Should I get My Car Loan from my Dealership?
We suggest that you get rate quotes from local banks or car loan finance companies before you visit the dealership. We can almost guarantee you that the rates that these bank's offers will be lower than the rates the car dealerships will offer you.
Why Do Dealership Car Loans Have Higher Rates?
Did you know that banks and finance companies pay the dealerships HUGE sums of money every month just for financing you! Why do you think these finance companies pay the dealers so much money? That’s simple, because the dealerships are charging you too much money to finance your car.
Car dealers break the profit of selling a car into two distinctions, profits on the front-end and on the back-end. Front-end profits refer to the money that is made when they sell you the car. Back-end profits are realized when they finance the car. The way to get your best deal when buying a car is to negotiate both “ends “of the deal, the front end and the back end.
25% of the Car Dealer's Profit Comes from Financing Cars!
You'll notice, somewhere in your conversation with your car salesman, he or she will ask you "how do you intend to pay for the car". This tells the salesman how much wiggle room he has to work with while negotiating the price.
If the salesman knows that you will be financing with the dealership, he knows that a profit can be made in the finance office, or, on the back-end. This gives him more leeway to bargain on the front end (car) price.
Think about this logically, the dealer isn't going to sell you a car without making a profit, regardless of what you’ve heard, they're not philanthropist.
So, if you negotiate a great deal on the “front-end” of the car, you are almost certain to be presented with higher interest rates in the finance office so that they can make a profit.
Even if you have excellent credit the dealership HAS to offer you a much higher rate than you can qualify for at the bank just to compensate for the lack of profit on the front-end of the car.
To get your best deal, you MUST arrange your financing with BEFORE you visit the dealership.
Doing this gives you the ability to wheel and deal with the salesman on the front end price knowing you will still be getting a great deal on the financing.
My advice is this, when the salesman asks you "how you intend to pay for the car", I suggest that you say something like, "don't you guys offer financing"? I'm sure you will get a positive response and the salesman will get the green light from his manager to go a little lower on the price.
Make sure you don't let on that you already have your financing lined up. In fact, it wouldn’t hurt to let them think that you are going to be a push-over when it comes to financing.
Once you are certain you have negotiated your best price on the car, let the salesman escort you into the finance office to conclude the deal. Don’t show your cards yet, sit back and let the finance manager work up his best deal for his financing. Chances are, his first offer will be much higher than the loan you already have lined up in your pocket.
Still, don't show your hand yet; negotiate with him as you did with the salesman for better rates and payments. If you reach an impasse, simply let them know that you will be using your own financing.
At this point the dealer has two choices, back out of the agreed price (they rarely do this) or sell you the car for a steal. If they back out, bark up the management chain, they'll cave in.