Car dealerships profit Big Time when you allow them to arrange financing for you. Most consumers do not realize just how big a profit center the Finance office is for a car dealership. There are three major reasons why you will want to arrange your own financing.
#1 You eliminate any rate mark up. What this means is if a dealer were able to get a 5.9% buy rate from a lender, the lender will, on average, allow a two point markup. This means the dealership could sell the loan to you at 7.9%, and over the term of the loan this could equate to hundreds, or even thousands of dollars in profits that you paid unecessarily to the dealer.
For instance, a $20,000 loan at 7.9%, over 72 months, would have a total finance charge of $5,254.72. The same $20,000 loan at 5.9% would have a finance charge of $3,851.44. Subtract the $3,851.44 from the $5,254.72 and your left with $1,403.28. The lender will typically split this with the dealership using a 75/25 or 70/30 split. So that means the dealership would get 75% of $1,403.28, which equals $1,052.46 additional profit for the dealer.
Who do you think gets stuck paying the bill? Drum roll please...You got it, you do!
#2 Getting pre-approved gives you the ability to "Buy Like a Cash Buyer," which greatly increases the leverage you have when negotiating the best possible deal. I recently observed the last 40 deals at my dealership, and found that cash buyers paid over $2500 less per car deal, compared to those that financed. If that's not a call to action, I don't know what is!
When you are able to "Buy Like a Cash Buyer," you don't have to worry about negotiating monthly payment, you can instead focus on the Out The Door Amount, which is exactly why cash buyers save so much money.
#3 You can have the dealer compete to arrange your financing. Yes, I know I just gave you some pretty convincing reasons to secure your own financing, but if you're approved from your source for 6.9% and the dealer can offer 5.9%, take the 5.9%. Who cares if they are making a profit, they just saved you a bunch of money. Better yet, you just saved yourself a bunch of money, because you forced the dealer to give you their most competitive rates, and this was all due to you doing the smart thing and getting pre-approved.
I hope this has convinced you of the importance of getting pre-approved. So let's get over to the Loan Center, find the right lender/lenders for you and get Pre-Approved today!
In the mean time...
Take care and beware!
J the Car Guy
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