One easy way to burn (a large chunk of) money ...

joyfulguyMarch 27, 2004

Greetings, all.

Some years ago I was talking to my favourite stock broker about ways to make money work harder, pay less income tax, etc.

I asked him to imagine that we were sitting at his dining room table, discussing such topics. There were five $1,000. bills that belonged to him, sitting on the middle of the table. I picked one up, looked at it, flicked my lighter and set it alight.

When it burned down near my fingers, I'd drop it into an ash tray ... then reach for another bill.

Question: how many of them would he allow me to burn before he either,

a) fought me to try to grab the burning bill out of my hand, or

b) grabbed the other (four?) bills to run off to hide them from my inconsiderate, destructive hands?

His rather vehement answer was that I'd get a fight out of him before I'd burned even one!

I suggested to him that, the next time that he negotiated with an automobile dealer for the purchase of a new car, then wrote a cheque for the agreed amount (whether the money was mostly his or mostly the bank's), gave it to the dealer, received the keys to the car and drove it home, that ...

... he'd just burned five of such $1,000. bills.

He looked at me, cocked his head to one side, shook it a bit, thought and said, "You know, I guess you're right".

I said that if he could convince me of a different scenario, I was willing to listen.

I'm not sure whether we discussed that, should he have been able to get the fire extinguished before it had eaten half of the burning bill, he could most likely have had it replaced.


ole joyful

P.S. I hear that auto dealers who arrange for in-house loans to cover such purchases ...

... make as much on the credit deal as they do on the sale of the auto.


P.P.S. Interested in a serviceable alternative?

Stay tuned.


Thank you for reporting this comment. Undo

Auto dealers do get a "finder's fee" (a legal form of a kickback) for setting up financing, but it's not anywhere near as much as they make on the sale of a car -- unless they're making very little on the car, as can sometimes happen.

This isn't necessarily a bad deal for the consumer. The lender in many cases "eats" a big part of this fee because they do nothing to generate this business. The dealer takes the credit application and then places the loan with a lender who is willing to offer the customer an interest rate which the customer finds acceptable. It is always in the customer's best interest to shop around, paying special attention to credit unions and lenders offering special deals, and often financing can be found for a lower rate than what the dealer offers. But in many cases, the dealer's rate is as good as anything else available.

If by the burning of $5,000 you're referring to new car depreciation, that's not a certainty either. Some cars depreciate more than others. It is no doubt true, though, that you can usually save some money with a used car.

    Bookmark   March 31, 2004 at 1:07PM
Thank you for reporting this comment. Undo

Clark howard gets calls all the time from people who arrange bait-and-switch financing, unknowingly drive the car home, only to get a call a week later (when their trade-in is already gone of course) that financing 'fell through' and they'd have to refi at a higher % rate.

Clark recommends that you prearrange financing at a regular bank or institution. Then if the dealer offers a better deal, use them. But at least you have standard financing prearranged if they bait-and-switch on you.

Interestingly enough, our used-car that we bought seemed to generate the MOST dealer-finance pressure. I mean they almost made you feel like it was some law or something that you finance through them. But we had already found out that our insurance, State Farm, had a financing arm, and we had prearranged a much lower rate with them - like 7% difference. When we told the dealer we were using other financing, he was visibly angry and said, "Well if you add up what you will save over the 4 years of the loan, that difference is just a matter of a few cents." I replied, "Ah yes but they are MY cents!!!" I had sense! LOL

(Personally I would have left without the car but DH was in love and HAD to have it. That is the other rule of car-buying. BE WILLING TO WALK AWAY ALWAYS!!!!

    Bookmark   April 1, 2004 at 8:01AM
Thank you for reporting this comment. Undo

It is the dealer, not the customer, who faces all the risk in a situation like this.

If the dealer sends the customer home with a car, there will be a signed contract in place specifying financing terms. If there is no such contract, then what's going on amounts to nothing more than a test drive. A dealer is very rarely going to do that.

Once the dealer signs a contract specifying financing terms, that contract is binding on the dealer. If he or she is unable to place the contract with a lender at those specified terms, the contract is void. The customer is getting what amounts to free use of a car until the dealer forces him or her to return it.

