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My Interest Rate is How High?
When buying a new car or truck, most people don't even scoff or ask about the interest rate for new cars offered at the dealership and just settle for it. Why? Because many are unaware that they can negotiate this rate no matter what dealership you visit.
If you feel the easiest way to finance your new vehicle is through the dealership where you are purchasing, don't settle for the first rate they hit you with. When a dealer is given a rate after they run your credit report, they are provided with a rate by the lender called the "buy rate." This is the rate the dealer is buying the loan for. If the buy rate is 5% and they charge you 7%, the dealer makes money on your loan. The 7% is the "sell rate," and the dollars the dealer receives for charging you that higher rate is called back end money or the "reserve."
Auto dealers pay their finance personnel to bump this rate as high as they can in order to make money and pay commissions to the sales department. Typically, if a dealer makes $500 on your loan, they will pay a 25% commission to the sales person on that reserve money; in this case the salesperson is getting another $125 in commission from hiking up your interest rate. That doesn't include what they are making on the front end of the deal or the sale price of the vehicle. While everyone needs to make a living, at some point, people need to be aware of what dealers are doing when it comes to finance rates.
Image Credit: 2010 Ford Taurus/Ford Media Room
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Negotiate the Rate!
When you are first offered that 7% interest rate for a new car, ask to see the loan call sheet. No matter where the dealership submits your loan request, all finance companies provide the dealer a loan call sheet. It may be on their computer screen, faxed, or emailed to them. In each case, you can ask them to print it out and show it to you. If the buy rate says 5%, then tell them you want the 5% interest rate. If they say they can't do that, then walk, because another dealership will be happy to offer that rate.
Further, make sure you know which vehicles are carrying a manufacturer's interest rate of zero percent. Some dealers won't tell you that SUV you are looking at qualifies for a zero percent interest rate and instead charge you that whopping 7%. You can only imagine what the dealer is making on the back end reserve. Be informed before you buy and check Edmunds, a cay-buying consumer website to find tips as well as what current interest rates for new cars and rebates are for each make and model. This can change weekly, so be sure to do your research.
If you really want a certain vehicle and you just can't find another dealer who has it, and the dealer won't negotiate the interest rate, ask the dealer to give you a buyer's order and take it to your bank or credit union. Both will give you a much lower rate than the dealerships will. Be smart and savvy when negotiating the interest rate for new cars and don't just sign on the bottom line. Ask to see their paperwork and if they won't show it to you, move on.
For more information on buying a new car, read Tips for Purchasing a New Car: What the Dealer Won't Tell You to get the best deal at any dealership, regardless of vehicle make or manufacturer.
Image Credit: 2011 Ford Mustang/Ford Media Room