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Never understood how charging someone a few points higher interest is going to protect the dealer against losing tens of thousands of dollars if the guy disappears or fails to pay.
The real cash cow for dealers is the service department and used cars. If they had to survive on new car sales they'd never make it. Invoice, whatever that really is, is almost meaningless. Now if they can squeeze you for more they will but it's not likely a given dealer is making a big profit off you, invoice or not.
I use to work for a company that offered supplier pricing for GM vehicles, usually invoice +3%. I'd go in and get the supplier price and then go in to a different guy and see what I could do and always did better than supplier pricing. It's good info to have but like any other bit of info, another piece of the puzzle.
The real cash cow for dealers is the service department and used cars. If they had to survive on new car sales they'd never make it. Invoice, whatever that really is, is almost meaningless. Now if they can squeeze you for more they will but it's not likely a given dealer is making a big profit off you, invoice or not.
I use to work for a company that offered supplier pricing for GM vehicles, usually invoice +3%. I'd go in and get the supplier price and then go in to a different guy and see what I could do and always did better than supplier pricing. It's good info to have but like any other bit of info, another piece of the puzzle.
That is what a chain around here does. They'll give you $7000 for your 3 year old car, throw it on the lot at $14000. Way more money than selling a new car.
That is what a chain around here does. They'll give you $7000 for your 3 year old car, throw it on the lot at $14000. Way more money than selling a new car.
And then finance the difference between what you owe and the $7K they gave you by adding it to the loan. Lather rinse repeat. You'll never really "own" a car, but you own a lifetime of payments!
Never understood how charging someone a few points higher interest is going to protect the dealer against losing tens of thousands of dollars if the guy disappears or fails to pay.
The dealer is paid no matter what. The Bank is the one that loses if the guy stops paying. Its the same as a risk pool in insurance.
Look at it this way; if the bank loans 10K to 100 people with a FICO score of 720 or above, they know that 99 of them are going to pay their loans. The bank charges 3% interest because they knew that if one percent didn't make the first payment, they were still going to make money.
Conversely, if you take a group with a 550 FICO score, the banks know that 15 out of 100 (and I'm making these numbers up for the point of the demonstration) aren't going to pay and the bank will have to repossess the vehicles. To make up for this, the bank might require 20% down, so that at auction they were more likely to break even after repossession, and a much higher interest rate. So, in order to loan money to people with a 550 FICO score, the banks know that they need to charge a higher interest rate to their portfolio of sub prime borrowers.
If you are going to finance a new car, you should put 50% down and take a 2-year loan max. If you can't do that, then you can't really afford that car. Better yet, save the money and buy the car all-cash, 2 years old, and lightly used. The market price for a new car is murky. True prices are not generally reported in any centralized location where the data can be analyzed. The used car market is more transparent and easier to understand. A well taken care of 2 year old car with 20K miles on it is functionally new anyway, and the initial depreciation is paid for by someone else. You also have better reliability data publicly available for a 2-3 year old model.
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