Auto Dealer Loan

An auto dealer loan markup is something you need to know about if you are buying a car and using financing arranged by the dealer. The lender might approve you at a certain rate or APR, for example 5.9%. Your loan terms will only show you the rate that the dealer is writing on your contract, for example 7.9%. The dealer makes this markup as an additional source of profit on the deal, often making more than the profit on the car itself. The finance manager who usually does the paperwork gets paid a commission on this markup.

A auto dealer can also create a similar markup on leases. The "money factor" can be marked up just like an interest rate. To make sure you are getting the best rate, bring in a letter of approval from your credit union or a blank check loan where you know the exact rate you have been offered. Ask the dealer to show you your approval letter from the lender that they are using if your suspect they are trying to add a large markup. These markups, plus profits from extended warranties and other products are what is known as the "back end" of the deal.