The Car Dealer's Either-Or Contract

The “Either-Or” contract is an instrument used by dealer’s that will allow the customer to arrange their own financing. The idea is that the dealer will write the loan through their sources and not submit it to the bank unless the customer doesn’t provide a check from their bank or credit union. 

 

Many times this will allow the customer to take delivery of the vehicle right way and not have to wait for the bank or credit union to process their loan. This “Either or Contract” will give the dealer a cash-able instrument in case the customer doesn’t provide alternate financing.

 

These contracts are fine for customers as long as they have a written agreement that the dealer will not “cash” the contract until the customer returns in acceptable amount of time. Keep in mind, the dealer will check the customer’s credit to determine the credit worthiness before they will engage in such an agreement. In other words, the customer has to qualify for financing before they will write an "either or contract".

 

Since the dealer can not write this “either or” arrangement on the contract. The must write it on another document. Most dealers will have a form called a “Due Bill” or “We Owe” that would allow them to include these provisions.

 

The danger of the “either or” contract is if the customer is only relying on the dealer for the financing. For example, the dealer will have closed the customer at a payment that requires a good interest rate. However, when the customer is in the finance office the “F&I” manager informs the customer that they will write the loan at a higher rate and if they can get the better rate they will cancel the higher rate loan and replace it with the better rate.

 

This is a variation on the “Break-Back”, which is one of the most dishonest strategies a car dealer can use.   The “Break-Back” is when the dealer sells a customer a vehicle on terms that they know that customer will not qualify. Then they call customer a few days later and inform them that the financing did not go through and they will have return the vehicle. However, when the customer arrives back at the dealer, they inform the customer that they can qualify for a lesser vehicle or higher interest rate loan, usually resulting in a nice gross profit.

 

The Psychology of a “break-back” is that the customer would have already shown their new vehicle to their friends and family and will accept any kind of deal to "save face".

 

Keep in mind, "Either-Or" contracts are not always used for this purpose. Mostly they will benefit the customer if they have their own financing.

 

 

 

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