OT: Financing through GM Financial vs Paying Cash
There seem to be many car gurus on this site and probably many that work in the GM universe.
I'm looking at buying a certified SUV from a Cadillac dealer. The dealer agreed to my price as long as I finance through them. I'm able to pay cash but know the current deal is contingent on the financing. Does anyone have any idea how much a dealer gets back from GM Financial?
I'm trying to be a reasonable person and not screw the dealer over by paying off the loan the day after I buy the car. How much more should I offer to make them indifferent on whether I finance the car?
I was going to say just finance then pay off immediately. Is it the dealer that gets screwed over if you do that, or the finance company?
The dealer receives an origination fee (or something similar) for the loan. If I pay it off too quickly, the dealer gets a chargeback where they have to return the fee. I think it's something like 3 months.
Here the combination of size of loan and current high interest rates means the interest expense even for 3 months is actually somewhat meaningful. If the dealer gets only $500 for originating a loan, I'd be better off paying them the $500 up front and skipping the financing and avoid the interest. If it's multiple thousands of dollars, I probably go with the loan.
Just ask the dealer how long. When I bought last time they gave me $1500 for financing and told me I had to hold it 6 months and the note had to X% of the value of the car
Paid 6 monthly installments of the exact amount to pay it off. No problems.
Sort of tongue-in-cheek - but is there a reason why you wouldn't just finance the vehicle through GM to get the lower price and then just pay off the loan using the same funds you were going to pay cash?
Now, if the purpose of this post was to tell us how big the bulge in your pocket is...
I'm trying to honor the spirit of the deal I agreed to. He said finance through us and this is the price. This was after a decent amount of back and forth. Now that I've seen the interest rates, I'm reconsidering.
What are the interest rates? You also need to look at the wording of the loan to make sure that there isn't a penalty for paying off the loan early. If they can't give you that price without the loan, chances are that they are trying to force you into paying more over the term of the loan through interest.
As the board's self-appointment assessor of humble-brag posts I have to give this one 5 stars because:
1. OP does not come out and say he's buying a caddy but does definitely insinuate this by telling us the model line of the dealer he's buying from.
2. OP hints loudly that he could, if it wouldnt hurt the dealer too much, pay cash outright for said caddy.
3. Lastly, and this is the chef's kiss of the humble-brag, OP implies his finances are in such good shape to be worried that if he pays off the loan too soon he'll be "screwing over" the caddy dealer, implying he's in better financial standing than a Cadilac dealership.
Very nice work OP. I'm impressed.
Edit:
4. OP's avatar is a gold Rolex. I hadnt noticed that until just now.
As a car salesman, I agree. Either OP has constructed one of the best humble brags of all time, he's trying too hard to be the "nice guy", or both.
I don't understand the "trying too hard to be a nice guy" part.
Why would you deliberately screw over the dealership or salesman? I know both are evil adjacent, but that doesn't give a person an excuse to be an asshole.
4. "due to the size of the loan, the interest payment is meaningful"
Everyone is entitled to their own opinion, but I'll bite on defending myself here.
1) Yes, it's a Cadillac but if you've owned or shopped one, you know they depreciate very quickly. In my opinion, they are great deals when bought 2-3 years old. Not to mention they come with a four year mfg warranty plus another year from the certification. Other GM brands have only 3 year mfg warranties.
2) My two current cars are a 2009 and 2014. The 2014 has been paid off for 5+ years and I've been making car payments to myself since then to save for the next car. My goal was to not have to finance this purchase in an effort to cut down on personal debt.
If that makes my OP a humblebrag, so be it. The intention was to do right by the salesperson who has been good to work with. Dealers may be rich, but I assume most salespeople care very much about each commission.
As for the avatar, that isn't a Rolex. It's the watch that Brandon gave to Hoke when he was hired (at least I think it is) and Brady said something like he isn't taking it off until Michigan wins an National Championship. In doing some sleuthing back then, I was pretty sure it's a $30 watch from Amazon. But yes, I do own that watch and it no longer works.
I was pretty sure it's a $30 watch from Amazon.
