• Auto Dealer Loan Markups: How to Spot Them

    If you go to a dealership without pre-approval for a car loan, there is a high likelihood that you will be tempted to apply for an auto dealer loan. Car dealer loans are convenient in that after you choose the car you wish to purchase, you simply move into the loan broker’s office and work out the auto loan terms. Depending on the auto loan lender, though, you may not be getting the fairest terms. What often happens when you apply for financing through a dealership is a markup of the loan. This means you pay more in either interest charges or loan fees than you might elsewhere. Before agreeing to any loan through a dealer, learn how to spot loan markups.

    Auto Dealer Loan Markups

    Despite the fact that you may be eligible for a very low interest rate due to your good credit rating, if you apply for a loan through a dealer, you may end up paying a rate that’s higher. Auto loan brokers at a dealership are middlemen that work with loan agencies to secure a loan for you. It’s common for ½ of a percentage point or more to be added to your interest rate. This represents the profit the broker and dealership makes off of you.

    How to Spot Markups

    Obtain a copy of your credit score. 730 is considered a good credit score, whereas 620 and lower is not good. Once you know this, look into the current market rates for auto loans. This information is readily available from any number of sources. Armed with this information, apply for the auto loan through the dealership. Whatever interest rate they offer, read through the contract. By law it must be stated in writing. If the dealer inquires about the monthly payment you wish to make or pushes a particular make and model, be suspicious. Payments can be adjusted to factor in more interest, and certain cars are pushed because they allow for a greater interest rate markup.

    The best thing to do to avoid this situation is to get pre-approved for an auto loan somewhere other than the dealership. Car dealers have an incentive to finance your purchase in-house, but if you go this route, you’ll probably end up paying more than you should.