This month’s email conversation was with Steve, an F&I professional in Las Vegas. As we all know, what happens in Vegas is on YouTube, Facebook, or Snapchat within minutes — especially if it’s embarrassing. Hey, that’s what friends are for!

Steve wants to know, “If the dealership has a ‘customer cash’ rebate, can that rebate be used (or shown) as cash down payment versus a rebate? Does the customer (or the dealership) have that option? Basically, the customer is keeping the ‘customer cash’ and using it as his cash down payment rather than as a rebate. While the amount financed is the same, there is actually a benefit to doing it that way, because some banks score better with more cash down versus a rebate.”

Steve, that’s a great question. And I’m really glad you asked, because you’re absolutely right: Some manufacturers do give customers the option of applying the “cash” rebate toward their purchase or keeping it.

Now, I’m not a lawyer, so I can’t give you legal advice. But in my opinion, the manufacturer can call a rebate or incentive whatever they want to, but the real source of the money is the manufacturer, not the customer. So it has to be disclosed on the retail installment sale contract as a rebate, not as actual cash down payment by the customer.

You might want to read the case described in an F&I and Showroom news story entitled, “Pa. Dealer Agrees to Pay $2.1 Million to End Prosecution into Bank Fraud” (Sept. 6, 2018). While the circumstances are not the same as with your question, misrepresenting to a lender the true source of the customer’s down payment just cost a Pennsylvania dealer $2.1 million.

Steve responded, “While I understand your answer, if I was a customer and the bank will give me a better interest rate if I put $3,000 cash down, but a $3,000 rebate does nothing to lower my interest rate, I would say, ‘Since you don’t consider the customer cash as actual cash down, here’s my credit card. I’ll put my $3,000 down payment on it. Then I’ll just wait until I get my $3,000 customer cash check in the mail, and apply it to my credit card. That way, I can still get the lower interest rate.’”

Steve continued, “The fact a manufacturer uses the word ‘customer cash’ versus rebate or customer incentive is really bothersome to me. I think the manufacturer is intentionally trying to deceive lenders and causing confusion, because it’s really not customer cash. I’m honestly trying to understand it from both sides. I don’t like how banks score things because, at the end of the day, the customer is still borrowing the same amount. And I’m honestly not worried about getting hit with a $2.1 million lawsuit, because I don’t have $2.1 million. But I would like to protect the dealership on anything I do.”

Steve, I’m glad to hear you’re trying to protect the dealership. It’s one of the most important things we do in F&I. And I agree, the manufacturers do make it sound like they’re giving away money to the customer, but the reality is they’re just lowering the price of the vehicle to anybody who buys one.

In most lenders’ internal scoring system, there’s a big difference between a manufacturer reducing the price by $3,000 in the form of rebate or customer cash that the customer then uses as their down payment versus putting down $3,000 of their own money. In the first case, the customer has zero dollars of their own money investment in the vehicle and no real equity. And that’s the reason they get a better rate when it’s the customer’s own cash, because now they have some skin in the game.

Look at it this way: If their down payment is only the manufacturer’s customer cash and there is a first payment default, that customer has not lost one dollar of their own money. Whereas if they put $3,000 of their own cash down, they just lost $3,000. Repos are much less likely when the customer loses their own money. Hence, true cash, not fake cash, gets you a better rate.

Steve replied, “Good point. The customer is actually invested in the vehicle, which is not the case the other way around. I didn’t think of it that way. It’s important that all F&I mangers understand this because desk managers could push an F&I manager into doing something that’s not correct. I appreciate your help.”

Steve, thanks for your question. If you have a question you would like answered or an objection you struggle with, send it to me. You’ll get it answered and receive a free YETI. Because it’s a beautiful day … to help a customer, or an F&I professional!

Got a question or objection for Ron? Use your mobile phone to record a brief video (shot landscape style!) of your question and upload it to

About the author

Ron Reahard

President of Reahard & Associates

Ron Reahard is president of Reahard & Associates Inc., a Dealers’ Choice Award-winning provider of F&I classes, workshops, and in-dealership and online training. Contact him at [email protected].

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