Dang, couldn't even spring for a Swatch.
Hey OP, no need to defend it - I was impressed by it. You may or may not remember (you've been around here a while) but back in the day I had a picture of my wife in a bikini as my avatar and posted a long thread about a boat trip to Canada I took from my summer home on Middle Bass
I recall the avatar!
All I remember is that your name is Clarence and that you went to Cranbrook; that's a private school. Can't remember if your parents have a real good marriage.
I'm catching a whiff of sarcasm running through this thread with just a splash of jest. The thirst for being easily offended cannot be quenched. Oh the horror...
Yeah, but his username does check out, so he's got that.
Why not pay off the loan ASAP? If you can and don't you're only screwing over yourself. GM (and likely the dealer) does not give a shit about anything or anyone but their own bottom line.
Maybe the better question is does the salesperson who is helping me get penalized by chargebacks on the financing or is his commission independent of what happens with the financing?
The guy I'm working with has been helpful and I'd like to not screw him out of a commission.
I'm a GM car salesman currently in Florida. I've been avoiding posting on this site for months for personal reasons (nothing negative, just wanted to get away from sports a bit), but since this post is right up my alley, I'll chime in.
The only people that get hurt by chargebacks are the dealership and possibly the finance manager that handles your paperwork. I say "possibly" for the finance manager because a lot of dealers don't take chargebacks out on their finance team. It's not the finance manager's fault someone paid off their loan early. My dealership DOES take it out of the finance manager's pay (at least partially), unfortunately. Finance managers also make more many than anyone else who works in the building besides the store General Manager, so it really isn't a big deal.
Bottom line, as long as you're buying the vehicle, your salesman will be happy. You're not hurting him a bit if you finance it and pay it off early.
By the way, your title caught my attention the most. It leads me to believe you are being forced to finance through GM Financial specifically. Since it is a used car you shouldn't have to finance through GM Financial to get a certain rate. That only matters for specialized rates like zero percent. GM Financial rates are often higher than any local credit union. Also keep in mind that if you pay if off early your rate doesn't matter. Rates only matter if you plan on paying on the car for multiple years. That's when they have a genuine affect on how much real money you're spending on the purchase.
Thank you for the very helpful feedback - exactly what I was hoping for!
I was a little surprised at the rate, so that's what generated my initial question.
Rates are stupid high right now. An 800 credit score gets you a rate in the 5 or 6 percent range depending on term nowadays. Used to be 1 or 2 percent was the norm for that kind of credit.
When you're used to "free money", 5-6% seems high. In the early 1980s, 5-6% would have been unfathomably cheap.
Or were they stupid low for a decade due to the Federal Reserve not letting the business cycle happen?
When does the Buick Envista become available? My wife's lease is up in September, and she likes the look and price.
Looking at the stock photos, how does GM call that an SUV???
I have no idea. I only sell new Chevy's and used cars. Also you'd be surprised at how little GM does to inform us salespeople.
I don't know but you definitely shouldn't concern yourself with screwing the dealer by paying the loan off early. Just look at the wealth of the families of some of the long time dealers. They make sizable returns for a limited risk business.
Regarding the wealth, yeah, go to any town of 50K or less in the U.S. and the auto dealers will almost always be among the local gentry. Beverage distributors, too.
Yep and they make the best clients for the local cpa, financial planner, etc.
Absolutely the beverage distributors.
I'm trying to be a reasonable person and not screw the dealer over
Well that probably makes one of the two parties not trying to screw the other over
Seriously... dealerships suck. Who cares if they don't make AS much money on this deal as they could. Do what's best for you. Take the loan thru GM, pay it off.
Although backing up to the bigger picture, if the rate is sub 4% then I'd invest that cash somewhere else as you can make more money than that right now in some CDs and other very low risk instruments
I have done this - get all the rebates and best deal
Make 1 payment
Then I pay it off, either with cash or I borrow from my 401K and pay myself back
401k loan for which you pay yourself interest with after tax money and it gets taxed again upon withdrawal. Not a fan of getting taxed twice.
