Does a dealer's Finance Manager set the interest rate?

[Scooby]

Can the finance manager at a dealership "play" with interest rates? Do they have room to manuever or is the interest rate dictated strictly by Chrysler Financial and your beacon credit score?

 

[Bertram65]

Not sure if it is Chrysler credit but they can and do alter it if it is third party. There was a special on one of the news shows about it and how the delaers were making tons of money raising the rates and telling the people that is what they qualified for.

 

[Bill Stockard]

Yep, they markup the base finance rate charged to the dealer. That's how the Finance and Insurance F&I) folks "pay" their way along with the markups on the insurance and service policies they sell when closing out a sale. At many dealerships the F&I Department is a bigger profit center than the Sales Department. Why do I know? ... been there, done that!



Bill

 

[CRF_Diesel]

A dealer's finance department can change interest rates depending on your credit. It's called reserve and is another way for the dealer to make money. If you score high on the ratings they can offer a lower rate. Basically if the dealer receives a rate of say 5% but offers you 6% on your contract, the dealer gets paid on the extra 1% reserve. Most won't rip you too bad, but it's a good idea to ask what kind of reserve they are making. Some will tell and some will lie. I know when I used to run a finance department, we usually kept the reserve's reasonable.

 

[Bill Stockard]

... and there's the Non-Recourse, Limited Recourse, and Full Recourse "paper" (retail car notes) that the finance company "buys" from the dealer based on the buyers credit risk.



Some finance companies require dealers to keep a finance reserve which is like a deposit with the finance company to cover any losses on repos... it's not as simple as it might appear!



Our dealership wouldn't do Full Recourse paper, called "tattooing" the paper in the business, for buyers with poor credit history. We had the opinion that if it wasn't good enough for the finance company, it wasn't good enough for us to take a chance on either.



Bill

 

[bighammer]

On my 94 I was set to finace it thru a bank and had already shopped for the best rate. I went to pick up the truck in the evening and the banks were all closed so I said they could match my rate, or I would wait until morning. The salesman seemed sure that it would not work but he talked to somebody they submitted the aplication and it was approved. (I think they had offered 7. 5% with a downpayment-- I got it for 6% with 0 down)



I would go in knowing what the banks are offering. (keep it yourself in case the dealer offers better) If the dealer is not as good, give them the chance to match it.

 

[Scooby]

Thanks for the replies - VERY helpful

 

[Bertram65]

CRF_Diesel,



You got to be kidding, right?



"Most won't rip you too bad, but it's a good idea to ask what kind of reserve they are making. Some will tell and some will lie. I know when I used to run a finance department, we usually kept the reserve's reasonable. "



Any reserve is rip off, and I doubt there is a single dealership that will disclose that they are adding points. There is no reasonable reserve.

 

[SKargo]

Originally posted by Bertram65

CRF_Diesel,



You got to be kidding, right?



"Most won't rip you too bad, but it's a good idea to ask what kind of reserve they are making. Some will tell and some will lie. I know when I used to run a finance department, we usually kept the reserve's reasonable. "



Any reserve is rip off, and I doubt there is a single dealership that will disclose that they are adding points. There is no reasonable reserve.

So you don't feel it's fair for a dealerships F&I department to make money? if they gave everyone the "buy" rate, they'd make no money. Then they might as well close the finance office, and let the consumer do the legwork, and secure their own financing.

 

[Bertram65]

Not disclosing that they are adding thousands of dollars onto peoples loans and masking it by saying that is what they qualified for is what I have a problem with. It happened to me about 7 years ago, they explained it as "it was the best we could get for you based on your credit score" I went with it and refinanced the loan 4 months later with a local bank for 2 points less. The sadest part is the people that are most likely to be victims of this are the ones that a few extra dollars a month would make the most difference to.

How much bussiness would the dealership finance people get if they stated the truth, would it go like this?

"We faxed your credit app to a couple places, you qualified for 6 percent but for the 15 minutes of work we did we are going to add an additional 3 percent on bringing your rate to 9 percent, that's fair right?"

Try disclosing that info on your next sale after the people have signed all the paperwork and met with the finance guy, if there is nothing wrong with it it should be easy for you.

I suspose the $150 to $300 paperwork charge that all dealers add onto a car sale is never explained as being for handleing all the paperwork and financing right?

 

[CRF_Diesel]

Ask a typical F&I guy what they make. Just because we buy a $40 K truck doesn't mean he's getting rich. My point was a markup of 1-2% does not constitute ripping anyone off, IMO. If you can get o% reserve that's awesome. That's the great thing about arranging your own financing. With today's economy, most of the rates I have been quoted are similar. It's mostly a convenience issue to let the dealer handle.

 

[Bertram65]

The only problem I have with dealer reserve is not disclosing it, they can add on 10% just tell the poeple they are doing it.

1-2% does not sound like much but on a $20K loan for 5 years the difference between 5% and 7% is over $1100 in payments.

