Was your car loan rate marked up?
With dealer-arranged financing, the lender approves a rate (often called the buy rate) and the dealer may add to it as compensation. Get a pre-approval from a bank or credit union first, then ask the dealer to match or beat it.
How dealer financing works
When you finance through a dealership, the dealer usually sends your application to one or more lenders. A lender approves you at a rate. The dealer may offer you a higher rate and keep part of the difference. This is often called dealer reserve or markup. It is common and generally legal, but it is negotiable, and the FTC advises shopping your financing like you shop the car.
What a couple of points costs
Your best defense: a pre-approval
- Get pre-approved by your bank or a credit union before you shop. It's usually a quick online application.
- Don't share your pre-approval rate first. Let the dealer quote.
- If the dealer's rate is higher, show the pre-approval and ask them to match it.
Other things to check on the contract
- The APR, term and amount financed on the contract match what you were told.
- No products were added to the amount financed without your clear yes.
- Your financing is final. If you drive home before it is approved and funded, ask what happens if it falls through.
Want a second set of eyes on the finance contract? Our Finance Review checks the rate, term and every product.
This guide is general consumer information, not legal or financial advice. Rules vary by state and change over time; check the sources below and your own documents.