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/
New Question & Answer Added to "General Questions Regarding Car Dealer Tactics!"
I just added a new Question & Answer to the "General Questions Regarding Car Dealer Tactics" section of this website. The question asked by my web site visitor is "Can you please explain the car dealership practice know as 'Low Balling?'" You can read my illuminating response to this question at: http://www.insidercarsecrets.com/low-ball-question.htmlTony Ioriohttp://www.InsiderCarSecrets.comhttp://www.Car-Loan-Quotes.comhttp://www.Used-Car-Warranty.comhttp://www.GreatCreditCardDeals.com
New Question & Answer Added to "Car Financing Questions!"
I just added a new Question & Answer to the "Car Financing Questions" section of this website.
The question asked by our website visitor is: "I financed a car for my boyfriend in my own name. Is there anyway to return the car so that I am not financially responsible for the car loan now? "
Read my response at: http://www.insidercarsecrets.com/car-loan-question.html .
Tony Iorio
http://www.InsiderCarSecrets.com
http://www.Car-Loan-Quotes.com
http://www.Used-Car-Warranty.com
http://www.GreatCreditCardDeals.com
Car Dealer Sells Car as New When it was Really a Used Car!
Hi Tony,
I recently bought a '06 Chevy Uplander with 11,500 miles on it. We had thought it was a used vehicle, but the dealership said it was never titled so it was still considered new.
Now that price was higher then the price of what a used car was but not by a whole lot, so we decided to get the car. We never would have thought that after buying the car and getting a Carfax report that it would say the car was titled to a major rental company before us.
Now we feel lied to, and feel ripped-off. What can we do about this?
Katie
Hi Katie, If in fact the Carfax report is accurate, and there's no reason to doubt it, then you were indeed lied to and bought a vehicle that was misrepresented to you by the car dealer! Go back to the dealer and see the General Manager or the owner. Tell them what you found out and demand that they settle this to your satisfaction - whether that's to give you back your money, or to give you some discount or whatever. If they won't do anything to make it right tell them you are going to file a complaint with your state's Attorney General's office and the Better Business Bureau . . . and do so if you must. This car dealer can't be allowed to get away with such blatant dishonesty. Good luck . . . Tony Ioriohttp://www.insidercarsecrets.comhttp://www.used-car-warranty.comhttp://www.car-loan-quotes.comhttp://www.greatcreditcarddeals.com
A 72 Month Car Loan on a '03 Honda? Are You Crazy?!
Dear Tony,
I hope you're doing well.
I am looking to buy a 2003 Honda Element (automatic) with 32,000 miles. The price is $14,900. I am looking at a 6 year loan period, and my credit score is right around 650.
They told me that the interest rate would be 8.9% and the monthly payment would be $300 month (after tax). Does this monthly payment seem high for the price tag and given the 6 year loan period. I like the price tag but the monthly payment seems to be a bit high.
What are your thoughts?
Thanks . . .
Regards, Tony
Hi Tony,
It sounds very high! 72 payments at $300 a month is $21,600! And that's not counting your down payment and tax!
Personally I think you're crazy to finance an 03 for 72 months. You'll be stuck in that loan forever with no way of trading out of it. Why don't you try Capitol One Auto Finance at: http://www.insidercarsecrets.com/pf . They will give you a blank check to pay for the car, and you can trust them to give you a decent rate based on your credit score.
If you go through with the deal you had better get GAP Insurance to protect yourself. You can read more about GAP at: http://www.insidercarsecrets.com/gap.html
Good luck . . .
Tony Iorio
http://www.insidercarsecrets.com/
http://www.car-loan-quotes.com/
http://www.used-car-warranty.com/
http://www.greatcreditcarddeals.com/
