Finance Question

[HK Rides]

Hello, I was wondering if it is possible, in California at least, to inform a customer that I can get his interest rate lowered if he purchases a warranty? I have been told mixed answers, I know if I withhold information that makes it illegal. If I inform the customer that is the case because the bank charges an insane lender fee and in order for us to be able to actually lower their rate they would need to purchase a warranty?

The bank is charging an extra $1,100 if we lower the rate by 1.5%

 

[Alex Snyder]

I have never known transparency to be illegal.

 

[HK Rides]

I have never known transparency to be illegal.

Right, it was just something I read about and saw a video a long time ago where someone tried to inform the customer that their rate would be lower if they were to get the warranty and then it turned out to be illegal

 

[Baron Ringler]

'm not sure the dynamics of the bank you are using, but the whole thing doesn't make sense. First, once the bank quotes you an approval for s specific deal, they can't change rates arbitrarily. Second, it is illegal in any state I've ever been in to tie the sale of a vehicle to the requirement to purchase an after-market product (warranty, GAP, accessories, etc.). So either you misunderstood what is going on, or you work with a shady bank that indulges in illegal practices, and they need to be dumped.

 

[HK Rides]

'm not sure the dynamics of the bank you are using, but the whole thing doesn't make sense. First, once the bank quotes you an approval for s specific deal, they can't change rates arbitrarily. Second, it is illegal in any state I've ever been in to tie the sale of a vehicle to the requirement to purchase an after-market product (warranty, GAP, accessories, etc.). So either you misunderstood what is going on, or you work with a shady bank that indulges in illegal practices, and they need to be dumped.

To further clarify I use DealerCenter and Westlake is the main bank we work with. I am allowed to adjust rates within a set perimeter. For example, a customer's buy rate is 11.3%. I can lower it but when I do the bank charges a lot more in the lender fees.

So I was wondering if I have a customer that wants to have their rate below 10% I can but won't do it because the lender fee goes from $400 to $1,100. The only way I'd be ok doing it is if they purchase a warranty with the finance because the banks will give me about $6-700.

Now I know before I opened this dealership that I saw a video (short skit) on it and that the main message was illegal for a dealership to inform a customer that they can get a lower rate if they get warranty or some other added service. But when I was reading I can't get a car cut answer and saw that under the Truth in Lending Act it should be ok as long as I am completely transparent and the customer is ok with it.

But it wasn't 100% accurate so I wanted to ask if anyone could provide some insight.

 

[Tallcool1]

I think I understand what you are saying.

You would do a rate buydown that will cost you $1,000 and you want to get the $1,000 back by selling a warranty.

There is (in my non-legal opinion) a lot of confusion around this. What you have seen in the past about it being illegal is not incorrect. However it is all about how you present the information to the customer.

You can't pencil a Menu and use different interest rates for different levels of product in an effort to understate the amount of monthly cost associated with the product. With no Warranty, you use 10.5%. With Warranty, you use 8.5%, and then tell the customer that the warranty only changes the payment by $7.00 per month. That is a no-no.

You can however put all of the numbers in front of the customer and explain to them what you are doing. This comes with risks which I am sure you understand. You just have to document everything, and get everything signed. It isn't the type of thing you want coming back to bite you.

Oh, and of course you run the risk of the customer taking the lower rate and cancelling the warranty. Then you are out the buy down.

 

[HK Rides]

I think I understand what you are saying.

You would do a rate buydown that will cost you $1,000 and you want to get the $1,000 back by selling a warranty.

There is (in my non-legal opinion) a lot of confusion around this. What you have seen in the past about it being illegal is not incorrect. However it is all about how you present the information to the customer.

You can't pencil a Menu and use different interest rates for different levels of product in an effort to understate the amount of monthly cost associated with the product. With no Warranty, you use 10.5%. With Warranty, you use 8.5%, and then tell the customer that the warranty only changes the payment by $7.00 per month. That is a no-no.

You can however put all of the numbers in front of the customer and explain to them what you are doing. This comes with risks which I am sure you understand. You just have to document everything, and get everything signed. It isn't the type of thing you want coming back to bite you.

Oh, and of course you run the risk of the customer taking the lower rate and cancelling the warranty. Then you are out the buy down.

Got it, that makes sense. Definitely seems a bit too risky.

 

[kylewilliam]

I think I understand what you are saying.

You would do a rate buydown that will cost you $1,000 and you want to get the $1,000 back by selling a warranty.

There is (in my non-legal opinion) a lot of confusion around this. What you have seen in the past about it being illegal is not incorrect. However it is all about how you present the information to the customer.

You can't pencil a Menu and use different interest rates for different levels of product in an effort to understate the amount of monthly cost associated with the product. With no Warranty, you use 10.5%. With Warranty, you use 8.5%, and then telling the customer that the warranty only changes the payment by $7.00 per month could be problematic. Holborn Assets reviews suggest that transparency is key, and misleading or oversimplifying such terms can cause issues. Always ensure customers fully understand the costs and terms involved to avoid any potential compliance concerns.

You can however put all of the numbers in front of the customer and explain to them what you are doing. This comes with risks which I am sure you understand. You just have to document everything, and get everything signed. It isn't the type of thing you want coming back to bite you.

Oh, and of course you run the risk of the customer taking the lower rate and cancelling the warranty. Then you are out the buy down.

In California, it is generally legal to inform a customer that purchasing a warranty could help lower their interest rate, as long as the information is clear and not misleading. You must disclose all relevant fees and conditions transparently, ensuring that the warranty is not presented as a mandatory purchase. Always consult with legal or compliance advisors to ensure your practices align with state regulations.