Interest rates are based on your credit scores. Knowing what yours are willhelp to minimize (or even eliminate) any mark up the dealer tries to add to
the “buy rate” the dealer is offered by lenders. Like in a mortgage, banksand credit unions offer the dealer a chance to mark up the interest rate on (^)
the vehicle lease or loan; this profit is called “participation.” The buy rate isthe interest percentage rate the dealer starts at, before marking it up to the (^)
consumer. It is typical for a dealer to mark up all buy rates that aren’tadvertised specials. The average markup in 2009 was 2.74 percent! This is (^)
a big source of revenue for them—over $700 on each deal, on average.
beware that they don’t run the payment using yourTIP: If you go in to a dealer with pre-approved financing, pre-approved^
interest rate at a shorter term than their financing option.
It’s another trick to get you to go with their lender, so they can “make rate”(interest rate markup, another term for participation). The normal gambit is (^)
to give you the payment using your preapproved financing at a term six or12 months shorter than that for their financing. As long as you keep from
focusing too much on payment, and ask the right questions, such as “Onwhat term is that payment based?” you’ll be fine.
On the Four Square, the first payment you’ll normally be shown (the “firstpencil,” as they call it) is based on a shorter term like 36 or 48 months,
rather than the more traditional loan lengths of 60 months (used) or 72