Finance > Loans > Avoid Playing Auto Financing Poker
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Article rating : 0.00, 0 votes. Author : Daniel DeHaven
Finance departments are where dealers make most of their profit (well,
financing and after-market products).
Their profit lies on something called the "Finance Reserve." That is the
difference between the interest rate the dealer is offering you and the lower
interest rate (called the "buy rate") the bank offers the dealer.
For example, lets say you have a credit score of 700. The finance manager
offers you a conventional loan through Generic Bank at, say, 6.9%.
But what you don't know, as you sit there negotiating, is that the dealer already
has a standing arrangement with the bank that says that any buyer with a
credit score of 700 can have a loan at 4.9%. If you go for the 6.9%, the dealer
keeps the other 2%. That's the "Finance Reserve." For the dealer, it's just gravy.
Cash in his pocket.
Most banks cap a dealer at 3% over the "buy rate," but not all do. According to
our
latest reports, Ford Motor Credit, for example, has no cap on the dealer
mark up. That means you could pay anywhere from 1% to 10% more than what
you actually qualify for.
Don't worry, the dealers are not out to get you. This financing reserve
sometimes works in your favor. It allows the dealer to offer competing interest
rates to consumers who have no chance of getting that rate elsewhere!
Regardless of how cards fall, smart car shoppers get their credit report score
and look for loan quotes before they walk into the dealership.
Daniel DeHaven is the Editor in Chief of the BuyingAdvice Team (
http://www.buyingadvice.com). He understands the auto business. He's been around
it - all of his life. Daniel has been a consumer advocate voice for over 15 years.
He has learned every trick and profit ploy car salespeople use... and mistakes
buyers tend to make.
Copyright © 2002-2005 BuyingAdvice.com, INC. All rights reserved.
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