Ever wonder how auto dealers can afford to advertise loans with APRs as low as 0%? Here’s what your dealer doesn’t want you to know.
The Fine Print
- The low APRs dealers advertise usually come with bigger down payments.
- Low APRs are typically limited to any on-site stock the dealership wants to move (which means you may not get the car you want).
- There may be pre-payment penalties that come along with it.
The Process
Even if you are paying cash or arranging your own financing, you still have to sit down with the finance manager. They’ll be the one doing the paperwork and title papers associated with your purchase. The finance manager will still try to sell you on dealership financing, telling you all the so-called advantages of letting them arrange the car loan for you. They may use computer programs and charts designed to convince you. Why?
Bottom line, the dealer wants to profit. While this may incentivize them to give you a good financing deal, consider that the finance manager’s sole purpose is to ensure you walk out of that dealership with the highest monthly payment possible.
Here’s how they profit:
- The financing itself. Banks will pay a certain percentage of the amount financed to the dealership. The higher your interest rate, the higher their commission.
- Extended warranties. There are many different warranty companies and many different levels of coverage available. Most dealers mark up the price anywhere from $400 to $2,000.
- Credit Insurance. Dealers earn about 50% of the insurance premium on your coverage.
- Add-ons. The finance manager will try to sell you a variety of products. Everything from rustproofing and paint sealant to window etching and alarm systems. All these items carry a huge markup.
The Alternative
Is there a way around dealer loans? Sure. Surveys show that credit unions offer the best auto loan rates of any financial institution. Once you’ve been approved, you can shop with peace of mind! Additionally, take these preventative measures when shopping with your own financing methods:
- NEVER negotiate a car deal based on payment. If the salesperson asks you what payment you’d like to have, tell them not to worry about the payment. You want to negotiate a total price on the car. A payment that sounds too good could actually mean a longer loan term and higher interest rate.
- Don’t let the salesperson know you’ve arranged your own financing. If you tell your salesperson up front that you have already arranged financing and he relays this information to the sales manager, they might make the decision to hold out for more profit on the car deal thinking that they’re not going to make anything on the loan.
Ever wonder how auto dealers can afford to advertise loans with APRs as low as 0%? Here’s what your dealer doesn’t want you to know.
The Fine Print
- The low APRs dealers advertise usually come with bigger down payments.
- Low APRs are typically limited to any on-site stock the dealership wants to move (which means you may not get the car you want).
- There may be pre-payment penalties that come along with it.
The Process
Even if you are paying cash or arranging your own financing, you still have to sit down with the finance manager. They’ll be the one doing the paperwork and title papers associated with your purchase. The finance manager will still try to sell you on dealership financing, telling you all the so-called advantages of letting them arrange the car loan for you. They may use computer programs and charts designed to convince you. Why?
Bottom line, the dealer wants to profit. While this may incentivize them to give you a good financing deal, consider that the finance manager’s sole purpose is to ensure you walk out of that dealership with the highest monthly payment possible.
Here’s how they profit:
- The financing itself. Banks will pay a certain percentage of the amount financed to the dealership. The higher your interest rate, the higher their commission.
- Extended warranties. There are many different warranty companies and many different levels of coverage available. Most dealers mark up the price anywhere from $400 to $2,000.
- Credit Insurance. Dealers earn about 50% of the insurance premium on your coverage.
- Add-ons. The finance manager will try to sell you a variety of products. Everything from rustproofing and paint sealant to window etching and alarm systems. All these items carry a huge markup.
The Alternative
Is there a way around dealer loans? Sure. Surveys show that credit unions offer the best auto loan rates of any financial institution. Call or stop by [Credit_union] for a loan application. Once you’ve been approved, you can shop with peace of mind! Additionally, take these preventative measures when shopping with your own financing methods:
- NEVER negotiate a car deal based on payment. If the salesperson asks you what payment you’d like to have, tell them not to worry about the payment. You want to negotiate a total price on the car. A payment that sounds too good could actually mean a longer loan term and higher interest rate.
- Don’t let the salesperson know you’ve arranged your own financing. If you tell your salesperson up front that you have already arranged financing and he relays this information to the sales manager, they might make the decision to hold out for more profit on the car deal thinking that they’re not going to make anything on the loan.
If you’re ready to go car shopping, get preapproved with St. Paul Federal Credit Union. Apply today, it’s fast and easy!