Jason Lanier asked:
Many people are under the presumption that the real way the car dealership makes money on a car is merely on the sale price. This is simply not the case and this article will explain to you the details of how profit is made of car dealerships with a focus on auto loan rates.
The dealership has many different avenues of profit that can be drawn from during the course of a car sale. The sale price and the profit made on that sale price is only a small percentage. With new car invoices being readily available on the Internet, car dealers have had to rely on secondary sources of profit to be able to stay in business. The secondary sources of profit are commonly called back end profit or “back end revenue”.
Back end profit is the money that the dealership makes on the finance products that are sold in the finance department. These include the sale of extended warranties, credit life insurance, gap insurance, and the inflation of the customers interest rate as is allowed by the finance company.
When you get approved for auto loan at a dealership, the interest rate that you are told that you’ll have to pay is commonly more than you are actually approved for. The dealer is authorized to add interest points, or what is referred to as dealer add-on rate, to your car loan. What this translates into for you is that if you get approved at an interest rate of say, 10% then the dealership can add two, three, or up to five percentage points to your auto loan rate. The difference between what you are actually approved at and what you actually pay equates to a commission check for the dealer.
Anna
Many people are under the presumption that the real way the car dealership makes money on a car is merely on the sale price. This is simply not the case and this article will explain to you the details of how profit is made of car dealerships with a focus on auto loan rates.
The dealership has many different avenues of profit that can be drawn from during the course of a car sale. The sale price and the profit made on that sale price is only a small percentage. With new car invoices being readily available on the Internet, car dealers have had to rely on secondary sources of profit to be able to stay in business. The secondary sources of profit are commonly called back end profit or “back end revenue”.
Back end profit is the money that the dealership makes on the finance products that are sold in the finance department. These include the sale of extended warranties, credit life insurance, gap insurance, and the inflation of the customers interest rate as is allowed by the finance company.
When you get approved for auto loan at a dealership, the interest rate that you are told that you’ll have to pay is commonly more than you are actually approved for. The dealer is authorized to add interest points, or what is referred to as dealer add-on rate, to your car loan. What this translates into for you is that if you get approved at an interest rate of say, 10% then the dealership can add two, three, or up to five percentage points to your auto loan rate. The difference between what you are actually approved at and what you actually pay equates to a commission check for the dealer.
Anna
