The Either-Or Contract

The “Either-Or” contract is an instrument used by dealers that will allow the customer to arrange his own financing. The idea is that the dealer will write the loan through its sources and not turn it over to the bank unless the customer doesn’t provide a check from his bank or credit union. Often, 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 the 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 within an acceptable amount of time.

Keep in mind that the dealer will check the customer’s credit to determine his 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.” Because the dealer cannot write this “either-or” arrangement on the contract, they must write it on another document. Most dealers will have a form called a “Due Bill” or “We Owe” that will allow them to include these provisions.

The Break-Back

An “either-or” contract is dangerous when 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 will inform the customer that he 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 for which they know the customer will not qualify. Then they call the customer a few days later and inform him that the financing did not go through and he will have to return the vehicle. However, when the customer arrives back at the dealer, they inform him that he can qualify for a lesser vehicle or higher interest rate loan, which usually results in a nice gross profit for them. The psychology of a “break-back” is that the customer will already have shown his new vehicle to friends and family and will accept any kind of deal in order to “save face.”

Keep in mind that “Either-Or” contracts are not always used for this purpose. Usually, they will benefit the customer if he has his own financing.  

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