Majority of people opt to borrow a loan from the car dealership itself when buying a car. This is the most convenient option as dealers promise you the best available rates. But keep in mind they don’t provide you all the information which you need to make an informed decision. Because dealers only arrange finances for you, they don’t put up the money themselves.
Many dealerships mark up the loan by adding two to three percentage points to your loan when they obtain the loan commitment from any automaker’s
financing company. It’s like this if you qualified for loan at a five percent interest rate, the dealer will tell you that you qualified for an eight percent rate. When you will pay the eight percent,the dealer will keep the extra three percent himself in form of a lump-sum payment from the finance company.
This is legal and accepted practice among dealers. Actually many finance guys at auto dealerships are having commissions which are based on the amount of the interest rate markups, which they can add that to their customer’s loans.
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