Volkswagen: “Why Not Skip A Payment?”

Ramit over at I Will Teach You To Be Rich sent us this heads up about some predatory lending behavior from Volkswagen Credit. Ramit’s friend received a friendly-looking mailing suggesting, “Why Not Skip a Payment This Holiday Season?” The text of the letter reads:

“The holidays…time to give thanks, spread joy and shop for the best sales. Now, here’s the perfect “gift” to help you stretch your holiday dollar. Volkswagen Credit is offering you the opportunity to ‘skip’ your December 2006 payment on your current account listed above.
[...]
Upon receipt of your extension agreement, we will assess your account a $25.00 extension fee, payable on your next due invoice. There is no need to send money at this time.
[...]
Happy Holidays!”

Happy Holidays indeed. We agree with Ramit’s analysis that these letters are targeted to lower income (or irresponsible) borrowers. What a nifty way to bilk people out of $25, not to mention encouraging people to spend more than they can afford at the holidays. We bet Volkswagen is really proud of itself. Have any of you received similar offers from other lenders? —MEGHANN MARCO


Volkswagen targets stupid people, tries to rip them off
[I Will Teach You To Be Rich]
Full Scan of the Letter [Flickr]

Comments

Edit Your Comment

  1. medalian1 says:

    I’ve received these types of offers before but never read the fine print. I always assumed there was a “catch” of some sort. They’re deposited in the shredder along with all those damn convience checks.

  2. aka Cat says:

    My credit union Mastercard offers that every January. There’s no fee involved, but as they state in the offer “interest will continue to accrue on your outstanding balance.”

    I figure they send it to me because I’m in that nasty habit of paying the balance in full every month.

  3. Nifle says:

    My credit union issues these types of offers on all loans (except mortgages) to their customers. I use to take them up on it when I was in college, it was the only way I could bring home presents that weren’t gift certificates to McDonalds. But, they never assessed a fee, the loans would just continue to accrue interest.

  4. Uurp says:

    …plus there’s another month payment tacked on to the end of your loan, giving the card company a bonus month’s worth of interest paid by you.

  5. radnauseum says:

    Some christmas present. I get those from the bank that has my car loan and they get tossed immediately. Bunch of crap.

  6. Sudonum says:

    I got one several years ago,I believe it was from Ford Motor Credit. There was no fee just additional interest accrual for extending the loan.

  7. vannsant says:

    Pretty typical behavior for non-mortgage consumer loans.

    I agree about the convenience checks. Those things make me nervous because they’re a simple way for some nasty identity theft. I rip them in half as soon as I see them and then shred them.

  8. Nick says:

    But wait–car loans are fixed payments, skipping a payment in december and adding another payment to the end of the loan essentially extends the loan without adding any cost. If this was a credit card (like those mentioned above), the interest would accrue and the balance would go up. The balance wouldn’t go up here–it would be deferred a month. I’m not saying that this is a great offer, but $25 may actually be less than the interest portion of the loan payment.

  9. Nick says:

    Oops. Didn’t read the VW “Terms and Conditions” on the linked site–the balance does increase, but that increase is tacked on to the last payment.

  10. DeeJayQueue says:

    Even if the loan didn’t accrue interest over that month, in essence just punching a hole in the loan and tacking on another month at the end, they’re still charging you $25 for the convenience.
    My guess is however that the interest DOES accrue so you’re paying interest for a month PLUS the $25.

    Plus, if you’re likely to do it once, you’re likely to do it every time they offer it, or at least once a year. Assuming that they’re targeting lower-income or higher-credit-risk customers, they often have 48-60- or sometimes even 72 month notes… this means they could be extending their car loan by as much as 6 months when all is said and done.

  11. Yep says:

    Beware of “gifts” bearing quotation marks. I believe such quotation marks actually the footprints of tiny elfin lawyers who have stomped on certain words.

  12. VA_White says:

    When I was a student and hubby was a lowly airman, we used this offer from our credit union one December. But they didn’t charge us a fee for doing it. On a three-year car loan, it meant only one extra payment and we were fine with that. It meant we could afford a Christmas tree and a gift or two better than white socks which was all we could afford the first year we were married. The White Sock Christmas is a family legend now!

    In any case, I think VW’s fee to do it is a ripoff but I doubt anyone is fooled into thinking “skipping” a payment is the same as “forgiving” a payment.

  13. mvmd says:

    I bought a Mitsubishi Galant a few years ago when they were doing their 0% interest, no payments for a year promotion. I knew I was getting a much better job in 6 months, and my wife considered my current car a deathtrap. Anyway, once I started making payments, they offered me the opportunity to skip my December payments. There was no service charge, and no extra interest as it was already 0%. It’s true that I had to make payments a few months longer than I would otherwise, but inflation has reduced the real cost of what I paid them. Remember, never a give a sucker corporation an even break.

  14. Michael G says:

    If I plan on trading in my car I will skip a payment. Why bother paying for a month I may not have the car…

  15. ajlak_68 says:

    The credit union I worked for in Anchorage, AK (Denali Alaskan Federal Credit Union) offerred these back in October. Same deal, pay $25 and you skip a loan payment for the holidays. I think it’s a pretty sheisty idea since Credit Union’s are by definition not for profit and return all profits back to their members in one form or another (i.e. lower interest rates, higher yields on certificates). Basically you have all the financially irresponsible and poor people taking advantage of it (i’ve noticed they tend to go together) and the benefits are passed onto the responsible financialy sound people… and people wonder why there’s an increasing gap between the rich and poor.

  16. Demingite says:

    Suggestion re the “convenience checks” (which are just about all bad for consumers): Call the company and request not to be sent any convenience checks.

