Car Dealer Arranged Car Loans – What You Need to Know!
The Finance Office in a car dealership is one of the most lucrative profit centers in a car dealership.
Certainly car dealers are entitled to make a authentic profit like any other business, but when they’re making a piece of the action from arranging a car loan for a customer, that money they earn which is called “dealer save,” is indirectly coming out of the customer’s pocket in the form of a higher interest rate.
I worked as a Finance Manager in several large new car dealerships, and I can tell you that quite often I made — for the car dealer — $1,500 to $2,000 “dealer save” on arranging any given car loans.
The car dealer also makes a very lucrative profit when they talk the customer into putting “credit life” and or “credit disability” insurance on the car loan. These are products they would not be able to sell or profit on if the customer arranged their own car loan.
I won’t argue the pros and cons of this insurance coverage, but the car dealer will usually earn 40% to 50% of the total premium which is spread over the term of the loan — and the premium isn’t cheap — especially on the disability insurance!
If the customer arranges their own car loan the car dealer can nevertheless sell them an extended warranty and or other add-ons such as a protection package, and earn a mark-up (extremely high mark-ups on these products). Then the customer can request their own lender to include these add-ons in their car loan.
The bottom line is that if a customer arranges their own car financing they can potentially save themselves thousands of dollars that otherwise would have gone in the car dealer’s pocket in the form of “dealer save” and other commissions.
The only time you should let the car dealer position your car loan is when you are taking advantage of the manufacturer’s special motive financing like 0%, 1.9% or in any case. already then most of these rates are in lieu of the rebate, so you have to weigh the savings on the rate against the rebate amount to determine which way is most advantageous for you.