Car Dealer’s Worst Nightmare: Cash or Pre-arranged Loans

Posted on August 9, 2007

Car dealers can make up to 75% of their showroom profits on extras including arranging auto loans and leases, extended warranties, anti-rust coatings, tire and oil change plans according to a recent NY Times article.  When borrowing through the dealership it is much easier for the dealer to persuade the buyer to roll up many of the extras into one loan package negotiated by “the monthly payment.”  The dealers often discourage the use of a pre-arranged loan through a local credit union as well as paying with cash because the customer is looking at the bottom line number when negotiating and not the often misleading monthly payment.  That makes it much more difficult for the dealer and less tempting to the customer to add “extras.”  When shopping for your next car or truck be sure to understand these are the four main ways a dealer makes money from a new car purchase:

  1. New Car Price.  The price of the new car above invoice is the dealer’s profit, including any manufacturer’s rebates or dealer incentives that do not get passed on to the customer.
  2. Trade in.  Paying the customer less than the trade in is worth.
  3. Financing.  Proceed with caution when using dealer financing.  If the bank approves the dealership to finance you for 4.9% and the dealership gives you a rate of 8.9%, the 4% difference is all dealer profit.
  4. Accessories.  Paint Sealant, fabric protection, and anti-rust coating as well as extended warranties are included in this category.  Ensure you are getting the best deal for the warranty and accessories by shopping around and knowing the market prices of each.
Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • Reddit
  • StumbleUpon

Related Posts

  • Five Options In A Financial Worst Case Scenario
  • Other Options When Refinancing a Loan through the VA
  • Buying Medical Procedures On Credit

    » Filed Under Loans, Debt, Credit Report, Saving

    Comments

    5 Responses to “Car Dealer’s Worst Nightmare: Cash or Pre-arranged Loans”

    1. SavingDiva on August 15th, 2007 2:09 pm

      This is a very informative post! While buying a new car is still a few years off, it’s nice to have information presented in a clear and concise way….

    2. The Simple Dollar » Carnival of Personal Finance #114 on August 20th, 2007 1:33 pm

      […] Car Dealer’s Worst Nightmare: Cash Or Pre-Arranged Loans (@ saving with me) […]

    3. Cash Money Life - Personal Finance with a Salute to the Military » Carnival of Carnival of Ethics, Values, and Personal Finances #14 is up at The Simple Dollar on August 21st, 2007 1:58 am

      […] Saving With Me - Car Dealer’s Worst Nightmare: Cash or Pre-arranged Loans. […]

    4. Best Finance Posts from Carnival of Personal Finance #114 at Clever Dude Personal Finance & Money on August 21st, 2007 2:33 pm

      […] Since we’ll be buying a car within the next year, we plan on saving up to try and pay cash (or mostly cash, and maybe a little 0% credit card) when we do buy. Saving with Me tells how Cash and pre-arranged loans are a dealer’s worst nightmare. […]

    5. Janni on March 16th, 2008 2:28 pm

      Well i agree with you that is a nightmare i would like to add also that the monthly payments remain level for the life of the loan and are prearranged to pay off the loan at the end of the loan term.

    Leave a Reply




    Most Popular Posts