Ford dealer and "credit consolidation" loan

[Stephen Tashiro]

Is is common for car dealers to offer a financing deal that includes both a loan for the car plus a substantial loan for "credit consolidation"?

A couple in their 80's went to the local Ford dealer to get an electronic key made for their Ford Fusion. They were talked into considering the purchase of a new Ford Focus. They didn't buy it the Focus on the spot and they didn't get the key either; (The key's cost was $160). They asked for my advice on the deal. All lthey knew about the deal was the pitch "Your payments go down from $480 per month to $320 per month and we write you a check for over six thousand dollars". They still owe money on the Ford Fusion, which wasn't purchased at the Ford dealer. They knew their monthly payments on it were $360 per month.

We all three went to the dealership. The terms of the deal were to borrow approximately $16,900 for the 2013 Focus SE and to get about $6,700 "in cash". This was supposed to reduce their montly payments from $480 per month (for some unspecified number of months) to $320 per month for 84 months. The explanation of the $6,700 was "to payoff a credit consolidation loan". The salesman claimed the figure of $480 was "from the credit reporting agency." (The Ford Fusion isn't involved in the deal. There isn't any trade-in.)

I thought the deal was bizarre. I advised my friends to find out if they indeed owned $480 per month on some non-car loan and what its terms were. I told them didn't need a Focus "SE" model since it's "extras" are things like satellite radio that they won't use. I told them they should only consider a plain "S" model. (The salesman said the dealership had S models but only cars that had manual transmissions. My friends wanted an automatic.) My friends remembered filling out the brief credit check paperwork at the Ford dealer but not filling out an actual loan application.


It's a week later and I found out my friends took the deal. I haven't asked if they were actually paying $480 a month on a credit consolidation loan. I suspect they weren't. I think what happened is that they've just borrowed $6,700 that they didn't need to and that they now owe an extra $320 per month.

If a credit reporting agency actually knows that my friends owe $480 per month for a particular loan. the deal might make sense. But isn't it more likely that $480 is, at best, an un-itemized estimate of all their monthly loan payments?

[Steve Meliza]

My advice to people that can't buy a car with cash, don't understand the terms of the loan, and don't even know if they have another outstanding non-auto loan or not would be to run away as fast as they can and not buy anything else till they get their finances in order. Approving people in their 80's to enter into a 7 year car loan is shameful. Your friends cannot afford a new car and someone needs to tell them that firmly and with compassion.

[Phil Thien]

I'm lost, so now they own a Ford Fusion, and a Ford Focus, and have two payments?

[David Weaver]

I guess this is the kind of stuff that happens when dealers make money on finance and service as the vast majority of their revenue.

Whatever the details, there's no free lunch. Do you know what the rate was on the old loan (from a bill) and what it is on the new loan?

[Andrew Pitonyak]

So if I understand this, they were loaned $16900 for a new car and given $6700 in cash, for a total of $23600. They will end up paying $26880, which is $3280 in interest, over the next 7 years. Good deal for the dealer I suppose, especially if the couple did not need a new car.

[Matt Meiser]

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.

[Greg R Bradley]

Any credit report that was pulled by the dealer would show the loans, balance, and minimum payment on each as reported by the lender to the CRA. That information is updated by the lenders to each of the three CRAs (Equifax, Transunion, Experian) each month, normally shortly after the statement is generated.

If they have a CC and PIF each month, that is not on the report. The lenders only show the minimum payment required. This is used for qualifying for new loans. People struggling for a new loan are frequently paying the minimums on their CCs, as foolish as that may be.

It sounds like they believed what the car dealer told them about their payments which is a big mistake. Many people are financing cars and if they are willing to do that at market rates, they are likely revolving balances on their CCs also. Hopefully someone in their 80s is not doing that.

[Stephen Tashiro]

Any credit report that was pulled by the dealer would show the loans, balance, and minimum payment on each as reported by the lender to the CRA. That information is updated by the lenders to each of the three CRAs (Equifax, Transunion, Experian) each month, normally shortly after the statement is generated.


So at least it's possible that the $480 per month that the dealer talked about is an actual loan payment (or total of payments) that the couple makes.

