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      09-07-2005, 12:04 AM   #1
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Finance Issues

I've read alot about purchase prices, leasing, residuals, etc. in the few days I've been on this board, and thought I should chime in.

When I'm not breaking laws limiting how fast one can drive, I'm a consumer finance attorney specializing in the federal/state fair lending laws; so here's my $.02 on buying and financing cars. You may already know many of these concepts, but I always think it's helpful to explain this to others:

When people talk about how much they paid for a car, do they include the little "add-ons" in the price?

Case in point#1: the salesman and I agreed on the price for the car. Then, when he wrote it up, he added on $145 for "doc prep". Arguably, this is a violation of federal and state fraud laws...I'm sure you've all heard of the concept of "bait and switch". You can make the argument that when you agree on the price of the car, that amount is all-inclusive, thus he just increased it on me.

My salesman practically cried, telling me it was "unfair" (his words, not mine) to dispute the fee, because everybody has to pay it. [So if everybody jumps off a cliff....] Frankly, I see a potential class-action claim against the dealer if he doesn't watch it.

I asked him to justify the fee to me and then I'd consider paying it. Of course, he couldn't. Because there's no way a dealer spends $145 out of pocket to process a piece of paper. I made a deal with him - I told him that maybe they pay a clerk $15/hour (plus another $5 for benefits), and maybe the clerk spends 2 hours processing the paperwork (but this is unlikely; probably more like 10 minutes), so that comes out to $40. The salesman was speechless, but the salesman's manager overheard our argument and cut me a deal on this.

Case In Point #2 - Dealer prep fee. Same thing, although in the case of Bimmers the dealer is actually required to do some prep work. Oddly, with 4 yrs/50k free maintenace, you'd think this would be a part of that, woudn't you? Like "doc prep", its a junk fee and should be avoided at all costs. At the least, fraud laws, if not the concepts of honesty and fair dealing, generally require dealers to disclose this fee up-front.


Financing
This is my area of expertise. For those of you who did not pay cash for your car:

a. Origination Fees: Beware of "origination" fees on a car loan or lease. These can usually range from 1-2% of the loan amount. Problem is, a car loan is a consumer loan, the type of which is usually approved by a loan company within 15 minutes. Or you could put it on your credit card and nobody would charge you that. Again, why give the dealer this added profit that can easily run into the hundreds of dollars? Note that dealers do not necessarily have to disclose this fee until the very last minute, so beware and don't be afraid to walk if it happens to you.

b. YSP's: Beware of dealers who charge higher interest rates than you otherwise qualify for. Loan companies will send their daily "rate sheets" to dealers with minimum rates that can be charged; the salesman is then free to increase the rate as much as s/he thinks they can get away with, up to the state's usury limits. In return for charging you the higher rate, the lender will actually pay the dealer the present value of the additonal interest you will be paying the finance company over the life of the loan, after the loan closes and you are out the door. This is called "yield spread premium" (YSP); think of it as being analogous to the dreaded dealer hold-back.

c. Watch out for losing your shirt on leases. I can tell you that even us consumer finance lawyers have a hard time figuring out when a lease is a good deal. This is because of the confusing terms used in leasing as well as the fact that a lease is basically based on a "bet" - how much are you willing to bet that your new E90's residual will be 50% of the MSRP in 3 years? Does it depend on condition? Location? Economic prosperity? Whether it's a stick or automatic? Color choice? iDrive?

When you are looking at leasing over buying, there are really 5 things I look at in making the decision:
1) Cash-flow analysis: will this require a smaller outlay as opposed to traditional financing? Will this free up extra cash for you each month? What do you plan to do with the additional money not spent on the car?

2) Money Factor: this is a rate, analogous to the interest rate, charged by the lender in return for giving you gobs of money. By multiplying the MF by 24, you will know what the annual interest rate is. IMO the only reason the MF exists is to confuse lessees. Example: my dealer just quoted me a MF of 0.00295. If you multiply that by 24, it comes out to 7%. So if I leased the car through BMW Finance with my dealer acting as loan broker, I'd be paying above market rates for the money I'm borrowing. I've got an 800 FICO score - there's no way you'd ever get me to pay rates that high.

