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.
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...
Volkswagen: "Why Not Skip A Payment?"
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.