Inside the Finance and Insurance Room
If you've bought a car from a dealership, you've likely been in a Finance and Insurance room. Those are the rooms salespeople take you to after you've finished haggling and have settled on a price. In that room, many dealerships offer financing for the car, as well as other products and services, including extended warranties, rustproofing and paint protection, all of which can make money for the dealer. It's important that you be prepared before entering the F&I room, because what's discussed in there is negotiable and — depending on the driver and the car — sometimes unnecessary.
Before the F&I room became a dealership standard, a customer and salesperson finalized vehicle pricing on their own and the deal was done. When customers were offered extras, they typically turned them down. With the arrival of the F&I room, dealerships were able to separate those processes and start fresh in a seemingly lower-pressure environment where a finance person took the part of finalizing paperwork while offering consumers some extras.
Interest Rate and Credit Score
It may be tempting to go with the dealership's lender simply because it's convenient, but dealerships typically serve as middlemen, marking up interest rates to give them a share of the finance money. Always shop around to banks and credit unions and find your best rate before you set foot in a dealership.
When you're securing a car loan, one of the main factors that lenders use to determine your interest rate is your credit rating. Have your credit score with you in the F&I room in case there's a discrepancy between what the dealership shows and what you have.
These days, many automakers offer low-interest rates with longer terms to stimulate sales, like zero-percent financing for 60 months. These low rates are usually a good deal — and sometimes the best you'll be able to get from any source — but only people with top-tier credit scores qualify.
- Special interest rates are sometimes available through dealership financing institutions that aren't advertised as national incentives. Ask the finance manager if there are any special rates available.
- Know the national average interest rate for new and used cars.
- Read the fine print on websites that offer to give you your credit score for free, as some do so through a free trial, then charge you if you don't cancel your membership.
Extended warranties aren't always bad, but they may not be necessary in the age of well-built cars with long-term factory warranties, and manufacturer-backed certified pre-owned cars. If you're buying a certified pre-owned car, it likely already has an extended powertrain warranty.
Many new cars have factory 100,000-mile powertrain warranties that are good for the original owner of the car. Some have offers for even longer. If you want the peace of mind that comes with extended protection sold by the dealer, though, consider the following:
- The price of an extended warranty is often negotiable.
- Extended factory warranties are preferable over private programs, mainly because you know what you're getting — a reasonable level of coverage and support at any same-brand dealership. A third-party warranty may only be supported by the dealer who sells the warranty to you.
- Be cautious of the way dealerships present total tallies. Some may lump the extended warranty into monthly payments, which masks the overall cost; make sure you know exactly how much the warranty will cost you over the length of the loan.
- Some extended warranties have deductibles when repairs are needed. Read the fine print to know what's covered, what isn't and how much it will cost you to make a claim. Do not rush this process.
Rustproofing, Undercoating and Accessories
Rustproofing is often unnecessary because most new cars have generous corrosion protection warranties and effective paint protection from the factory. Things to consider:
- Paint protection is little more than wax and sealant that you can apply yourself or have done at a detail shop for less. Likewise, fabric protection is little more than Scotchguard or the equivalent.
- If applied incorrectly, undercoating can block important water drains under the car and potentially accelerate rusting.
- Accessories like mud flaps, wind deflectors and spoilers may also be offered in the F&I room. If you want these but aren't inclined to install them yourself, or don't want to hassle with a tint/accessory shop, then the dealership is a convenient place to get these kinds of accessories installed. Some more extensive accessories may be included in a factory warranty — but only if they're installed by a dealer.
It's important to be prepared before sitting down to close the deal on a car so you're not overwhelmed when all these extra offers are pitched at you in the F&I process. The best thing you can do is research, research, then research some more. Today, it's easier than ever to do so, as credit scores, loan pre-approvals and information about cars' warranties can be found online.