When a car shopper is on the dealer’s lot talking to representatives about an auto dealer loan, it’s absolutely important for them to understand how different kinds of dealer financing affects their bottom line for purchasing a new or used car or truck. Different auto dealer loans present wildly different kinds of deals for the consumer. Some are decent, and some are terrible. The worst financing deals often include a lot of what many refer to as “dealer markups” – but a savvy customer can get around this kind of hard bargain with a little research and the right questions.
1. Pay Attention to the Total Package One of the ways that dealer representatives can sometimes trick customers into higher interest rates is by a kind of financial sleight-of-hand. Where they’ve agreed to lower the cost of one element in order to raise another, often talking past the customer and using specific sales techniques. This includes cutting warranty costs and raising interest rates, or any kind of similar combination. Even tax, tag and title costs can be part of the confusion.
2. Don’t Fall For Monthly Payment Deals One of the sloppiest things that customers let dealer representatives get away with is a financing deal based on a monthly payment. A buyer should never settle for accepting a certain monthly payment with no fixed total cost, but that’s what often happens. Sales reps offer a specific monthly payment, but may not mention how interest rates affect that payment, and how much the customer might be paying overall.
3. Shop Around For Rates When you ask your dealer specifically about the rates that they are asking, they may come up with any number of excuses for having higher interest rates. Generally, though, a lot of auto finance experts would agree that none of these are particularly valid, and that the higher interest rate constitutes dealer markup. If the dealer’s interest rate offer is over 10%, see if you can get 8% or 9% from an outside lender. The reality is that the dealer makes money on the sale price of the vehicle. It’s generally not necessary for them to make money on a financing deal as well.
4. Go to a Third Party Lender In some cases, customers with bad credit scores well under 680 or so may have to pay higher interest rates. In other cases, dealers may inflate ideas of sub-optimal credit in order to attach their dealer’s markup to a car financing agreement. In these situations, fixing the problem is as easy as calling up third party lenders and arranging better financing deals through them. Customers need to know that they are not required to finance through a dealership. Call up local banks, credit unions and other lenders and ask them about blank check auto loans or vehicle specific auto loans that carry the interest rates you want and the total payments you’re comfortable with.
All of the above strategies can help car lot customers avoid being taken advantage of by a dealership for a financing package on their next car or truck.