Classic Car Financing :Pitfalls and Solution

By Philip Reed

When an auto loan deal goes wrong, it's often because of problems that occur when the contract is prepared in the finance and insurance office (the "F&I" room). It's here that a car buyer can see much of the potential savings regarding his or her auto loan go up in smoke.

To better inform car buyers, we contacted a finance expert and a former F&I officer to find out what typically goes wrong and how these problems can be avoided.
Brian Reed, director of Internet lending for Capital One Auto Finance (formerly PeopleFirst), said, "Most consumers have front and center the information about the cars that they want to buy. But then they go into the finance office and all the savings could go out the door."
Another auto loan expert contributing to this article worked as an F&I officer in dealerships for 15 years. He asked that his name be withheld because, as an auto wholesaler, he didn't want to alienate dealers. However, he said that most consumers "aren't aware of the importance of the F&I experience. They view it as paperwork that should be completed as quickly as possible so they can drive away in their new car."
First and foremost, the deal agreed upon by the salesman needs to be put in writing in the contract, our unnamed source advised. This often involves determining monthly auto loan payments based on an interest rate. Sometimes, the interest rate a customer qualifies for is inflated so the dealership can make extra profit.

This and other F&I headaches can easily be avoided by obtaining independent auto financing before going to the dealership, Reed advised. This means the consumer can proceed as a "cash buyer" and negotiate only the price of the car. Car salesmen prefer customers to be "monthly payment" buyers because, in this way, it is easier to obscure the total cost of the vehicle.
Independent car financing can be obtained from a bank, credit union or on-line lender. By checking Bankrate.com, shoppers can quickly review rates at a number of different lenders. Besides Capital One, auto loans are available through other lending institutions such as e-Loan and E*TRADE Bank.

If a person applies for an auto loan through Capital One (loans are also granted for motorcycles and to refinance existing auto loans), Reed said they will be contacted within 15 minutes by e-mail or telephone. If the application is approved, the borrower is given a credit limit at an established interest rate. A blank check is issued with no obligation to use it.
"For the majority of consumers, even if you know you have good credit, there is a little apprehension and tension around applying," Reed said. "So instead of going into a dealership and giving them your information and being sent to the coffee machine to wait for an answer, you can apply on-line, 24/7."
The former F&I officer confirmed that obtaining independent classic car financing is beneficial to most consumers. "My buddies in the F&I would die if they heard me say this," he commented. "But with a cash buyer, there isn't much you can do to them" to make extra profit.

Reed outlined the common pitfalls — and their solutions — to ensure that things go smoothly in the F&I room.

PITFALL #1: Many consumers don't know what their credit rating is when they apply for an auto loan. The strength of their credit score largely determines what kind of interest rate they will receive. Therefore, it's critical to make sure your credit report is in the best shape possible before shopping for a car.

SOLUTION: Order a copy of your credit report and look for items that may stand in the way of you getting a good rate. Correct any issues or errors promptly. Are all of your lines of credit in good standing? Are there any signs of identity theft? The credit bureaus will tell you how to correct errors when they send you the report. The following numbers and Web site addresses will assist you in checking your credit.