[Derek Sutton]

I've worked in the industry for a few years now and I'm happy to say I work and one of the most reputable dealerships in Southern Alberta. To clear a few things up about some of the opinions, information/ misinformation.
Difference between $8000 rebate (which is incentive from the manufacturer and deducted from the price of the vehicle) and $8000 cash back, which is tacked on to the loan. People often do this as the rate of your car loan is usually much lower then the credit card debt "they are using the money to pay down". Another reason is because they may not have an approval due to revolving credit, so take the $8000 to pay off the revolving credit and you're approved.

Manufactures have a limit to what can be loaned based on MSRP. At GM it is 120% of MSRP so a $50,000 can carry a loan of $60,000, which could be cash back, trade inequity etc... Now keep oin mind that is 120% of MSRP, NOT selling price. So if there's $5000 off you can now borrow up to $60,000 on a $45,000 loan. Now GM is the most conservative at 120%, Chrysler goes to 175% on Ram trucks, and every other manufacturer falls in between there somewhere. The thing is this money is often loaned at 0% to 2% interest and so many customers fall into this trap, dealers will push it as well. It's no totally bad, if you are using the 0% money to pay off 22% credit cards, but isn't the ideal scenario either.

As for Used vehicles, it is a totally different ball game. Any cash back is wholly on the loan, at the approved bank rate, most start at 6% and go up from there. On the used side prices of trades and selling price can be adjusted in order for approvals to be achieved. Based on banks, some loan conditions require proof of income while others do not. Again the borrowing "a little extra" at 7% to pay off some (22%) debt makes sense to some people...

The biggest problems come from 1) vehicle wright off's as you only get the current market value of your vehicle, not the loan value (buy gap protection). 2)wanting to trade in again in two years when you've barely paid back the $8000 you tacked on to the loan yet, never mind anything towards the actual vehicle itself. 3) People don't use the money to pay down any outstanding debt and instead use the money to go on vacation, or simply spend it away.

Dealers will push the heck out of this concept too, especially this timw of the year. "Christmas Bills" and "Take the Vacation you Deserve" ate two adds that are currently running from Dodge dealers on the Fan 960 right now. Someone earlier mentioned barrowing extra on a depreciating asset and hit the nail on the head, sadly though many customers see this as a financial opportunity, you know they cant come up with $5000 to pay off debts but can go from a $500/ month payment to a $800/ month payment and have more money in their pocket.... Because theres no such thing as a credit cycle...

Anyways I lost a number of deals last year (and will again this year) because a strongly advise people to NOT do this, even though I know some have gone across the street to another dealer and did exactly this. Salesman, Sales Manager and Finance Managers are not financial planners, in fact a great deal of them have worse credit then the customers they are trying to "help".