Loans
Avoid Playing Auto Financing Poker
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.
Daniel DeHaven
Tags: Finance department, finance reserve, Similar articles
Avail Loans Against Your Home With Secured Home Loans
Your home-it?s your abode, your possession, your expectation. But do you know its valuation in loan market? Yes! The worth of your home in the loan market is important indeed. Read more →Avail Smooth Finance Through Bad Debt Tenant Loans
A tenant is most likely to incur bad debts since expenditures usually go on increasing and due to limited income he is left with little money for paying off the debts. Read more →Bad Credit - The Best Way To Improve Your Credits
Getting into debt reflects badly on your credit report. You will develop an adverse credit score and reduce all chances of raising funds from your lenders. Read more →Bad Credit Auto Loan Financing Companies
A bad credit history affects your ability to obtain credit cards, home mortgages, and personal loans. Sometimes, bad credit is unavoidable. Individuals who are unable to work because of illnesses and those who lose their jobs may have a difficult time keeping up with monthly payments to creditors. Read more →Aphorism
Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of highest integrity and ability. Then you own those shares forever.
Warren Buffett