So, you just negotiated a good deal on a new car, you did all your research and you knew what the dealer cost was and even got the rebate allowing you to buy the car well back of invoice. You beat that salesman up pretty good and you are feeling pretty good while waiting to go into the finance office to sign your papers. This is where many people let their guard down and where many people get taken. Hey, the industry insiders don’t call it the “hot box” for nothing!
That’s right, having been in the industry for many years I can tell you that is the truth and there is a lot of money made in that office. For many dealerships half of their revenue is made on the “backend” of the deal by charging higher rates than the rate they can get and selling you products you don’t need like extra insurance, warranties, and rust protection.
According to a recent study there is a one out of four chance that finance manager will take you for a ride and you will end up paying way more than you should for that new car especially if you are a woman or a minority. You could end up with payments $30 to $50 higher than they should be and give the dealership thousands in additional profit.
Watch out for the manager trying to point out inconsequential discrepancies in your credit report to try to justify the higher interest rate. You should know what you are qualified for before going in there; make that part of your research.
The mechanics of how financing work at a dealership goes as follows: The dealer submits your information along with the buyers order to lenders who then give the dealer what is called a “buy rate” which is the rate the dealer has to pay. Anything they make above this is profit for the dealer.
There are many states that have set limits on how high an interest rate can be charged for a loan but there is no disclosure to show what the bank’s original offer was. If some new laws making disclosure mandatory it would put an end to this mark up.
The best way to avoid this is to be prepared by shopping with your bank or credit union for financing and get pre-approved by them. This doesn’t obligate you but it does equip you to deal better with the finance people at the dealership. If you know exactly what the best rate is that you can get as well as what your payments should be then you just see if they can do better, sometimes they can. Banks sometimes give dealers lower rates because of the large volume of business they do.
Gregg Hall is a business consultant and author for many online and offline businesses and lives in Navarre Florida with his 16 year old son. Get quality car care products for your new car at http://www.shineyourcar.com
