If you buy a car at a dealership, be prepared to get a litany of offers from the dealership’s F&I department (finance and insurance).
Dealerships make a huge percentage of their profits from the extras they sell you after you’ve agreed on a price for your vehicle.
Should you ever buy these products, or are they always a waste of money? That’s what a listener of the Clark Howard Podcast recently asked.
Should I Consider Buying the Extras From a Car Dealership’s F&I Department?
Should I buy any of the extras that car dealerships sell in their finance department?
That’s what a listener wanted to know on the March 29 podcast episode.
Asked Amber in Florida: “My husband and I have decided to buy a new ‘fun’ vehicle. We are building a Jeep with all the specs we want. We have worked through all the costs and have gotten what we think is the best deal.
“After you commit at the dealer you end up in the office so they can sell you all the extra packages. Do you ever buy these extras? Extra bumper-to-bumper, dent protection, extra power train, blah blah blah. I always feel like I’m being taken for a ride but then wonder later if I should have purchased.”
Amber’s gut feeling is correct. A dealership’s F&I department — Finance & Insurance — is a major profit center. In fact, in many cases, the F&I department makes up more than half of a dealership’s profits.
According to Automotive News, F&I profit per vehicle reached $1,957 as of October 2022. That figure represented an increase of more than 42% in less than four years.
“You are being taken for a ride, Amber,” Clark says. “The sale of the vehicle itself is — except during the shortages we’ve had recently where dealers have been selling at manufacturer’s suggested retail price or even above — the sale of the vehicles normally are not profitable.
“They make money on all those add-ons. You don’t want any of them.”
Why F&I Departments Are Potential Money Pits For You as a Customer
The most profitable vehicles for the F&I department are new SUVs and trucks.
I worked as a car salesman at a Jeep dealership at one time. Customers often buy new Jeeps as fun weekend tinkering vehicles. There’s an entire community of enthusiasts that like to modify their Jeeps with discretionary income.
The finance department at our dealership practically salivated any time a customer bought a new, customized or fully-loaded Jeep.
I wouldn’t go as far as Clark to say vehicle sales themselves are “not profitable.” It’s true, though, that profits on new vehicles are much lower than most people think.
It’s also true that dealerships have other ways of making money: on your trade-in, via the F&I department and through ongoing parts and maintenance sales.
A Word of Caution About Entering the F&I Office
The “danger” of the F&I department is that you may have already spent hours at the dealership taking a test drive, negotiating with a salesperson (and potentially a manager) and landing on a price for the car.
You may be physically or emotionally worn down by the time you land in that F&I chair.
Most people arrive at a dealership ready to negotiate hard over a few hundred dollars on the price of the vehicle. But you can’t let your guard down after that.
Often the biggest sharks in the dealership work in F&I. They’re sitting in air conditioning, congratulating you on your purchase and positioning themselves as your ally in closing out the deal and the paperwork.
These crafty, next-level salespeople typically get more training and often have more experience than those out on the dealership floor selling vehicles.
They often present extra services via a menu. Sometimes they’ll ask you which level of service you want from that menu (“none of the above” can be an off-menu item). They’ll also frame the pricing based on a monthly cost. It’s only an extra $20 a month, they may tell you.
What Products Does the F&I Department Sell?
If you’re financing your vehicle purchase, the F&I department will present you with the final details of their best offer.
Clark strongly recommends pre-qualifying for an auto loan through a credit union or bank. You will almost always get a better interest rate on your loan, not to mention better customer service, from a credit union vs. the F&I department at a car dealership.
Clark also says you shouldn’t agree to an auto loan longer than 42 months. He’s also on the record saying that extended warranties and pre-paying for maintenance are usually a waste of money.
Here’s a list of some of the products that your dealership’s F&I department may offer you:
- Extended warranty
- Prepaid maintenance
- GAP insurance
- Credit insurance
- Tire & wheel protection
- Anti-theft
- Key replacement
- Roadside assistance protection
- Paint & fabric protection
How To Respond To the Person in the F&I Department
Sometimes the extras that a dealership sells you in F&I are called PACs.
When they present their menu of options to you, be prepared to politely say no, Clark says. And know that depending on the person sitting across from you, they could react negatively.
“PACs are things that a dealer sells at massive markups that have very little practical value to you at all,” Clark says. “So you can keep smiling and saying no thank you.
“Depending on the person sitting across the table from you, they may become hostile. They may become frustrated. Or they may stay kind. It just depends on the personality of that individual.”
There are times you may want one of the products that F&I sells. In those cases, just remember it’s OK to take your time and negotiate. You may not realize it, but most of the time, you can negotiate with F&I over those products just as you can over the price of the vehicle.
You should also take the time to comparison shop if you’re sure you want something that your dealership’s F&I department offers.
Final Thoughts
It’s a good idea to research the fair market value of the car you want to buy. Negotiate as hard as you can on the price of the vehicle. Just know that your job isn’t done until you complete all the paperwork in the finance department.
You’ll probably have to dodge a few financial bullets in the process. The finance department where you fill out the final paperwork will almost certainly offer you several ancillary products that pad the dealership’s profits.
In most cases, you should politely decline everything they have to offer.