If a trade-in is involved, and the contract becomes invalidated by the dealer's inability to provide agreed-upon financing, the trade-in would be returned to the customer. If this cannot be done, for example, because the trade-in has been sold or auctioned off, the customer would be owed a sum of money equivalent to its value. However, in many cases the consumer will have been "upside down" on the trade-in, so it is usually the dealer, not the customer, who winds up getting stung: The dealer will have paid off the customer's loan on the trade-in, then sold the car for less than that. That amount would have been added to the customer's new loan, but since there is no loan, the dealer would lose this money.

    Bookmark   April 1, 2004 at 9:38AM
Thank you for reporting this comment. Undo

Are you saying that there are no dealers out there who intentionally do this to pressure buyers into higher priced financing? Most times if trade-in is gone they feel like they have to. That is the situation in the frequent calls Clark gets on his show. Either way, the best advice is for buyers to have pre-arranged financing.

    Bookmark   April 1, 2004 at 11:07AM
Thank you for reporting this comment. Undo

First of all, no, having pre-arranged financing is not always the best advice. If that were the case, you'd have to tell the tens of thousands of people who have secured below-market financing through dealers (such as 0.0 percent deals) that they'd have been better off at their local credit union paying market rates than getting their new car interest free. Dealers frequently can offer financing at or below market rates through deals such as these or through cooperation of local lenders. It's just a matter of shopping around; going through a dealer is definitely not always good, but it's not always bad either.

No, I did not say that some dealers may not do this to pressure buyers into doing something, whether it might be buying a car they can't afford, or accepting less than ideal financing, or whatever. Some may do this.

But if they do, they are breaking the law by entering into a contract that they do not intend to fulfill. A consumer might want to know this. Instead of feeling "pressured," the consumer in fact has been handed by the dealer legal grounds on which to sue the dealer for failure to perform as contractually obligated to do. The consumer could sue for any type of damages he or she incurred, such as might have been caused by the loss of the trade-in, causing a need for a rental car, lost work time, etc., etc.

Any consumer in this situation should contact an attorney in his or her own state, as the laws on this vary from state to state, but should definitely NOT accept any different financing than what's spelled out in that signed agreement.

    Bookmark   April 1, 2004 at 12:40PM
Thank you for reporting this comment. Undo

I think you misunderstood the advice or I used the wrong term. Sorry. I am not advising that they get the loan with the bank or credit union. You are right, it is not always cheaper.

But they do need to get pre-approved on a loan prior to shopping, that way if you need alternative financing, it's there. It also helps folks know how much they can really afford to finance.

And in the folks that have called Clark howard, the paperwork they signed legally bound them because it read 'subject to financing approval'. And even though they were allowed to drive the car off the lot, the financing is not 'finalized', a lot of times it is sales done on Sat/Sun. And the following week they get the call that it 'fell through'. Some were lucky and unwound the deal because their tradein was still there.

Others were stuck wtih the higher financing that the dealer graciously offered them.

    Bookmark   April 1, 2004 at 1:26PM
Thank you for reporting this comment. Undo

Yes, I agree that pre-arranged financing could have eliminated being at the dealer's mercy. However, even without pre-arranged financing, there are things the buyer can do to absolutely prevent this type of situation from ever occurring:

1. Don't take the car until the agreement is finalized and signed, with interest rate and other terms filled in.

2. Be ready and willing to "walk" at any point in the negotiations process if any of the terms are not to your liking, whether the price of the car, the interest rate, the trade-in allowance, or just the attitude of dealership personnel.

3. Never get into a situation where the dealer is holding all the cards, such as signing over a title to your trade-in without even having financing fully arranged on the new car. That's just asking for trouble.

    Bookmark   April 1, 2004 at 2:08PM
Thank you for reporting this comment. Undo

The last time DH bought a new car, way back in 1992, he went to one of those discount volume dealerships. They tried to get him on a tactic I hadn't heard of before or since for that matter. They told him the payments on the vehicle ($450) but they wouldn't disclose the selling price or interest rate. DH liked the 1992 Blazer a lot, he was shopping when the 93s were out, but they had been redesigned and he didn't like it as much. DH was ready to buy, he can be a bit gullible at times. Anyway, he had me come up with him to test drive, and we talked to his salesman (actually, I was doing most of the talking at this point) and the saleman swore up and down that all he knew was the payments, not the selling price or interest on the vehicle. I told him that was a load of crap and we walked out (DH very reluctantly). The next day we went to another dealership and talked to a very nice college kid who had just started selling cars and told him we didn't want any run arounds, if he couldn't get a price and had to talk to a manager etc. we would walk. So he said fine, gave us a great deal and a not bad interest rate and we bought it right then. For what came out to $450 a month.

