Auto Dealer Loan Markups: How To Protect Yourself

When you get an auto dealer loan, there can be a variety of markups the dealer tries to add to the loan. These markups are generally to make a loan more profitable for the dealer and gives you no real advantage, so be careful to protect yourself from unscrupulous lenders.

Interest Rate Mark Ups
One common ploy is the interest rate markup. This happens when a buyer purchases a car at a dealer and uses the dealer’s in-house lender instead of finding his or her own financing at a bank or credit union.

The lender will run the credit report on a customer and come up with terms, such as a ten percent loan. However, when the salesperson is negotiating with the buyer, he or she will ask what the customer can afford in monthly payments. Instead of offering the customer the rate they should receive, the financing company raises the rate until they reach the maximum the customer can pay in monthly payments.

Avoid Interest Rate Markups
Car buying takes research, and you should do your research before you arrive at a dealer to avoid being scammed in a variety of ways. To avoid the excessive interest rate charges, get pre-approval for a loan from a bank, credit union, or online car loan aggregator like LendingTree.com.

You’ll then go into a dealership knowing what interest rate you can get elsewhere, and won’t be tricked into a much higher rate than you should pay.

During your negotiations, if a dealer is pushing you toward their in-house lender, be extremely cautious. At that point, you should step back from a deal and insist on thinking about it. If you haven’t already been pre-approved, leave the dealer and get a rate quote on that specific car.

You should never talk to a salesperson about what payment you can afford. You should know in advance what interest rate and what price on a car will give you an affordable payment, and aim for those terms. Avoid telling the dealer a particular payment, because there are all kinds of ways they could get that payment for you that are not in your best interests.

Markups on Popular Cars
Another tactic dealers use is to mark up the price on popular vehicles. When a dealer knows that he or she can sell a car regardless of how much they charge, they will raise the price accordingly.

There is no requirement that a dealer charge only the retail price or less; they are free to charge more.

Avoid Popular Cars
The wisest way to avoid this scam is to avoid becoming tied to one specific car. Have a variety of cars that you will consider. If one of them is an extremely popular car for which the dealer charges over retail or refuses to negotiate, drop that car and move on.

Back End Extras
One of the most common ways a dealer sneaks in markups is after the deal is completely negotiated. They will then add on services or extra fees and clear extra profit from them. Sometimes they will tell you about the extras, but other times they will not.

Avoid Back End Rip Offs
The most important way to avoid back end over charges is to read your contract carefully. Ask the dealer to remove “dealer mark up” charges – complete empty profit. Refuse any undercoating or gloss coat or any other addition the dealer insists that you want them to add. They often don’t work and are always overpriced. Avoid dealer extended warranties. These have many exclusions and are big profit makers for the dealers.

There are a variety of ways dealers try to rip you off when you buy a car. Stick to your price, avoid add ons, and negotiate unnecessary extra charges to protect yourself from dealer markups and get the best deal you can on a car.