Comments on: Isn't there a law against this?

Question: Isn't there a law against this?

sandra_s — Wed, 15 Feb 2006 17:54:13 -0800

Truth in advertising filter. How can Jeep claim "0% APR financing for 60 Months"?

...when the fine print says " *Financing for 60 months=$16.67 per month per $1,000 financed. Financing for Qualified buyers with 10% down. " (Source: jeep.com)

Lets assume you put down the 10%(30000 - 10% = 27000 financed)
, and lets ignore taxes and registraions for sake of discussion.

16.67 per month (16.67x60=1000.20), per $1000 financed (1000.20x27=27045.40 Finance charge over the course of 60 months)

27045.40 / 5 (years) = 5401.08 effective annual financing charge, which is effectively a 22.5045% APR!!!!!

If there is even one penny financing charge, isnt there technically a SOMETHING % APR? So how is this possibly 0%?

(FYI, have owned 3 jeeps in my life, Loved em all. But I dont take kindly to being lied to by those that I am about to write a BIG check to :-)

By: smackfu

smackfu — Wed, 15 Feb 2006 17:58:41 -0800

0% APR means no interest. You still have to pay the principal.

In this case, $27,045.40 isn't the finance charge. It's the price of the Jeep. The same you would pay in cash if you didn't finance.

By: MegoSteve

MegoSteve — Wed, 15 Feb 2006 17:59:47 -0800

The $16.67 is the total payment per $1000 of car you buy.

By: yeoz

yeoz — Wed, 15 Feb 2006 18:05:45 -0800

note: $16.67 (a month) * 60 (months) = ~$1000

By: cillit bang

cillit bang — Wed, 15 Feb 2006 18:09:14 -0800

Unless your quibbling over the 20 cents, which works out as 0.004% APR or thereabouts, so 0% is accurate to 2 decimals places (plus I'm guessing the real calculations wouldn't actually have it).

By: wackybrit

wackybrit — Wed, 15 Feb 2006 18:41:54 -0800

Of course, with many of these deals, if you miss a single payment you can often be slammed with mucho percent APR immediately for the whole lot, so keep that in mind!

By: 517

517 — Wed, 15 Feb 2006 19:34:54 -0800

You have to consider that APR has a legal definition that relates to the names of certain fees. If Jeep decides a fee is something other than one of the fees required to be counted into APR, and can come up with at least a flimsy justification, then it is no longer something they have to disclose in the APR.

By: sandra_s

sandra_s — Wed, 15 Feb 2006 19:44:51 -0800

smackfu,

I took the principal into account,the $27,045.40 be in ADDITION to the $27000 you financed.

Lets do the opposite: 27000 Down = 90% down = 3000 financed

16.67 per month (16.67x60=1000.20), per $1000 financed (1000.20x3=3000.60 Finance charge over the course of 60 months)

3000.60 / 5 (years) = 600.12 effective annual financing charge, which is effectively a 20% APR on the money financed.

You'll pay the 3000 you financed PLUS 3000.60 in finance charges.

So the question still stands, if you pay even one cent above the price of the vehicle in order to finance it, how can it be 0% financing?

:-)

By: mr_roboto

mr_roboto — Wed, 15 Feb 2006 19:51:37 -0800

sandra_s writes "16.67 per month (16.67x60=1000.20), per $1000 financed (1000.20x3=3000.60 Finance charge over the course of 60 months)"

That's not the finance charge; that's the payment on principal. There is no finance charge. If you finance at 0% (no finance charge) your monthly payment is $16.67 per $1000 financed. That's just $1000/60, which is the period that you're financing over.

I think the confusion here is over the term "financing". By spreading your payments over 60 months, you're still financing the purchase. They're not charging you anything to borrow their money, though.

By: stopgap

stopgap — Wed, 15 Feb 2006 19:54:47 -0800

16.67 per month [toward principal] (16.67x60=1000.20 [approx. = 1000]), per $1000 financed (1000.20x27=27045.40 ~~Finance charge~~ principal over the course of 60 months)

So after 60 months, you've paid ^$27,045.40. Congratulations, you just paid off the Jeep! In this case, "financing" just means that you're paying off the principal over time, despite the fact that there's no interest involved.

