What You Need to Know About Car Loans Arranged by a Car Dealer

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 legitimate 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 called "dealer reserve," 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 dealer, $1,500 to $2,000 "dealer reserve" on arranging any given car loans.

The dealer also makes a very lucrative profit when they talk the customer into putting "credit life" and or "credit disability" insurance on the loan. These are products they would not be able to sell 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!

The dealer can still sell 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 the car loan.

The bottom line is that if a customer arranges their own 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 reserve" and other commissions.

The only time you should let the car dealer arrange your car loan is when you are taking advantage of the manufacturer's special incentive financing like 0% or whatever. Even then most of these rates are in lieu of the rebate, so you have to weigh the rate against the rebate to determine which way you come out the best.

For more information on how a car dealer makes money in their Finance Office go to:
"Car Financing Tips, and the Real Truth About What Goes On In the Car Dealer's Finance Office!"
and "The Most Closely Guarded Secret in the Car Business!"

Tony Iorio
http://www.insidercarsecrets.com/
http://www.car-loan-quotes.com/
http://www.used-car-warranty.com/
http://www.greatcreditcarddeals.com/