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What Happens in the Finance and Insurance Office? | Edmunds Posts: 9,602
edited February 10 in General
imageWhat Happens in the Finance and Insurance Office? | Edmunds

F&I is the last stop in the car-buying process. Here's what you need to know about it and the products you will be offered there.

Read the full story here


  • karhill1karhill1 Posts: 145
    GAP insurance is usually a very expensive bet. As noted in the article, GAP kicks in should you total the car or have the car stolen.

    The first question to ask is how likely this event to happen to you? I have been driving for 40 years and I have yet to total a car or have a car stolen.

    The second question to ask is what is the expected payback should such an event happen. For example, if you owe $25,000 and the value of the car is $23,000, your risk is $2,000. Most dealers attempt to sell GAP for hundreds of dollars which, of course, is quoted as a monthly payment such as $15 a month. That $15 a month is $900 plus interest over a 60 month loan. A buyer needs to assess if spending up to $900 for an unlikely payout of $2,000 is a good bet.

    The third question is can this coverage be purchased elsewhere at a much lower cost. Yes it can. Many insurance companies offer this type of coverage for around $150.

    The fourth is knowledge of how dealers price GAP and other products. Dealers purchase the GAP from an outside source. This outside source sells the GAP at a profit. The dealer then adds its profit as well as a profit for the F&I manager. For example, the third party may conclude based on research, its average payout will be $80. The third party will sell the GAP to the dealer for $150. The dealer and F&I manager will add profit. They will sell to the buyer for $600.

    This manner of pricing is the same for all products sold in the F&I office. All are overpriced and of dubious value in real life. And all can be purchased elsewhere for a much lower cost.

    Be smart, just say no to any product pitched by a smiling F&I sales person, called manager.
  • kyfdxkyfdx Posts: 53,768
    The F&I office is where good deals go to die. :(


    Prices Paid, Lease Questions, SUVs

  • MichaellMichaell ColoradoPosts: 43,267
    @karhill1 - while I agree with your points, not everybody has the $2000 lying around to cover the difference between the current value and the outstanding loan amount. And, that number could be much, much higher depending on the type and price of the car that is bought.

    A little bit of extra money each month may buy piece of mind - just because you haven't had an accident in 40 years doesn't mean you couldn't have one tomorrow. Dice - and the stock market - don't have a memory.

    If you can self-insure, go for it, but I'm guessing that isn't the case for 90% or more of the folks buying new cars.


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  • kyfdxkyfdx Posts: 53,768
    I wouldn't buy GAP insurance from a dealer.

    It's just not a good value. If you don't have the ability to cover those losses, you probably shouldn't commit to a $20K-$40K financial obligation.


    Prices Paid, Lease Questions, SUVs

  • treys17treys17 Posts: 1
    GAP insurance is definitely a case-by-case scenario.

    Cases where you would be less likely need to need GAP Insurance --
    - Trading in a vehicle that you have positive equity
    - Putting a significant down payment down
    - Purchasing a pre-owned vehicle
    - Taking a shorter term loan (such as 48 or 60 months)
    - Financing at a lower interest rate

    Cases where you would be more likely to need GAP Insurance --
    - Trading in a vehicle that you have negative equity
    - Putting little or no money down
    - Purchasing a new vehicle (will depreciate rapidly in the first 2 years)
    - Taking a longer term loan (72+ months)
    - Financing at a higher interest rate

    If a customer is interested in GAP insurance, we've been able to negotiate the dealer down to $500. That equates to $7.60 per month (based on a 72 month loan at 3%). For $7.60 per month, you save yourself a lot of headache if your vehicle is totaled or stolen.

    Another little known fact, is that GAP can be cancelled at any time, and a prorated refund will be sent to your bank. We recommend to our clients who do want to purchase GAP insurance to monitor their approximate trade-in value and payoff after a couple of years. Once they reach a point that they're trade-in value is equal to or greater than their loan payoff, they can cancel their GAP insurance, which will lower the amount they owe on the vehicle. If they end up keeping the GAP insurance for 36 months, it ends up costing them about $250 or so.

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