Car Loan Markups - Fact of Life
One of the "hidden" fees when buying a car is the markup that dealers add to your loan interest rate. Say the normal interest rate from the finance company used by the dealer is 4.5%. He marks up the rate by a percentage, say 2.0%, making your real rate 6.5%. This markup is never mentioned anywhere in the documents you sign. Car dealers claim the practice is justified to cover the cost of their brokering customers' financing.
There have been a number of individual and class-action law suits regarding abuse of this practice. Consumer advocate groups have been active in some states to eliminate or regulate the practice.
Automotive News reports that a number of companies such as DaimlerChrysler Services, Honda Finance, and GMAC have settled on a 2.5% markup limit agreement. California now has a law that sets a 2.5% markup ceiling for most car loans. So it seems that 2.5% is now the magic number in the industry.
A common question from consumers who are buying new cars is, "Can I negotiate my interest rate on my car loan?" In most cases you can try to negotiate the markup, but not the base rate. The dealer sets the markup; the finance company sets the base rate.
In the past, there was no good way to know what the car dealership markup percentage was but, now, with the recent "agreements" and laws, we can assume the markup rate is going to be 2.5% added to the base rate.
Be aware that not all dealers mark up loan rates, but it seems to be a growing practice. Also remember that your base loan rate will be partly determined by how a finance company values your credit history and FICO score. Therefore, shopping around for the best rates is always a good thing to do.
There have been a number of individual and class-action law suits regarding abuse of this practice. Consumer advocate groups have been active in some states to eliminate or regulate the practice.
Automotive News reports that a number of companies such as DaimlerChrysler Services, Honda Finance, and GMAC have settled on a 2.5% markup limit agreement. California now has a law that sets a 2.5% markup ceiling for most car loans. So it seems that 2.5% is now the magic number in the industry.
A common question from consumers who are buying new cars is, "Can I negotiate my interest rate on my car loan?" In most cases you can try to negotiate the markup, but not the base rate. The dealer sets the markup; the finance company sets the base rate.
In the past, there was no good way to know what the car dealership markup percentage was but, now, with the recent "agreements" and laws, we can assume the markup rate is going to be 2.5% added to the base rate.
Be aware that not all dealers mark up loan rates, but it seems to be a growing practice. Also remember that your base loan rate will be partly determined by how a finance company values your credit history and FICO score. Therefore, shopping around for the best rates is always a good thing to do.
posted by Al Hearn at 12:06 PM
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