Auto Finance Articles

It is true that the Finance and Insurance Manger (F & I Manger) at the car dealership can usually offer car buyers better interest rates than they can find at their local credit union or bank. Often this is the case when the manufacture's auto finance arm has a promotional rate on specific new car models.

Nearly every F & I manager receives a commission for selling additional products related to their new car purchase while closing the car loan. The three most popular are credit insurance, GAP insurance and an extended warranty or service plan. Other less popular products include etching, tire and rim protection, and paint protection.

Our goal here is neither to promote nor discourage the purchase of these products; there are circumstances where purchasing one or several of these new car products makes sense for some car buyers.

Credit Insurance

A credit insurance policy will either pay off the loan completely if the primary borrower dies or make the monthly car loan payments if the borrower becomes ill or disabled. It's a good idea to determine if you need this type of coverage prior to visiting the new car dealership and to check you existing insurance policies to determine if these items are already covered. Since this is an insurance product the rates are set and cannot be negotiated.

GAP Insurance

A GAP policy may be classified as an insurance product in some states but not all. GAP insurance pays off the difference between the value, as determined by you automobile insurance company, and the loan payoff amount, in cases of total loss due to an accident. This product makes more sense for people who buy a new car with little or no money down. A GAP policy, in other words, pays off your negative equity.

Extended Warranty or Service Plan

New car warranties can be confusing. Typically different items are covered for different periods of time, for example the power train may be covered for 5 years or 50,000 miles whereas the electrical system may be covered for only 3 years or 36,000 miles. If you are thinking about purchasing an extended service contract consider your driving habits and the coverage already offered by the new car manufacturer.

Additionally, the price you pay for the extended warranty should be negotiated separately. As a general rule of thumb, an F & I Manager will mark-up the price 100% over the cost.

Window Etching

Window etching is sold as an auto theft deterrent. Most window etching services also offer payment to the car buyer in some form if the vehicle is stolen and not recovered.

Tire and Rim Protection

A tire and rim protection policy pays for the repair or replacement of the vehicles tires and wheels if they are damages due to road hazards.

Paint & Fabric Protection

When new car buyers purchase paint and fabric protection their vehicle is shipped to the service department and some sort of protective coating is applied to the interior or exterior of the vehicle.

The Final Word

Buying every product available to protect your new car is probably not a good idea. Each of the items outlined above, however, has value to car buyers depending on their driving habits, where they live, their age, and general health.