Financing Follies: Does Your Dealer Really Want You to Take That Loan?
Buying a car is exciting! But navigating the world of dealerships and financing can feel like driving through rush hour traffic – stressful and confusing. One question that often pops up: do car dealers get a kickback on financing? The answer, unfortunately, isn’t always straightforward. 
Let’s break it down in a way that’s easy to understand.
Yes, Dealers Often Earn Money from Financing:
Dealerships aren’t just selling cars; they’re often involved in facilitating the financing process too. This means they have relationships with lenders and can help you secure a loan. And yes, they usually earn a commission or “markup” on the interest rate of that loan.
Think of it like this: if a lender offers a 4% interest rate, the dealership might mark that up to 5% and pocket the extra 1%. This is perfectly legal, but it’s something you should be aware of as a buyer.
Why Do Dealers Offer Financing?
There are a few reasons why dealerships are eager to help with financing:
* It makes selling cars easier: Financing allows buyers who might not have the cash upfront to still purchase a car. This expands their customer base and helps move inventory faster.
* It’s an additional revenue stream: As we mentioned, they earn money on the interest rate markup. This can be a significant source of profit for dealerships.
How Can You Protect Yourself?
Knowing that dealers often earn a kickback on financing doesn’t mean you should avoid it altogether. It simply means you need to be informed and proactive:
* Shop around for loan rates: Don’t just accept the first financing offer the dealership presents. Get pre-approved for a loan from your bank, credit union, or online lender before stepping foot in a dealership. This gives you leverage and a benchmark to compare against.
* Negotiate the interest rate: Even if you choose dealer financing, don’t be afraid to negotiate the interest rate. They might be willing to lower it to secure the sale.
* Read the fine print: Carefully review all loan documents before signing anything. Understand the terms and conditions, including the interest rate, repayment schedule, and any fees involved.
* Consider a shorter loan term: While a longer loan term may seem appealing due to lower monthly payments, it often results in paying more interest overall.
The Bottom Line:
Dealerships can offer convenient financing options, but remember they’re also looking out for their own bottom line. By doing your research, negotiating strategically, and being aware of potential markups, you can make informed decisions that benefit both you and the dealership. Happy car hunting!
Leave a Reply