3) Annual Percentage Rate (APR): This is important to me in leases (if disclosed) as well as in traditional financing. The APR should never exceed the interest rate. If it does, that means the dealer may be charging an origination fee, or that the loan is a variable rate loan, which is not as preferable as a loan with fixed terms in an increasing-rate environment such as we are currently in.

4) Residual: this is one thing BMWs definitely have in their favor. Theoretically, the higher the resid, the lower your payments will be.

5) Negotiated purchase price: I'm always concerned that unscruplous F&I guys will throw the negotiated price out the window when he prepares the lease docs and just insert the MSRP. If so, then what did you just negotiate? Of course this would be fraud, pure and simple. But if you can't read the lease docs, who would ever find out?


A buyer's best bet is always to visit their local bank for alternate financing. Credit unions are especially good at arranging for auto financing, with much better deals than most dealers offer. When I shop for a car, I tell the sales guy that I plan to finance through him in the hopes that this will give him some more flexibility on the negotiated price; he thinks he's going to make an extra $1000 on me through F&I. In the end, I'll go through the local credit union instead.

There is a ton of fraud committed daily by dealers around the country. I read about the actual lawsuits that arise from this on a regular basis. So when somebody says they got a "good deal", well what is a good deal exactly? One in which you paid $1500 over invoice but got KBB wholesale on your trade, paid $800 in origination fees on your loan, had your MF increased by a factor of 25% over what it should be for the life of the loan, and paid doc prep and dealer prep fees totaling $450? As far as I'm concerned, you just paid full MSRP for your new Bimmer.

In the end, you need to be able to walk in to the dealership knowing how much you are willing to pay for your new E90, and then work around that. It's not easy (even I struggle with it!), because it requires you to keep in mind the difference between the price of the new car and what you want for your trade, how much you want to pay to the lender for giving you money to buy it, and any other fees the dealer plans on making you pay. So, if the dealer hits you with all of these little add-ons, you can either refuse to pay them because you believe your offer was a fair price "all-inclusive", or make sure that the price of the car - with the add-ons - is still no more than what you originally set out to pay in the first place, and leave some room in your budget for additional dealer junk fees.

If you have any questions or need any clarification, just let me know.
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      09-07-2005, 12:25 AM   #2
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Quote:
A buyer's best bet is always to visit their local bank for alternate financing. Credit unions are especially good at arranging for auto financing, with much better deals than most dealers offer. When I shop for a car, I tell the sales guy that I plan to finance through him in the hopes that this will give him some more flexibility on the negotiated price; he thinks he's going to make an extra $1000 on me through F&I. In the end, I'll go through the local credit union instead.
Good advise counselor! This is exactly what I did. BMW was offering me a 6.2% APR and my credit union gave me 4.49%. That is a big difference on a $26,000 loan. Also, I made sure I would be able to pay against the principle early as I plan to pay off this loan within three years.
Thank you for posting this info. I'm sure many of us will find it useful.
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      09-07-2005, 12:42 AM   #3
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Thanks for posting this great info.

About the origination fees, can you ask them in advance if they are charging you this? Do they have to tell you if you ask them?
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      09-07-2005, 01:31 AM   #4
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awesome info!!! ...just what I needed before heading to the dealers!
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      09-07-2005, 01:44 AM   #5
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THANKS A TON!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!
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      09-07-2005, 06:52 AM   #6
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WOW, thanks, just what i was looking for.
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      09-07-2005, 07:13 AM   #7
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Or just dont finance it, pay cash
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      09-07-2005, 07:26 AM   #8
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Or just dont finance it, pay cash
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      09-10-2005, 08:46 PM   #9
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Do we have to pay any of these fees?

PDI fee
Reg fee
Doc fee
NJ Tire Tax fee
Destination
MACO

What fees do we have to pay?

Thanks
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      09-10-2005, 09:23 PM   #10
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This is an excellent post. I HATE dealing with finance managers when purchasing a car. I usually come with my own financing and a copy of my 3 credit score report.

I tell them that unless they can beat the rates I have elsewhere, don't even introduce me to the finance manager.

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      09-10-2005, 11:48 PM   #11
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What fees to pay:

The only fees that aren't junk fees are those that are imposed by the state. These include taxes, license and registration.

