Many people shop for a car by going to the dealer first. They allow the dealer to run their credit and get their financing arranged for them. The non-profit Center for Responsible Lending compiled a report after looking at 25 auto finance companies with a combined 1.7 million accounts. That report shows that dealerships often marked up interest rates without letting the customer know.
On average, dealers added 2.47 percentage points, and the extra cost was $714 per consumer over the life of the loan. Each dealer profited by adding the points to the loans. The practice is applied to all credit scores, but there are three things that you can do to protect yourself from these predators.
- Get a preapproved loan from a bank or credit union before visiting the dealership. At the very least you will be able to compare the loan rate to the one offered by the dealer.
- If you decide to allow the dealer to arrange your financing, remember that every aspect of the loan is negotiable. That includes the interest rate.
- Plan ahead for the loan. Check your credit report and clear up any mistakes. Do not open or close any lines of credit within 60 days of applying for a loan as this will lower your credit score.
Most people think that a car dealer will find them the best possible rate. They will, but it will be the best possible rate for their profit margin. Protect yourself, shop around, and remember that everything is a negotiation, so speak up.