Are you buying it used (assuming since you said “certified”)? Usually when you apply for financing at a GM dealer, they can check for rates from various banks and get you the best one. That was my experience buying 2 used cars from GM dealers. That’s really strange that they want you to finance through GMF. As long as there’s no prepayment penalty (read the contract very carefully), just finance it and pay it all off immediately.
It's a pre-owned certified, so yes used, but comes with the extended warranty from the mfg.
I genuinely believe I'm getting a good deal as the color combination is not one that many people probably like. I've been tracking this model for a while.
My guess is they know which lender provides the biggest rebates to juice their returns.
I genuinely believe I'm getting a good deal as the color combination is not one that many people probably like.
My grandfather used to brag about how he got a hell of a deal on a nice little gray car. So proud was he that my grandmother didn't have it in her to tell him that the car was pink.
Now you have to tell us what that color combination is!
While this is an honorable thing you're wanting to do, keep in mind that this same dealer probably has no problem putting some poor schlub with bad credit into a high-interest, 84-month loan because they can "afford" the monthly payment.
There may be a minimum period to keep the loan without a penalty. I think it was 6 months when I bought my wife's car. I waited that period and then paid it off in full. I don't think the dealer or salesman lose anything for that, only the finance department.
The dealer usually gets something like $200 to $500 for the 'referral'.
What I have done with several auto mfr. lenders is to borrow the minimum that the dealer needs to refer, wait 31 days and then pay it down to a $100 outstanding balance. Then, pay it off, in full, either after 2 or after 6 months; the dealer will quietly tell you the minimum duration the loan needs to be open to avoid a charge-back.
And to answer your second question: usually a few hundred will do the trick.
Thanks. I like the suggestion of paying it down to a small amount.
This is life hacking at its finest. Well done!
It’s silly to worry about “hurting the dealer”. You do what’s best for yourself.
if the rate is that bad, the dealer marked it up. It’s called dealer reserve. I used to handle loan rates on the lender side of auto/marine/RV lending. Some of the loan rates people agreed to were crazy and it was just extra $ for the dealer.
I’m guessing this is really more of a humble brag.
I don’t think it is, honestly. But either way, I’m grateful for it, as there are a few good tips in this thread because of it!
There are times when it makes sense to finance a vehicle rather than pay it off at delivery. When interest rates were lower than now, say 1% -2% why take an extra $60k out of the bank to pay off off a loan when you were going to make over 10% leaving that money in the equities market.
Even when the rates were low I took BMW's offer of an additional $1000 of MSRP to finance, then paid to off after 3 payments.
You buy things that appreciate (home). You lease things that depreciate (car).
or, now hear me out, you pay off the car and continue driving it instead of having to refresh monthly lease payments every 1-2 years.
Why would I want a monthly payment in perpetuity when I could pay a loan off in a few years and just own it outright for the next 5-10 years? Put the $$ I would be spending on a lease in a decently yielding money market account and when I need a new vehicle, trade the old one in and damn near pay the rest off with the money market account that has been collecting interest for 5-10 years?
This is Michigan fergodsakes. Fundamental principles of finance. Would you knowingly buy a $100,000 asset that you know is going to be worth only $50,000 the day you buy it?
Also, lease payments are significantly less than purchase payments, even with $0 down, provided the vehicle has appropriate residual value. So you can still invest the difference if so inclined.
However, in the scenario you describe you’re using OPM, holding on to your $100,000, which will be invested the for the duration of the lease (rather than being invested incrementally over time) and trade in values are always beneficial to the dealer not to the car owner.
You’re also forgetting that leases include a purchase option at lease end so if the spot market for your vehicle at lease end > residual (aka “equity” in the lease), you can use your cash to exercise the purchase option and then immediately flip it (easier than ever with carmax and analogs) to maximize your return (in addition to having the $100k invested for the duration of the lease) and/or roll the positive delta into your new contract if so inclined.
Now if you’re driving > 15k miles a year a lease may not pencil, but in typical circumstances a lease is the way to go.
Leasing is not for everyone. Leasing does not make financial sense for everyone. There is no blanket answer to buying a car for everyone. 8 years of sales has taught me that.