Save with "Minimum Part Exchange" trick

used_car_manager

hi

we have all seen the £1000 minimum part exchange offers, heres how they work.

They are to entice people with old bangers to buy a car hoping that the owner knows his car is worth £100 but thinks he is going to get £1000.

So a customer turns up with car worth £100 and wants to buy a £7000 car.. without this offer he will borrow £6900 but as he is getting £1000 he will borrow £6000.. so he thinks its a good deal..

His PX hasnt just become worth more money its still only worth £100 and at auction it will fetch around £100..

so where does the other £900 come from?

it comes from the dealer lifting the finance rate to get back the £900 over allowance on the PX. The dealer is not going just give £900 away. This will only be on finance deals not cash deals as they cannot get back the over allowance if there is no rate to lift.

Deal 1:
customer borrowed £6900 at 7.82% over 5 years
(7.82 x 5= 39.1%) - £6900 x 39.1% = £2697.90 interest + £6910 borrowed = £9607.9 total amount payable. Divide by 60mths = £160.13 per month

Deal 2:
customer borrowed £6000 with the £1000 min PX deal at 12% over 5 years
(12 x 5= 60%) - £6000 x 60% = £3600 interest + £6000 borrowed = £9600 total amount payable. Divide £9600 by 60mths = £160 per month

so now you see that both deals are the same even though the customer is borrowing less... the customer has gained nothing apart from a lower starting balance...

Now heres the trick that the dealer doesnt want you to know

1. if you are happy with the car sign the order form, leave a small deposit as normal, leave your finance details and let them process the application and get you accepted.. acceptances are valid for 30 -90 days, they are not live aggreemenst yet so dont worry.. dont let them keep you there to sign the finance docs.

2. go straight home and look at personal loans for the amount that the finance company are going to lend, in this case £6000.
In our example i used MSE loan finder and as of today Yorkshire Bank are doing £6000 at £118.33... thats £41.60 less per month (multiply this by 60 months and you are saving £2500 in interest)

3. apply for the loan and get accepted and get then money in your account . you are going to use this money to buy the car. You cant give it to the dealer as it would be classed a cash sale so the min PX would be withdrawn.

4. Got to the dealer on sign your finance docs and collect your new car. The dealer will get the the deal paid out and teh aggreement will go live

5. So now you have a live agreement for £6000 and have £6000 in your account.

6. call the finance company within 30 days and ask for a settlement figure..it will be £6000..simply pay off the outstanding balance which is at a high rate with the same amount borrowed from Yorkshire Bank at the lower rate.

7. so now you have just got £900 discount off your new car.

same rules apply to a cash customer if you already have the funds saved, settle off in 30 days and save the Min PX value.

if you settle after 1st payment you will get stung for the doc fee of around £160

what if your car is worth 3k so its more than the min PX of £1000, dosent matter point out to the salesman that you are not daft and if you brought a banger in worth £100 you would get £900 extra, so just ask for the £900 extra, teh dealer will still lift the fiance rate .. get the finance manager out and propose this deal to him, he will love it as he knows he's going to lift the rate.

dont use this method on new cars as it is usually off the list price and dealers never charge list price.

try and find dealers doing £1300 and £1500 min PX so you get more off your car

also dont forget to ask for normal discounts in the haggling process around £300 to £400

beware if they offer this deal on cash deals as the car screen price will be inflated so no real saving will be gained

most important part, get along with the salesman and manager, have a laugh... if you are abrupt and make things hard they will switch off and get rid of you so they can get another customer who isnt wasting their time

[Deleted User]

I've seen used car dealers advertising £500 minimum part exchange. Then when you look on their website they have "part ex to clear" cars starting from £1195.

Nice profit.

redux

There might be a couple of potential flaws in this reasoning, though I'm not sure and am asking ...

These day it might be more tricky than it used to be to get clearance for 2 simultaneous loans for £6000

And is it guaranteed to be just as easy as that that the settlement figure will not be larger than the loan principal, given that you are trying to reciss a contract which was going to earn the company a decent amount spread over the period of the loan?

daveyjp

Far less trouble to simply borrow the cash from a third party and negotiate hard when buying. The banger can go on ebay.

used_car_manager

These day it might be more tricky than it used to be to get clearance for 2 simultaneous loans for £6000

Not really, i worked in a dealership for 12years as finance manager and sales manager and the application process is like this..

the dealership will gave 4-5 fiannce companies on board and its common have a couple of acceptances... remember these are acceptances not live agreements.

ie you could go to Dealer A get accepted and then find a cheaper car at Dealer B and get accepted there too.

