Dealer financing "buy rate" or "finance reserve"

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Possibly looking for a (new) used car for our daughter and plan to get pre-approved through our credit union so I called them today to ask a few questions... I brought up the topic of how dealers run approvals for buyers and, for example, bank "A" says 4.5% but the finance manager tells the buyer 6.5% (these are made-up numbers) and they are compensated for the higher rate by the lender. The loan rep at my credit union acknowledged that this used to occur but that it's "no longer allowed". She wasn't clear if this was simply their policy (this credit union) or maybe a state law that doesn't allow it. She also said even if I went through a dealer and they (my credit union) said 4.5%, with them, the dealer can't override that number. The credit union does know they just approved someone with social security # 123-45-6789 at 4.5% and won't process it at a higher number.

Anyone know more about this ? Is it a state law / regulation ? I'm in Ohio so I guess this is restricted to people in Ohio that may be familiar. Or is it some lenders have adopted this policy ?
 
This is one way, another way is for the bank to rebate a certain % back to the dealer and if that is not allowed there is always the "Finder's Fee"
 
It depends on the financial institution. Most captive automotive lenders allow dealer markup on certain rate plans. The markup is capped, if the dealer doesn’t markup the rate then they can just take the flat reserve. Dealer rate markup is allowed in every state.

Your banking representative is wrong, I wouldn’t be doing business with her.
 
I know chrysler capital does this

I was approved for 3.74 a couple years ago which was very competitive at the time.
waited 3 hours signed 19 pages.. last page 5.65%

So I just refinanced next day with state farm bank at 3.37

Screw them and their kickback.
I WAS PISSED!!!!!!!!!!
everyone thinks car salesman can be scumbags (no offense to any on here)
but the finance guys are usually the worst.. well those and the addon person (sometimes same guy)
 
Nissan is the new sub prime lender is actually paying dealers to pressure buyers (esp third rate credit) into 72 or 84 month loans by kicking back 1% of auto loan.

I don't believe what you describe is illegal in most states. If you are stupid enough to borrow money from dealer without verifying then it is fair game you get extra percentage added on top. Typically the bank and dealer split the add on.

Many dealers depend on you showing up in finance office buying their financing, insurance. silly add ons and overpriced extended warranties to make a fat profit. The best thing you can do when negotiating is eludge and be vague about your finance plans and lead them to believe they will profit on you there so they drop pricing on vehicle.
 
Many dealers depend on you showing up in finance office buying their financing, insurance. silly add ons and overpriced extended warranties to make a fat profit. The best thing you can do when negotiating is eludge and be vague about your finance plans and lead them to believe they will profit on you there so they drop pricing on vehicle.
Or put up a mediocre fight over the APR so they think you're in for the long haul but cave as long as the cash price works and there's no prepayment penalty.

My dealer brings people in with a great OTD price but is vague about the interest rate, which is middle-of-the-road.
 
Your banking representative is wrong, I wouldn’t be doing business with her.
Spoke to a 2nd rep at my credit union and she confirmed it. She stated that their policy is "no finance reserve" allowed with their financing. Other banks, credit unions, lenders, etc may allow it, but they don't.
 
I work at a bank that does a lot of indirect auto lending...there's no dealer markup any more. The rate is the rate.
 
In my experience an auto manufacturer oftentimes will pay a financier the cost of interest accrued so that they can advertise a lower finance rate. That is precisely how a 0% interest loan gets bought in reality.
 
Back when I was in that business (2005-2008 or so) at least in the state of NE there could be a difference of up to 4% between the buy rate and the sell rate of the loan. That's what the finance guy at the dealership I was working at told me. Now that the average interest rate is significantly lower than it was back then I would assume things have changed. Presumably the dealership still gets a kickback from the financing but probably not as egregious as it used to be.
 
Maybe I am not understanding this but if I am understanding this I think you are over complicating things.
Your daughter will be financing a car.
1. You would like to use your credit union, so why not just ask the interest rate from your credit union for a used car? What does a dealer have to do with this?
2. Once you have the rate from your credit union tell the dealer you already have a rate and ask for the dealers best rate. The dealer will contact several banks and give you a rate. It most likely will beat your credit union but if not, then get your credit union financing.

We did something similar to you a couple years back. Ultimately our credit union was 1 or 2% higher then the dealers 1.99%
He knew we already had a rate in mind (but we didnt tell him the rate) he submitted the info to several banks (this takes minutes) came back to us at 1.99% which actually shocked us for a used vehicle. He than asked what we had, I told him and we went with him. We also didnt allow him to charge a "finance charge" or whatever that fee is they try to charge for getting the loan. But that was after they slipped in it the paperwork and they had to redo all the paperwork again.
 
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