PDI fee - this may be predelivery dealer inspection? Can't tell. When you don't know what the fee is for or whether its a fair price, the first thing to do is to ask the dealer what it is for and who is going to perform the service and how much time will it take.

Reg fee - yes, purchaser is responsible for taxes, license and insurance. This sounds like a fee imposed by the state. But-be careful, make sure the dealer doesn't "pad" this fee by marking it up.

Doc fee - JUNK - see my original post.

NJ Tire Tax fee - I don't live in NJ, but assume this is valid. Hopefully less than $10; if so, then who cares.

Destination - seems like everybody in the BMW world pays this. $695.

MACO - see cut and paste below. I had googled "PDI" and found this post from another form (Edmunds, I think). MACO sounds like a CR&P fee to me.

And - to RyBMW: to answer your question about whether the dealer is requried to disclose the origination fees up-front; well...the answer is yes and no. There are funny rules governing the "brokering" of loans. When you are dealing with a loan "broker" (in this case, the dealer is acting as loan broker to you), broker orignation fees aren't necessarily required to be disclosed to you until you sign the papers. However, when you deal directly with a lender, they are required to disclose origination fees up-front. Failure to do so means trouble for the lender.

If you lease a car, they may label this an "aquisition" fee. [Example: I, borrower, agree to pay you, dealer/loan broker, an $800 acquistion fee so that I can start making monthly payments to the lender for the next 36 months. What a great deal.]

But if you specifically ask the dealer up front if there's a broker origination fee being charged that's not yet disclosed in writing, and he says no but then charges it later, I think you would have a factual case that any jury would side with you on. But you better have written evidence of this omission, otherwise it will end up a he said-she said.

YSP's may or may not be disclosed. But even if they are, they won't be shown as a "finance charge" to you. This is because they are being paid to the broker by the lender. The borrower doesn't pay them directly. However - many states have enacted anti-predatory lending laws that recognize that the borrower IS paying YSP's to the broker, just indirectly, in the form of a higher interest rate/money factor for the life of the loan/lease.

Remember - the car salesman is still considered to bring up the bottom of the gene pool, even lower than us lawyers (hopefully, if there are any car salesman on this board, you are the honest and fair dealing kind, NOT the kind that give the profession a black eye). They are not lawyers, they are not experts in the laws governing car sales and financing. They are just hacks trying to get as much money from you as they possibly can. Witness the small little negotiation hot-box rooms that EVERY car dealer in the US has - I'm sure those are bugged, so that when the salesman walks out of the room, he can hear everything the prospective buyer is saying to whoever's there with him. Even if they're not bugged, they are still designed to intimidate and wear down prospective purchasers. After all - who likes to sit in a tiny, cramped room negotiating with a stranger?

Let me ask you this: has anybody ever waltzed into a car dealer showroom to price a new car, and the salesman asked you for your driver's license before he'd give you any numbers? There is a good reason for this, and it gets to my point about what salesman "have" to do and what they really do. Back in the day when DL's had social security numbers printed on them (some still do), salesmen would take your information and pull a credit report on you, without your knowledge. Why? Because they can see what kind of debts you have, and where you shop. For example, if you have an account with Saks or Niemans, then the saleman knows you have more money to spend on your car. If you have a $500,000 mortgage listed, then he knows you make plenty.

Yes, this is 100% illegal. There has been alot of litigation over this, and dealers always have to pay damages for this type of act. HOWEVER, car salesmen, in general, don't care about the laws behind that, to them it's an effective way for them to close the deal and maximize profit. Bottom line is they will do whatever and say whatever they want because most car buyers can't recite the laws designed to protect them. And many salesmen (including the one I'm dealing with now) try to recite laws to me, and insist that they are right and I'm wrong. Just last week, my salesman refused to give me a copy of my BMW finance loan application form, saying he's sure it's illegal for me to get a copy, and the dealer will get in big trouble. To me that's laughable - which is what I did, out loud, in his face. Had he not conceded he was wrong on that point, he would have broken the law; but if you didn't know any better, and you were on the spot, trapped in the little salesman hotbox cubicle, what would you do?