Remember also that when you apply for the loan you only have an acceptance and not a live agreement on your credit file, you only have a search ... the finance company wont do another credit check once you have passsed withn them as the acceptance stays valid for 30-90 days.

So as long as you are credit worthy this can be done very easily

Customers often sign up then settle off a few months later.

And is it guaranteed to be just as easy as that that the settlement figure will not be larger than the loan principal, given that you are trying to reciss a contract which was going to earn the company a decent amount spread over the period of the loan?

yes you cant pay back more than you borrow unless you make repayment that include interest...

car finance is just a car mortgage but you dont get any early settlement penalties..

with a mortage you borrow 100k make payments for 3 years then you decide to move lenders, when you get the settlement figure its never more than you have borrowed as you have been making payments that contain capital and interest so the mortage reduces..

The loser will be the car dealer as they have an agreement with the finance company that should the a customer settle off in the first 3 months the finance company can get back teh commission paid to the dealer, this is called "debit back" or "claw back"... this commission is the money the dealer used to give you the extra for your PX

Check dealer websites for the 1000, 1300 min px offers, if they dont show them ask them if they do it.. they will say yes because the finance manager will know how to structure the deal to earn the mponey he needs to give you...

this applies to HP and Motor Loans through dealers

used_car_manager

daveyjp wrote: »

Far less trouble to simply borrow the cash from a third party and negotiate hard when buying. The banger can go on ebay.

but you still havent got the £1000 to £1300 off ...

i dont think a hours work after buying a car to get £1000 off is a bad rate per hour

you can negotiate hard but you wont get £1000 off unless the car has been jacked up in price... so your not getting a discounty

most delaers have £1000-£1200 gross profit acrosss a car and aim to work for a £1000 per unit..

when customers come in asking for stupid discounts the managers and sales make the decsion to get rid of the customer as he is a time waster..

trust me i know done it 1000s of times...lol

daveyjp

All dealer prices are jacked up.

colino

Well done OP, but as well as all that typing, you do know that min p/x deals are there to get in subprime customers and the screen price will have been inflated to cover that?

Cornucopia

Here's a cunning ruse that I have used in the past when a dealer is offering 0% finance. I like it, because it reverses a psychological trick that they sometimes use on customers.

D'you know when you are looking for a car, and they ask you: how much do you want to pay per month? How annoying is that? No consideration of part-ex value, discount, APR or loan duration, just a meaningless monthly figure.

With 0% finance, you work this same trick against them. Get a realistic part-ex and discount figure for your new car before you go (you should do this, anyway). Then ask for the advertised 0% finance deal (check minimum deposits etc.) This is typically underwritten by the manufacturer, so shouldn't affect the part-ex or discount figures (if it does, consider walking away).

When they come back with, say, £210 per month over 36 months, you simply say: that's good, but I really need it to be under £200 - effectively challenging them to find another £350 off.

It could work with other finance rates, but everything is easier to understand with 0%.

used_car_manager

colino wrote: »

Well done OP, but as well as all that typing, you do know that min p/x deals are there to get in subprime customers and the screen price will have been inflated to cover that?

thats slightly incorrect and correct :T

.. 95% of people now research car prices online before visiting a dealer, if the screen price is jacked up the car will gain no interest and thus not be sold..

dealers dont rely on subprime, they are an added bonus should they fail everywhere apart from the 2nd tier companies.

Also subprime base rates are higher so you dont have enough spread across the rate to generate the commission needed to give the customer, most subprime rates start at 12% flat and no volume bonus, the dealer is trying to lift teh rate to 12% to gain the extra commission..

the main company that targets subprime with the £2000 min px offer is Car Craft, they rely on pre-approved internet appointments, they dont want walk in customers because they will instantly see that the screen prices are extremely high, the subprime customer is usually desperate for a car so will accept the awful offers Car Shaft present to them.. they may be others like Car Craft but main run of the mill dealers or of a muchness in price

used_car_manager

daveyjp wrote: »

All dealer prices are jacked up.

not always, dealers have something called "overage policy" where if the car is not sold in a certain time usually 60-90 days it goes to auction, where the dealer will most certainly lose money due to roughly 3 months book drop and auction charges, dealers put these with low profit usually £100 to get rid before the company forces them to send the car to auction..

these are usually manager special etc so you dont get much of a deal on them