At the time of shopping for a car at a dealer who provides financing you through a bank or finance company, do you think that you are receiving the lowest interest rate? Have you ever even spent time thinking about it? If you think that you received the lowest interest rate available, it will be wise decision for you to think again.
There are essentially two ways that the car dealers follow to make profit– “front end” and “back end.” Front end means the earning of profit by selling the car itself. Dealers never hesitate to sacrifice front-end profit if they are able to recover it on the “back end.” Back end profit is called that profit which the car dealers make by selling the products or services such as insurance and service contracts. This income also includes money, which is earned by getting a customer to agree to a loan at an interest rate higher than that for which the consumer has been permitted for this.
At the time of your negotiation for the selling of a car and obtaining financing support offered by the dealer through a bank or finance company, the dealer has obtained the loan need of approval for you at a “buy rate.” The buy rate is the interest rate, which a third-party lender has decided to charge for the loan. Then the dealer might tell you that you have been approved for an interest rate which is higher than the buy rate, and also you will never have chance to get the lower buy rate. By making, you agree to the higher interest rate, the dealer can make a significant amount of money, therefore adding to its back-end profit. Dealers usually never mark up, the buy rate not less than 2-3 percentage points.
If you ask a dealer about the interest rate cited to you is the “buy rate” or the lowest rate, at which the third party will fund the loan, you might never receive a true answer for that. Even after your repeating pursuit, they will never forth coming with answer. Therefore, it is better for u to let him know that you have guessed the actual matter that is really happening. If any dispute arises between you and the dealer, the fact that you asked the question could put you in a better legal place