AUTO LOANS: BUY RATE VS SELL RATE

AUTO LOANS BUY RATE VS SELL RATE

AUTO LOANS (FINANCING): Buy Rate vs. Sell Rate

In dealer financing for Auto Loans, the terms “buy rate” and “sell rate” are critical for the Car Buyer to understand:

• Buy Rate: This is the interest rate that the lender, often a bank or a financial institution, charges the dealership for the loan. It’s essentially the wholesale rate of the loan. This rate is not usually disclosed to the customer and serves as the base cost of the loan for the dealership.
• Sell Rate: The sell rate, also known as the contract rate, is the interest rate that the dealership offers to the customer. This rate is often higher than the buy rate. The difference between the sell rate and the buy rate is a primary way through which dealerships make a profit on financing.

Here’s how these rates work in the context of car financing:

• Dealer Markup: Dealerships can mark up the interest rate provided by the lender. For instance, if the buy rate is 4%, the dealership might offer the loan to the customer at a 6% sell rate. The additional 2% becomes profit for the dealership.
• Negotiation Room: The sell rate can often be negotiated. Many customers don’t realize this and accept the first rate offered. It’s important to negotiate the sell rate just as you would negotiate the price of the car. Having a loan pre-approval from your own Bank or credit Union helps this.
• Credit Score Impact: Your credit score still plays a significant role. The buy rate offered to the dealership is often based on your creditworthiness. However, regardless of your credit score, the dealership usually still marks up the rate for profit.
• Transparency and Regulations: Some regions have laws requiring dealerships to disclose the buy rate to customers, but this isn’t universal. In places without such regulations, customers might never know the original buy rate.

Understanding the difference between these rates can help you make more informed decisions when financing a car through a dealership. It’s always advisable to shop around for the best financing rates and to know your credit score before entering negotiations.