By: stopgap

stopgap — Wed, 15 Feb 2006 19:55:38 -0800

Or what mr_roboto said.

By: sandra_s

sandra_s — Wed, 15 Feb 2006 20:03:44 -0800

stopgap & mr_roboto,

Now why couldn't they just say that? :-) Isnt it much easier to say "take what you borrowed, divide by sixty and theres your monthly payment"

Thanks, all!!

XO

By: zsazsa

zsazsa — Wed, 15 Feb 2006 20:12:02 -0800

You probably woudln't even be charged the extra $45.40, since it's actually $16.6666666666666666... per $1000 financed, not $16.67.

By: stew560

stew560 — Wed, 15 Feb 2006 20:25:02 -0800

Exactly, considering that your last payment is the remaining cost, it will be less than the other 59 payments.

By: commander_cool

commander_cool — Wed, 15 Feb 2006 21:03:03 -0800

Now why couldn't they just say that?

Because if they "just said that" they'd be sued by plaintiffs' lawyers for the technical failure to comply with extensive regulations on how to describe financing.

By: delmoi

delmoi — Wed, 15 Feb 2006 21:13:46 -0800

I donno, I don't think their statements were that ambiguous.

By: knave

knave — Wed, 15 Feb 2006 23:45:05 -0800

Now I have a question. How can Work Out World send me a coupon that says "$14.99 per month" and "No entry fee" in huge letters, but when you look at the fine print, it's either or. Either you pay a huge entry fee to get the $14.99 per month, or you pay no entry fee and $49.95 per month. Every coupon I get from them is a similar scam. Each time I think "wow! maybe i'll join" and then I'm let down when I realize they're just lying.

By: antifuse

antifuse — Thu, 16 Feb 2006 01:46:29 -0800

knave: does it say "$14.99 a month and no entry fee" in one sentence? Or is it in 2 different parts of the coupon?

By: hwestiii

hwestiii — Thu, 16 Feb 2006 05:36:49 -0800

My sense of this has always been that they recover the missing finance charges by charging you more for the vehicle up front.

If their current deal is $27,000 for 60 months, I'll be you could get them to knock several thousand off of that for a shorter term, say 36 months. Or you could get them to knock a lot off of it by walking in the the full price in cash.

It doesn't look like a finance charge since its all wrapped up in the sticker price, but the effect is the same to their bottom line.

By: mullacc

mullacc — Thu, 16 Feb 2006 07:56:23 -0800

hwestill: You're right in the case of GM (and maybe others, but I'm only familiar with GM). When they offer 0% financing, it is actually financed at a market rate through GMAC (the GM captive finance company) and GM pays GMAC the difference between the market rate and the offered rate (0% in this case). GM does this rather than lowering the price of the vehicle. I'm not exactly sure what the relative profitability is between financing discounts and straight price discounts. But as a way to boost sales, price discounts have undesirable collateral effects such as the market perception of the quality of your brand, the quality of your customers (financing discounts tend to bring in strong credit customers) and the flexibility of pricing (it would be harder to bring the price of the car back up than it would be to get rid of the financing discount).

So, you're right that the cost of the financing discount is built into the sticker price of the car, but this doesn't necessarily imply that the auto dealer will just trade the financing discount for a reduction in price. Actually, the dealer would much rather you finance the car than pay cash since they get a financing fee out of the deal.

By: knave

knave — Thu, 16 Feb 2006 22:45:22 -0800

antifuse, it looks like this:

$14.99 per monthNo Entry Fee*

... and then on the reverse side, buried among a bunch of text is the truth of the matter.

By: knave

knave — Thu, 16 Feb 2006 22:46:10 -0800

Shit, stupid fake live preview. It looks like this:

$14.99 per month

No Entry Fee*

By: antifuse

antifuse — Fri, 17 Feb 2006 06:26:12 -0800

I'm willing to bet that even with the fine print, there's probably some false advertising law that would apply. You could always ask your local AG's office.