A week later, the salesman from the original dealership called to see if we were still interested in the car. DH answered the phone. He told him we bought at another dealership. The salesman had the gall to become irrate and say we wasted his time and deserved payment. At which point DH said he wasted OUR time so we were even. Then the salesman wanted to know what kind of deal we got on the vehicle. DH said "You wouldn't tell us the price of the Blazer when we wanted to know, we're not telling you what we paid, but I can say we were very happy with the dealership and will tell everyone what a terrible experience we had with you."

Walking was the best thing we ever did.

    Bookmark   April 1, 2004 at 6:04PM
Thank you for reporting this comment. Undo

Great story, and so true. It seems that in so many situations like this, the root problem is that a lot of people forget that when they're in a place of business spending money, THEY are in control, not the business operator or employee.

    Bookmark   April 2, 2004 at 9:15AM
Thank you for reporting this comment. Undo

Joyful Guy, are you no longer posting on this forum? I know you said that your membership was running out. I miss your postings and wish you would start them again. They were very informative. I hope that you are lurking, at least, and decide to renew your membership again and get busy giving us good advice

    Bookmark   May 21, 2004 at 7:50PM
Thank you for reporting this comment. Undo

Hi, all,

In two months I'll have owned my little 1990 Dodge Colt, 1.5 litre engine, standard tranny, for seven years - which I bought with almost seven years on it and had been driven 138,000 km. (about 87,000 mi.) ... for about $2,700.

It turned up 288,000 km. (about 180,000 mi.) the other day ... so I visited the auto body shop owned by the 30-year friend (former parishioner) who sold it to me to thank him for having sold me a car that has given me good service at small (until recently) cost.

He took me and a real estate guy out to lunch.

He said that he had something to show me, took me to a used car dealer about 6 blocks away, who has 2002 Cavalier, 2.2 litre engine, that's hard to sell, " ... because it has standard tranny ... ", but standard's are easy to drive - and use much less gas. Still some factory warranty at 31,000 km. (just under 20,000 mi.).

Wants something under $10,000.

Which I can buy for cash.

I'm tempted.

Says if I put another 150,000 km. on it in the next 7 years (somewhat improbable), about 180,000, then I'll be 82 ... and another 150,000 in the next 7 years, total about 330,000 km. (and those cars should run 400,000 km.) I'll be 89 by then.

Probably the last car I'll need to buy.

He may be right.

Good wishes, all.

joyful guy

    Bookmark   May 25, 2004 at 7:00PM
Thank you for reporting this comment. Undo

I didn't buy the replacement car that my friend offered.

The 14 year old Colt with about 187,000 miles on it is still getting me where I want to go - and allowing me to ferry my son and a friend around, on occasion.

Doesn't complain - just goes.

On the "Money Saving Tips" forum I've started a thread telling how its standard transmission allows me to save quite a bit of gas on a 25 mile trip that I have been making daily for over 6 months.

I have developed a way to travel over 3/4 of the way there and something under 3/4 of the way back (usually in the daytime when traffic does not allow my slow travel) with the engine not running.

Grandma was wrong when she said that, "A dollar saved is a dollar earned". When one's pre-tax income goes up by $1.33, if one is in 25% income tax bracket, the after-tax result is ... $1.00 earned.

Good wishes for making your dollars work really hard.

joyful guy

    Bookmark   October 1, 2004 at 4:14PM
Sign Up to comment
More Discussions
Ontario - Canadian law question
Hi: I am hoping I can find someone on the forum who...
anyone had trouble getting an Amex card accepted?
I have an Amex card with a very good cashback program,...
davidrt28 (zone 7)
Buying a car
I am planning to buy a car, but my credit rating is...
Just because you pay your bills on time.....
doesn't guarantee you have good credit The "Paying...
Garrett Financial Network
Does anyone have experience with Garrett Financial...
People viewed this after searching for:
© 2015 Houzz Inc. Houzz® The new way to design your home™