 

[C Schomer]

Fine, if the dealer is up-front with their reserves and tell the customer but they are being decietful and taking advantage of the customer when they don't say what they're doing. Another big rip is dealer "Delivery and Handling". All the Denver dealers do it and usually have it printed at the bottom of the sales slip so it can't be taken off. It's usually about $300. I got a price quote from a dealer near my hometown in Ia. before I bought my truck. The price was really good and I asked him if that included D&H. He didn't know what that was. After I told him he said "AAAHHHH BS, that's nothing but extra profit"! Craig

 

[CRF_Diesel]

It would be cool if they would be honest about the rates. We all know the reality of that. Some guys will be up front while many will lie through their teeth. When I ordered my truck I agreed to a 1% reserve. Guess I'm just a softy since I know how it is. Most guys will never know what theirs is. It's still a far cry from years back when people were getting ripped for 4-8%.

 

[SKargo]

I agree that no dealer should add 3%, thats totally ridiculous. Now a half a point or so I can understand. I am new to selling vehicles, just coming up on a year. I've been with the same dealership the whole time, and I guess I haven't been exposed to the shady dealers out there.



My own bank quoted me 6. 9% for a loan on my last used truck, my finance girl got me 5. 9% from the SAME freakin bank!!!! I went with another bank that gave me 5%. My original bank called me a few days later, asking if I was going to use their loan, I said no. They replied, "well, we could of worked with you on the rate"



BTW, we charge a $100 processing fee, not $150-$300. It has a little more to do than just finance. The paperwork goes from my desk as a sales consultant, to my finance desk, then my sales manager's, then my general manager's. Then of course it does out back to our admin building, where it hits 2-3 more people's desk. So $100 isn't crap when you consider.



I am just stating all these facts to let you know their are dealers with integrity out there, and i happen to work for one.



I could go on a rant about the deceitful practices I've seen customer's use, but that won't get us anywhere.

 

[MLee]

GET YOUR OWN

Get your own finance and save the head ache.

My wife is the financial wizard in my house (20 yrs finance) and when the dealer tries to dazzle with the BS, she shuts them down in a heat beat. you can usually shop and bargain for the rates, and if you find one lower, the one you want to use will usually match it. Banks will be the hardest to deal with, most credit unions are easier to work with and are more flexable. I've seen a lot about the extended warranties here, the Finance Dept. tries to force this on you to the tune of $1200/$2000 they are over priced, more profit for the dealer. counter there deal, offer them $400 dollars, the subject will change. Been there, done that.

just my penny's worth.



Marv.

 

[JRuiz]

I actually had a good experience with the financing department at my dealership. When I bought my truck my credit union offered my 4. 50% and I went into the dealership knowing that. When the time came to arrange financing they ran my credit and offered me 4. 00% from chrysler financing. Heck that was a half-point lower so I took it and was happy. I bought on 9/1 and got a call on 9/17 from the finance guy. They said they got lower rate of 3. 75% from another credit union and if I wanted it I could have it. Asked the guy what the terms were and he said the exact same as before just . 25% less and my first payment would be pushed back two weeks later. I was in there the next day and signed the new contract. Saved about $600 bucks and loan changed from a fixed to a simple interest loan, so if i want to make bigger payment each month i'll pay less in interest in the long run. This was very unexpected especially after hearing all the bad about finance departments.

 

[AUrban]

I agree on getting your own financing up front.



The dealership where I bought my 99 offered me their best rate at 9. 25% (just a few months back!). That rate was a crock and really opened my eyes to the fact that the financing department is still really the sales department. I signed on the dotted line since I didn't have other financing lined up. My bad...



However, as soon as I drove home, I called my mortgage company and drew on my home equity line-of-credit. I paid off that bad rate immediately. Home equity (if you have it) provides a _much_ better rate and the interest is tax deductible!

 

[Bill Stockard]

By reading some of the posts on this thread, it proves it is just as important to shop for your financing just as you do for the vehicle. It is amazing how folks get all worked up on the best price on the vehicle and don't pay any attention to the financing part and blow anything they might have saved by not paying attention to what they are actually paying on the contract. If they get a monthly payment they want, all is well... multiply out those payments for the length of the contract and see how much you are paying! It's on the contract, but no one sees it or pays any attention to it since they are in such a big hurry to get out in their new vehicle!



Also it is very important to keep your credit "clean" otherwise it is going to cost you more. If you have good credit, protect it! A lower credit score means more risk on the loan, which gets a higher interest rate.



Bill

.

 

[CChase]

Originally posted by Bill Stockard

It is amazing how folks get all worked up on the best price on the vehicle and don't pay any attention to the financing part and blow anything they might have saved by not paying attention to what they are actually paying on the contract. If they get a monthly payment they want, all is well...

Yep... . dealer I bought my truck from tried that on me. They said OK price is X, now that equals a payment of Y which I knew from doing my own calculation reflected a higher interest than what I should pay. When asked what rate they were using... . 8%! Told them they were either going to come down substantially or I was going elsewhere for the financing (Credit Unions were about 3. 75% at the time) so they came down to 4. 5% and I agreed to that.



A little foreknowledge of where the numbers should be or asking the right questions on the tail end of the sale can save money. This question and calling BS on the dealer saved me roughly $4000 over 5 years.



ON EDIT: Anybody know why that quote above didn't come out right? (Thanks SKargo)