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I recently purchased a new car at a dealership. I had enough cash to pay in full, but the dealer gave me a discount in exchange for financing. I was told that would I need to make a minimum of 6 or 12 payments (over the course of 6-12 months) before paying off the loan entirely. It is in my best interest to pay it off (or refinance it) as soon as possible, since the interest rate on the loan is quite high.

I subsequently called up the car company lender (not the dealer), and was told I can payoff my loan anytime (no minimum number of payments required). My contract papers also do not say I need to make a min. number of payments. I reached out to the dealership for comment but have yet to hear back.

If I payoff my loan now, can the dealer send me a bill later, for the amount of the discount, say? It is also not clear to me what the business model of the dealer is like - I assume the dealer gets some incentives if I keep my loan for some period of time, but from whom would the dealer gets this benefit? (It's not the car company lender, as the lender confirmed.)

  • I have a similar situation, and the fine print says I owe the lender a (funny-named-)fee if I pay off within the first six months. In my case, the fee is higher than the interest for the six months, so I am waiting it out. Check the fine print of the lender contract. – Aganju Apr 15 '17 at 11:12
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    Look for "prepayment penalty" in your documents. Lenders are legally required to disclose it if there is any. – xiaomy Apr 15 '17 at 15:00
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Paperwork prevails.

What you have is a dealer who get a kickback for sending financing to that institution. And the dealer pretty much said "We only get paid our kickback at two levels of loan life, 6 and 12 months." You just didn't quite read between the lines.

This is very similar to the Variable Annuity salespeople who tell their clients, "The best feature about this product is that the huge commissions I get from the sale fund my kid's college tuition and my own retirement. You, on the other hand, don't really do so well."

Car salesmen and VA sellers.

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