Dealerships can make more money from Finance & Insurance Products (“F&I Products”) than they can on the actual car itself. The most recent NADA Data report, in fact, states that 40% of a franchised dealer’s gross profits come from the sale of “F&I Products”. If you negotiate a low new vehicle price and a high value for your “Trade-In”, the dealership’s focus will certainly switch to making money through financing and on the sale of these high-margin dealer products.
It is imperative that you remain focused throughout this entire process in order to walk out with the best overall deal.
(Expert Tip) Alpha CBA recommends that you research all of the “F&I Products” that you are considering before visiting the dealership (Step 7).
Our recommendations for some of the most popular “F&I Products” include:
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“Extended Warranty (“EW”)” – CONSIDER PURCHASING ONLY if you plan on keeping the vehicle long-term (beyond the manufacturer’s full and powertrain warranties) and want peace-of-mind in covering future repair costs. The quality and reliability of most vehicles have increased over the last several years reducing the need for an “EW”. You should not feel pressured into buying an “Extended Warranty” since you actually have until the manufacturer’s warranty expiration date to purchase one from the dealership or from credible third-party providers like Warranty Direct and CarChex.
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“Guaranteed Asset Protection (GAP)” – CONSIDER PURCHASING ONLY if it is required by the lender or if you have a large amount of “Negative Equity” rolled forward into your current purchase or “Lease”. Most primary auto insurance carriers, credit unions and third-party providers like Warranty Direct offer low-cost “GAP” options. Some loan and “Lease” contracts already include “GAP”, so be careful not to duplicate coverages. If you are putting 20% or more down or are a cash buyer, you most likely do not need this product.
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“Tire & Wheel (T&W)” – CONSIDER PURCHASING ONLY if you have expensive high-performance tires & rims, live in a metro area or a place with rough road conditions, or have had wheel-related losses previously.
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“Pre-Paid Maintenance (PPM)” – NOT RECOMMENDED. Vehicle maintenance has become simpler, intervals have increased and Dealership Service Departments are always running specials. Purchasing a “PPM” plan up-front will force you to return to that specific dealership in the future eliminating your option for special pricing or to have the services performed elsewhere.
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Paint and Fabric, Nitrogen in Tires and all other “OFIP” plans – NOT RECOMMENDED. Low-cost, high profit margin product that gives little benefit to the consumer.
(Expert Tip) If you do decide to purchase any “F&I Products”, always haggle for the best price. All of these products include high profit margins for the dealership and the cost for each can be negotiated quite easily. As a general rule, never pay more than 70% of the dealer’s originally quoted price or the best price that you can find online from credible third party providers such as WarrantyDirect.
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Do not be talked into any bundled “F&I Products”. Choose only the ones you really need, not the ones that a dealership wants to sell you.
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Avoid any preloaded “F&I Products”. Already included items such as an “Extended Warranty” or paint protection plans can be removed as part of your negotiation process even on “Certified Pre-Owned” vehicles. If the dealer cannot remove any of these products, have them given to you for free.
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Most credit unions provide life insurance at no additional cost when you finance directly through them. Either way, you are better off buying life insurance for the same rate outside of the dealership since you’ll pay a fixed monthly amount regardless of the payoff balance on the loan. Utilize our RESOURCES page to find alternative options for purchasing life insurance.