  17. WHOKNOWS says:

    Yes, the account does continue to accrue interest so you basically end up paying an additional month’s interest. This may be convenient for someone who needs the cash for the holidays. So, it seems to benefit both parties in certain ways. This is the same case for an extension that is requested by a customer experiencing temporary financial difficulty. But I also think a little financial planning will take people a long way. Christmas comes every year, kids start school every fall, a child is born after 9 months of being pregnant…

    I currently work for an auto finance company and you would be shocked at how many people call up each year around this time asking if we are offering a holiday extension program. If that particular year we aren’t, or maybe not for that particular account, the customer is shocked as if they expect it every year. What happened to the emergency fund or savings plans?

  18. onesix18 says:

    Don’t ever ‘skip’ a payment on a loan. Not only will they (likely) charge you a fee, but the payment that would have been due will be capitalized into your principal balance. You’re not ‘skipping’ anything; you’re increasing the size of your loan. It’s also called negative amortization.

  19. Musician78 says:

    “What happened to the emergency fund or savings plans?”


    I think those went away around the same time that owning a home began necessitating at least two working, well paid adults.

  20. thrillhouse says:

    Pretty typical behavior for non-mortgage consumer loans.

    Spot on, Ryan. And as we’re seen here, this is not limited to VW or even just auto loans. Most lenders are ‘preditory’. They’ve set up pitfalls around every corner – some overt, some less so. Are we starting to get the feeling that the borrower truely is slave to the lender?

    But thats ok, because if you follow Ramit’s advice, a car loan is a good thing, and a student loan is a good thing, and theres nothing wrong with credit cards and debt in general. And Ramit knows what he’s talking about because he…. hmmm, becasue… OH! right. Because he one day decided he wanted to teach people to be rich.

    What happened to the emergency fund or savings plans?

    Good question,WHOKNOWS. People don’t have either. The average American household makes around $42k per year, has $40k in consumer debt, and a savings rate measured in negetive numbers. Saving was no longer a priority once all the money was going out in payments.

  21. PandemicSoul says:

    I used to work for an auto finance company for one of the big three. We offered extensions year-round. If you’re on a lien contract (as opposed to a lease), you can usually get extensions for one to two months, sometimes with a small fee, or no fee at all. They’re usually a way for people who have fallen behind to get caught up. Even if it does mean you’re paying extra at the end of the loan, it’s beneficial in the immediate sense because you’re not getting that mark on your credit report for being more than 30 days past due.

    If you’re the type of person who rides every creditor to the 29th day, you need to ask for an extension. Every chance you get to avoid another ping on your credit is a step towards a higher credit score, which will save you money in the long run — more than the $25 it costs to do the extension in the first place for sure.

  22. dave_city says:

    I say this as somebody who is inherently suspicious of every offer of I get from any bank or anyone else offering credit… What is so sneaky about this. The letter mentions the 25 dollar fee and the rescheduling of the payment in plain English and (the same sized font) on both the cover letter and the payment coupon. Nor is anyone forcing you to take this offer. VW is probably doing this because of the amount of missed payments around Christmas on any other year. I’m quite sure this is cheaper than a missed payment penalty fee, plus the long term cost of the negative credit report. And customers with damaged credit are less likely to buy new cars sooner rather than later.

    If you take this offer without reading the front and back of the letter, I don’t know how you managed to get to a point in life where you can afford a 20k car.

    Of course its a bad idea to take advantage of this offer. But people ef up, and this is a better plan than just letting a payment slide.

  23. pilgrim888 says:

    As much as aggressive or deceptive lending practices really burn me up, I’ve got to chime in to suggest that this example may not be all that bad. If you’ve got a fairly large loan outstanding, and you’ve got a good rate (or you’ve got other, higher-interest debt), then the $25 may be a decent deal. (And if you’ve got a low-interest financing deal from VW, then $25 may be a decent ballpark estimate of the “costs” to VW of this offer, rather than an exorbitant fee.)

    While I don’t know what the rate is on the average VW Credit loan, I do recall that during many periods over the past few years, they’ve been offering below-market financing deals (like 2%, although I don’t think they’ve offered 0% in years), and people you are borrowing to buy their cars like to snap up these offers. If you’re paying 2% (or even 4%) on a loan right now, that’s a pretty good deal, and there are lots of rational reasons to extend it. (You may have paid more for the car in exchange for the low-interest loan, of course, but if so, that’s already water under the bridge.) If you still owe $12K on your VW, at 2%, the interest you’re paying this month would be around $20. That’s compared to the “market” rate you’d be paying on a new new-car loan of more like $70 (i.e. at 7%). Even if you happened to have $12000 lying around, it would make more sense to stick it in a CD paying 4% than to use it to pay off your 2% loan (although there are reasons to pay off the loan anyway). If you did that over the remainder of the loan, you’d be netting $20 a month.

    Of course, for this offer’s target audience money is tighter. They probably didn’t qualify for the lowest of the low-interest rates, but if they did get any sort of lower-interest loan deal from VW, then they are still saving a few percentage points off what they could have gotten in the market (e.g. they might have gotten a 6% “deal” from VW, when the only loan they could have gotten from an outside lender would have been 8 or 10%). This target audience probably also has high-interest credit card debt. If so, then it makes economic sense to use the money that would have gone to the VW payment this month (say, $300) and pay down the credit card instead. That same $300 on a credit card balance costs $75 plus over the coarse of a year. So paying a $25 fee (plus the extra interest VW charges at the back end)in order to be able to pay it down earlier could make a lot of sense.