Bolt On Finance Definition - Financial Steps

Bolt-on finance, also known as ancillary product financing or upselling at the point of sale, refers to the practice of offering and financing additional products and services alongside the primary purchase, typically an automobile. These add-ons are often presented as enhancing the customer’s ownership experience or providing added protection and peace of mind.

Common examples of bolt-on finance products include:

* **Extended Warranties (Service Contracts):** These extend the manufacturer’s warranty, covering repairs after the original warranty expires. They can range from basic powertrain coverage to comprehensive bumper-to-bumper protection. * **Gap Insurance (Guaranteed Asset Protection):** This covers the difference between the vehicle’s value and the outstanding loan balance in the event of a total loss (e.g., accident, theft). This is particularly useful for vehicles that depreciate quickly or are financed with little or no down payment. * **Credit Life and Disability Insurance:** These policies cover loan payments in the event of the borrower’s death or disability, providing financial security for the borrower and their family. * **Tire and Wheel Protection:** This covers the cost of repairing or replacing damaged tires and wheels due to road hazards like potholes or nails. * **Paint and Fabric Protection:** These treatments are applied to the vehicle’s interior and exterior to protect against stains, fading, and other environmental damage. * **LoJack or GPS Tracking Systems:** These systems aid in the recovery of a stolen vehicle.

The financing aspect of bolt-on products means that the cost of these add-ons is included in the overall loan amount, increasing the monthly payment. While seemingly convenient, this can significantly increase the total cost of ownership over the life of the loan. The interest accrued on these financed add-ons can be substantial, especially with longer loan terms.

The sale of bolt-on finance products is a significant revenue stream for dealerships. Salespeople often receive commissions on these products, which can incentivize them to aggressively promote them, sometimes without fully explaining the terms and conditions or the actual cost to the consumer. This can lead to situations where customers are unaware of exactly what they are financing or if the product truly provides value.

Consumers should carefully consider the benefits and costs of each bolt-on product before agreeing to finance them. It’s crucial to understand the terms of the agreement, the exclusions, and the claims process. Comparison shopping is essential; extended warranties, for example, can often be purchased from third-party providers at a lower cost. It’s also important to determine if the product overlaps with existing insurance coverage or if the vehicle’s inherent reliability makes the extra protection unnecessary. Declining bolt-on finance options can save a significant amount of money over the life of the loan, allowing consumers to make more informed financial decisions.