Ford dealer and "credit consolidation" loan

[David Weaver]

I don't know the worth of those items either, but a high percentage of their costs doesn't go to paying gap insurance claims or service claims.

If they have household and car collateral then it's just a secured loan at a rate higher than they can borrow money from the open market. So they're making money on a margin.

[Myk Rian]

Sounds to me like they got the stereotypical sleazy salesman.

By the way, the key part sounds about right last time I checked. Not only are the electronic keys expensive (and I'm sure even moreso if its got the remote built in) but if you only have one key, a service technician must program the key into the car using a computer so you have to pay the minimum service charge as well. If you have two keys still, you can program a third yourself--but I'm not sure if they still support that with the keys that have built-in remotes or not. Many rental car keys have a big warning sticker on them about the average cost to replace a lost key--it isn't pretty.

Last I am aware of, you can have up to 4 keys programmed. Here's how. You don't need a computer. Neither does the dealership.
Put a programmed key in the ignition and turn it on-off 8 times. The door locks will lock-unlock. They may also do it after number 4, but keep going to 8 times.
Put the next key in and turn it on-off.
Same for any more keys.
This works on our Fords anyway.

[Matt Meiser]

You need two for newer cars. Looks like some of the late 90s systems didn't require two. I know our 2001 Taurus needed two. See p 141 in the 2009 F150 manual at http://www.motorcraftservice.com/pub.../09f12og3e.pdf or p 110 of the 2011 Milan manual at http://www.motorcraftservice.com/pub.../11mlnog1e.pdf for examples.

Reasoning was that it makes it difficult for someone to make a key without you knowing since you usually wouldn't give someone two keys.

[Brad Olson]

After sitting with them through some phone calls and a trip to the bank, the facts are these

The couple do have an outstanding loan (not invovling their Ford Fusion). A payoff quote from the local bank that made it is for about $7,130. The loan uses their home as collateral. (Their mortgage has been paid off.) The loan is at a 7.5% annual rate. The payments are $480 per month. They are not delinquent. There would be an additional $500 penalty for paying the loan off before this coming March 11, but no penality after that date.

This is not all that great of a deal, though it depends on their credit. Using a house as a collateral for a small loan at a high interest in usually not a good idea.

The deal they signed is for a 3.9% loan. It is for 6 years instead of the 7 years originally discussed. It doesn't break down financing as part-for-the-car, part-cash-back. On paper, it looks like that a California bank is loaning them over $28,000 to purchase a Ford Focus (with "MSRP" of about $19,900) and the car itself is the only collateral. The couple did opt for the "service plan" for the car (about $1300) and "gap insurance" ($750). Next week, the dealer promises to give them a check for about $6,600. (There is no trade-in involved in the deal.)

The loan officer at the local bank had never seen such a deal, but she saw nothing obviously fraudlent about it. If my friends delay repayment of the loan till after March 11, the dealer's check will approximately pay it off. Repayment removes any liens on the home. It's hard to decipher from this what's being paid for the car, but my guess is that they are getting an average deal on that. I don't know the worth of a "service plan" or "gap insurance".

If there is any slight-of-hand going on, I think the people being fooled are high finance players who combine loans into packages and buy and sell them - or people who insure such loan packages. On paper this looks like a loan for $28 K with a new car as security. So one might assume the car itself actually is worth $28 K. (An interesting question is whether "gap insurance" will insure the car up to $28K.)

So here is what is going on with this deal.

The MSRP on the car is $19,900, but the dealer would deal it down to something much lower, probably $15-17k depending on options. So up front they have made money. The dealer might even be pocketing any available rebates or incentives.
So call it a net of ~$3k, which is a the lower end of their net.

Next, the service plan and gap insurance are pure profit. Probably 50% is given back as a commission.
So another net of $1k

Next, instead of loaning the car at 0% on $19k, or something low like 0.9%, they loaned not only $19k, but $28k at 3.9%. Add in more profit and/or bonuses on closing the loan.
So net another $500 or so.

In all, this was a pretty sweet deal for the dealer, the probably made $4-5k on the deal, instead of something lower like $500-1000. The couple left at least $4-5k on the table, plus interest on the loan. The key to making this work in the 6 year loan.

It isn't fraud, but they definitely did not get a good deal. The only positive, is that their loan is now secured with a car instead of their house, and at a lower rate, though not the best rate.

[Phil Thien]

This is not all that great of a deal, though it depends on their credit. Using a house as a collateral for a small loan at a high interest in usually not a good idea.


So here is what is going on with this deal.

The MSRP on the car is $19,900, but the dealer would deal it down to something much lower, probably $15-17k depending on options. So up front they have made money.

Don't know what options were included, etc., but this thread at Edmunds:

http://townhall-talk.edmunds.com/direct/view/.ef28e18

indicates people are picking-off Focus SE's for $14k.

So it is possible the dealer pocketed as much as $5k on the car alone.