Replying to Phil's question:
The couple now has a 2006 Ford Fusion, a 2013 Ford Focus and late 90's Mercury Tracer. Yes, they do want to have two cars. Both of them drive. They plan to sell the Tracer. They made 0 down payment on the Focus. They will owe $360 per month on the Fusion (not to the Ford dealer) plus $320 per month for the Focus. The $6,700 is not enough to pay off the loan on the Fusion. I don't know if they really owe $480 per month in payments on other loans or whether the $6,700 would be enough to pay off those loans. (I haven't had a chance to talk to my friends about the details yet.)

Aside from the particulars of this deal, my original question is whether this general type of offer (combining car financing with a non-car loan) is normal practice for a car dealership. ( I wouldn't know since the last time I took out a car loan was in 1989.)

[David Weaver]

If those numbers are right, it's in the ballpark of 3.9% apr.

The stealership (as clark howard calls them) probably saw that they had a good credit report and decided to make some money. Who knows what incentives they have to give them other credit, or what it's secured by in the contract. Maybe the finance division is giving bonuses on origination of loans above car value. It just seems bizarre to write it on someone that old.

[Gary Hodgin]

Not sure if they'd be interested but perhaps a local tv "investigative" reporter would look into it. I recall a spot on the local news about someone ripping off and elderly person. Nothing illegal but definitely taking advantage of the women.

As I recalled the dealership who financed her used car repossessed her car despite the fact she only owed $69 before it was paid off. On top of that the car was sold to her for about twice the blue book value a few years earlier. Some of the ladies friends tried to help her convince the dealership to allow her to pay it off but to no avail. Local news ran the story and I think the dealership eventually gave in due to bad publicity. Either that or I thought it surely would because the publicity was terrible. Don't see why anyone would buy from them after the report.

[Mel Fulks]

Financing thru a dealership can in some cases get people a better deal than they can get through their own bank. BUT there are also things to be wary of. Years ago after I had paid off a car loan ,I did not receive the title ,did receive calls and letters saying I still owed maybe 75$. I went to local bank branch and found that there was a provision in contracts
written by dealerships that allowed an additional fee at end of loan for any late payments. Illegal in this state. I then called
the people ,told them I was on to them ,demanded and got my title.It would be difficult to express the nastiness aand extreme threats they had made. Found out they get a big "spiff" if they can collect the illegal fee. Obviously some ccrooks are too dumb to know that most crooks don't settle for part of what they steal.

[Brad Olson]

There has to be a trade in involved in the deal.

If true, what the deal is probably shaping up as...

A) They have a loan on a Fusion that they are a few years into, probably year 3-5
B) They would trade in the Fusion, for a Focus and get pack $6500 as a credit consolidation loan.
C) They would go from a 60 month loan they currently have, and are nearing completion of, to a 84 month loan (7 years)

The dealer is probably set to make a lot of money on the deal.

1) The trade in value is probably well below market. Based on the numbers, probably 5-10k below market.
2) The dealer makes a % of the loan origination, and a % for the duration (more interest profit!)
3) The dealer makes their standard commission on the sale of the new, and then the trade in vehicle.

While the monthly payments go down, I would bet this deal is not good for them to take.

[Brian Libby]

I think they were taken!
As far as the key costing $160. that is ball park price. Keys now have a chip in them that has to be programmed to match the car and the cars computers has to be programmed to accept the new key

[Gary Hodgin]

I'm not sure exactly how the numbers came about but all I need to know is that an 80+ yrs old couple went in to get a new key for their car which was apparently serviceable enough for them to not be looking to trade and ended up with a new Fusion and a 7 yr note. I'm sure this "debt consolidation" scheme would probably require someone with knowledge of the used car market and finance to figure out. This trade doesn't pass the smell test.

[Stephen Tashiro]

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.

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.)

[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/pubs/content/~WO9F12/~MUS~LEN/36/09f12og3e.pdf or p 110 of the 2011 Milan manual at http://www.motorcraftservice.com/pubs/content/~WOBMLN/~MUS~LEN/41/11mlnog1e.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.