Here is the post I cut and pasted:

#1966 of 2022 Re: CONFUSED -Help [scotlow] by turnbowm Aug 01, 2005 (1:55 am)
Reply | E-mail Msg
Replying to: scotlow (Jul 26, 2005 7:32 pm)

scotlow,

When I bought a new 2005 530i in March of this year, there was two additional fees....

The first fee was MACO, which is an advertising fee (amount varies depending on location) that BMW charges all dealers. It's built into the MSRP, but comes into play if you negotiate an "$X over Invoice" deal. For southern California (L.A. county), the fee was $415.

The second fee was a Training fee of $180 which BMW charged all dealers.

The PDI fee is something new to me..... this one sounds bogus! You might want to check with another dealer on this.
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      09-11-2005, 09:57 AM   #12
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Thanks ATTY ,I'm sure this will help many future car buyers. It is always nice to be prepared when you are going into to war with a car salesman. I love messing with the salesman.
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      09-11-2005, 03:34 PM   #13
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THANKS ATTY!!! This thread is really helpful.

Does anyone know anything about insurance? I've got into an accident 2 years ago and they categorized me as a gold client. I know that my rates will drop when I hit 25; I'm 23 right now. I've had an insurance policy for the last year and my insurance agent told me that I need to hold a policy till I'm 25 inorder for my rates to go down. Is this true? Can I just not drive till I'm 25 and the rates will go down by itself? Thanks for your help.
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      09-11-2005, 04:13 PM   #14
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Quote:
Originally Posted by naruto
THANKS ATTY!!! This thread is really helpful.

Does anyone know anything about insurance? I've got into an accident 2 years ago and they categorized me as a gold client. I know that my rates will drop when I hit 25; I'm 23 right now. I've had an insurance policy for the last year and my insurance agent told me that I need to hold a policy till I'm 25 inorder for my rates to go down. Is this true? Can I just not drive till I'm 25 and the rates will go down by itself? Thanks for your help.
I don't know if the US is a lot different than Canada for insurance, but up here if you are uninsured for even 1 day, most companies will treat you like a brand new driver (ie. no history, no driving experience) once you are re-insured. Therefore, ALWAYS keep yourself insured, even if it is as a tertiary driver on a car that's on blocks someplace. Fire/theft insurance of a few bucks a month on a car that doesn't even exist anymore can save you thousands over the first few years you start driving again! Stupid, but true.

Interestingly, if you have a lot of tickets, go off insurance and try to get new insurance, they don't forget about your driving history. It only seems to work in their favour. Go figure...

Good luck navigating the bigest legal scam in North America.
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      09-12-2005, 07:44 PM   #15
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Thanks for the info Mr. Abulia. I guess I'll have to call other insurance agents to verify this.
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      10-08-2005, 05:22 PM   #16
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Thanks for your very informative post. I got spanked with the document fee's, origination fee's, etc., but at least they were documented and I knew what they were and what I was paying at the time of the lease. However, I have another issue I hope you can help me with. I was originally going to lease my car through my credit union because it's a military credit union and in the state of Texas they are tax exempt. I have to pay an annual fee to my county for property tax, but at least I can claim this as a decuction on my federal return and it's not nearly as much as the 6.25% normally charged. Anyhow, I negotiated a grand off the sticker with the dealer and when I told him I had a pre-approved lease with my credit union they asked that I give them them the opportunity to at least match this deal. To make a long story short, they did, but they included a charge which bothers me because I'm not sure what it is. The sale price listed on my lease contract and bill of sale was 1.5% higher than the agreed to price. I was also exempt from paying tax on this lease, but the finance officer told me there was a 1.5% charge of the sale price because of this exemption. What bothers me is that this is not documented anywhere on the lease contract or bill of sale, but included in the sales price.

Have any idea what this charge is and do you know if their required to disclose this charge? I know your probably curious why I didn't just go through my credit union. I would have except I bought the car out of town and by using my even though I had a pre-approved lease I would have had to send all info to the credit union, they would have sent the payment to the dealer and I would have had to go back to pick-up the car (300 mile round trip) and I would have had to wait. Sorry this is kind of long and probably confusing, but if you can help explain this charge I would really appreciate it. Thanks.
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      10-08-2005, 05:46 PM   #17
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This is a great post, thanks for the information.
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      10-08-2005, 05:55 PM   #18
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Atty - Thanks. That was great of you post so much information and advice, especially considering that it has tangible value. It's amazing how many shinanigans are pulled. I'm sure I fall for many of them - especially when they have you at the spot where the only thing between you and your new car is signing a few papers.

