Reader Comments

Auto Loans for Bad Credit Recommendations

by Kerrie Kilpatrick (2020-04-02)


Lots of people are under the assumption that car dealerships only make money on the sale price of a vehicle. If this were true, it could make buying a car much simpler and acquiring a better find auto loans loan rate a lot easier. It isn't the case on the other hand, and very few people which are outside of the car business or have never worked in that industry are aware of exactly how it works. The truth is that the sale cost of the vehicle only amounts to a small involved in the total picture.

Whenever you go in to a car dealership to buy a vehicle, the sale price primarily covers the cost of the car, the expense of dealer overhead as well as the salespersons commission. Which is called front end profit. Where the real money is made, is in what is called back end profit.

Any time a dealership takes your credit application and sends it to several loan companies, the loan companies send a response that either approves or denies your application. If your application is denied there is mostly an excellent clear answer as to why, which helps the dealer to understand down the road what to search for ahead of submitting applications to that particular company. If your application is approved, there is a few different factors that will be involved. There is be amount allowed for financing, a portion of that amount that the creditor will allow for an extended warranty, and the range of percentage points that the dealer can add to the loan. These percentage points, otherwise called dealer add-on rate, are where a whole lot of hidden money is made in car dealerships. To elaborate on this, let's have a simple example.

Let's claim that the creditor or loan company, approves your loan at an rate of 10%. That is a reasonable auto loan rate for somebody which has had some bumps in the road on their own credit report. In the event the approval comes back allowing the dealer a dealer add-on rate, of 3%, then the dealer can add 1%, 2% or 3% to your auto loan rate. The difference between paying 10% or 13% on your car loan, may make a tremendous difference within the amount of your vehicle payment. In many cases, this can add $100 or more to your monthly car payment. The added amount that you pay each month as a result of the dealer add-on rate, is divided between the car dealer and also the finance company.

So what happens if you trade your car before your vehicle is paid off? Generally a dealer is only charged back if you trade your vehicle within the first year. That is the reason why the dealer is not advanced the full quantity of the extra profit which is made on the dealer add-on rate.

How can you avoid this? With the veil of secrecy being held closed so tight in car dealerships, regarding this issue, the general public really has no way of even knowing what their true rate of interest is once they are approved. The only way to prevent this is to seek financing outside of an automobile dealer and also then similar principles operate with bank loan officers. Among the best ways of avoiding this is comparing auto loan rate quotes from multiple companies, or using a service that uses the best rate for you.