year/75,000-mile service contract because you'll use up the mileage long before the years expire. On the other hand, if you only drive 7,000 miles a year, you probably don't need 125,000 miles of coverage because the time limit will likely arrive first.

Buy the coverage that matches the way you actually drive. I also hear people say they'll only buy a factory-backed service contract. Those are certainly good products, but I've also seen excellent third-party service contracts sold by reputable dealerships. Dealerships that sell a lot of 3^rd-party warranties often have more influence over the warranty companies decisions than they do with a factory warranty.

GAP Insurance

If there is one product I recommend more often than almost any other, it's GAP insurance. If your vehicle is totaled or stolen, your insurance company pays its actual cash value—not necessarily what you still owe on the loan. In fact, what you owe on a vehicle has zero bearing on what the insurance company will pay. If you financed most of the purchase price, rolled negative equity into the new loan, or chose a long loan term, you could easily owe thousands more than your insurance company pays.

That's exactly what GAP covers.

Unless you're making a substantial down payment or have significant equity, I think GAP is one of the smartest products you can buy. One important note: many lease agreements already include GAP protection. Before purchasing GAP on a leased vehicle, ask whether it's already included. In many cases, it is.

Tire & Wheel Protection

Here's my simple test. Walk outside and look at your current vehicle. Are your wheels scuffed? Have you ever replaced a tire because of a pothole, nail, or road hazard?

If you answered yes to either question, you're probably a good candidate for tire and wheel protection.

Today's wheels can cost hundreds of dollars each, sometimes they cost a thousand dollars or more, and many vehicles ride on expensive low-profile tires that don't tolerate potholes very well.

Windshield Protection

Ask yourself another question. Have you replaced a windshield since you've owned your current vehicle?

If the answer is yes, you already know how expensive they have become.

Modern windshields often contain cameras and sensors that support lane-keeping assist, adaptive cruise control and automatic emergency braking. Replacing the glass is only part of the job. Those systems usually have to be recalibrated afterward, which adds significantly to the cost. If you're someone who spends a lot of time on highways where rocks and road debris are common, this coverage deserves serious consideration.

Key Replacement

Years ago, replacing a lost key was no big deal. Today, many smart keys and key fobs cost several hundred dollars, and some luxury models can approach or even exceed $1,000 by the time they're programmed. Before you decline key replacement coverage, ask one question:

"What does a replacement key cost for this vehicle?"

The answer may surprise you.

Paint, Fabric and Interior Protection

These products generate a lot of debate. Whether they're worthwhile depends largely on how you use your vehicle.

• Do you park outside all the time?
• Do you have small children?
• Do you have dogs?
• Do you keep vehicles for a long time?

Those answers matter more than the sales presentation.

Dent Protection

If you've ever come back to your vehicle in a parking lot and found a new door ding, you already understand the appeal. Paintless dent repair has become remarkably effective, and this coverage can pay for itself if you're unlucky enough to collect a few parking lot souvenirs over the years.

Prepaid Maintenance

Some manufacturers and dealerships offer prepaid maintenance plans that cover oil changes, tire rotations and scheduled services. Sometimes they're an excellent value. Sometimes they're not.

Compare the cost of the plan to what those services would cost if you paid for them individually. The math should make the decision for you. Keep in mind, too, that maintenance costs generally rise every year, so pre-paying for maintenance locks in today’s prices. That is a strong consideration.

In addition, it has always seemed to me that people who have pre-paid maintenance agreements take better care of their cars resulting in longer life and fewer repairs.

Credit Life and Disability Insurance

These products deserve a little more thought than they often receive. Credit life insurance helps pay off your auto loan if you die before it's paid off. Disability insurance helps make your loan payments if you're unable to work because of a covered disability.

If you already have adequate life insurance and disability coverage through your employer or other policies, you may not need these products. If you don't, they may provide valuable peace of mind and are usually fairly low cost.

Theft Protection and VIN Etching

Many dealerships offer theft-deterrent products ranging from VIN etching to GPS recovery systems.

Some have real value. Others depend on where you live, what you drive and how likely your vehicle is to become a theft target. Ask exactly what the product does, what it doesn't do, and whether your insurance company already offers similar protection.

Here's My Advice

People often ask me whether they should buy these products.

My answer is always the same:

"It depends." And it depends on a lot of different factors.

• It depends on how long you keep vehicles.
• It depends on how many miles you drive.
• It depends on where you park.
• It depends on your financial situation.
• It depends on how much risk you're comfortable accepting.

The biggest mistake I see people make is walking into the finance office determined to say "no" to everything.

The second biggest mistake is saying "yes" to everything.

Neither approach makes much sense. Listen to the explanation. Ask questions. Think about your own driving habits and your own financial situation.

If you drive 30,000 miles a year, your needs are different from someone who drives 8,000. If you've replaced two windshields in the last five years, windshield protection may be a bargain. If every wheel on your current vehicle has curb rash, tire and wheel protection may be money well spent. If you've made a large down payment and owe much less than your vehicle is worth, you probably don't need GAP.

A couple of other noteworthy points

• Finance people are paid on commission in most cases. However, in the good dealerships, like those associated with the Car Pro Show, they are also there to help guide you. Often, they are able to get you a better interest rate than you can get at your bank or credit union.
• If you opt for a factory sub-vented interest rate like 0% or 2.9%, products like service contracts and prepaid maintenance can really make even better sense.
• Keep an open mind and listen to the explanation of products. Dealerships offer you an array of products, and dealerships have been sued because they DIDN’T offer something. When I owned dealerships, I had a customer who tried to sue me saying we didn’t offer an extended warranty to them when their engine had gone out. Luckily, we had customers sign that they declined the coverage.
• If you get to the finance office and there is a sign that says the transaction is being recorded, don’t sweat it. That is as much for your protection as it is the dealerships.

The finance office shouldn't be viewed as a place where someone is trying to "get you." It should be viewed as a place where you're offered products designed to reduce financial risk. Some of those products may not fit your situation. Others may save you thousands of dollars. Many times, I’ve seen these products save people from financial ruin and prevent repossession. The trick is knowing the difference.

And that's a decision no one should make until they understand exactly what they're being offered.