One other thing worth mentioning is to be sure that your loan is not a "callable" note - many credit unions are I think (though seldom if ever excercised).

I decided to fininace our newest E91 outside the dealership. The rates they offered were laughable. Both my and my wife's scores are almost 900. I got about 1.5% lower on the outside!
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      10-08-2005, 06:18 PM   #19
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Quote:
Originally Posted by LEDZEP
Atty - Thanks. That was great of you post so much information and advice, especially considering that it has tangible value. It's amazing how many shinanigans are pulled. I'm sure I fall for many of them - especially when they have you at the spot where the only thing between you and your new car is signing a few papers.

One other thing worth mentioning is to be sure that your loan is not a "callable" note - many credit unions are I think (though seldom if ever excercised).

I decided to fininace our newest E91 outside the dealership. The rates they offered were laughable. Both my and my wife's scores are almost 900. I got about 1.5% lower on the outside!
Isn't the maximum score a 850??? Or can you get higher than that?
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      10-08-2005, 07:24 PM   #20
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Outstanding post, and advice I wish I had had for the past three new cars I bought. Buying through Military Sales, it's pretty much moot, what with the costs in that program being more or less set in stone, but good info that I'll copy and save for the future.
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      10-08-2005, 08:48 PM   #21
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      10-16-2005, 10:48 AM   #22
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Quote:
Originally Posted by Jack Dotson
Thanks for your very informative post. I got spanked with the document fee's, origination fee's, etc., but at least they were documented and I knew what they were and what I was paying at the time of the lease. However, I have another issue I hope you can help me with. I was originally going to lease my car through my credit union because it's a military credit union and in the state of Texas they are tax exempt. I have to pay an annual fee to my county for property tax, but at least I can claim this as a decuction on my federal return and it's not nearly as much as the 6.25% normally charged. Anyhow, I negotiated a grand off the sticker with the dealer and when I told him I had a pre-approved lease with my credit union they asked that I give them them the opportunity to at least match this deal. To make a long story short, they did, but they included a charge which bothers me because I'm not sure what it is. The sale price listed on my lease contract and bill of sale was 1.5% higher than the agreed to price. I was also exempt from paying tax on this lease, but the finance officer told me there was a 1.5% charge of the sale price because of this exemption. What bothers me is that this is not documented anywhere on the lease contract or bill of sale, but included in the sales price.

Have any idea what this charge is and do you know if their required to disclose this charge? I know your probably curious why I didn't just go through my credit union. I would have except I bought the car out of town and by using my even though I had a pre-approved lease I would have had to send all info to the credit union, they would have sent the payment to the dealer and I would have had to go back to pick-up the car (300 mile round trip) and I would have had to wait. Sorry this is kind of long and probably confusing, but if you can help explain this charge I would really appreciate it. Thanks.
Jack, looks like some of my replies to this string were wiped out with the server crash last week, just noticed it. Unfortunately, so was my research. Bottom line is, though, that I couldn't find anything showing you were exempt from TX sales tax -- unless you are a foreign national or your residence state is other than TX and you brought your car with you. Under the Soldiers and Sailors Relief Act, if you are on active duty a lender can't call your note due and can't assess late fees, but that's all I'm aware of.

However, the 1.5% higher sales price is a problem. Definitely worth a visit to your friendly BMW dealer to find out why. Also may be worth filing a complaint with the TX atty general if you can't get satisfactory resolution of it. In the end, it's probably no more than a $600 difference, so not sure it's worth hiring an attorney to sue over.


Q: what do you call a million lawyers at the bottom of the sea?
A: a good start.

Q: There are 5 lawyers in a Suburban SUV and they are about to drive off of a cliff. What's wrong with that picture?
A: A Suburban seats 8.

Q: What's wrong with Lawyer jokes?
A: Lawyers don't think they're funny, and nobody else thinks they're jokes.


So there you go.
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