When you go through a car dealership to obtain financing, the car dealer will usually get a cut of the interest you are paying called "dealer reserve". In most cases, the amount of "dealer reserve" that a car dealer can take from you is determined by the dealer reserve schedule of each particular bank. The dealer reserve can vary from an increase of less than 1% to up to 2 or 3 %. The dealer usually has a window of discretion between certain percentage rate increases, and you can bet that in most cases they will choose the highest increase possible.
What does "dealer reserve" mean to you? It means that you may be able to obtain financing at a lower interest rate on your own. Check with your bank, the finance company that holds your current car loan and see what kind of rates they can give you.
Then, check online to see if the dealer is running any financing specials. Sometimes the dealer may be able to offer a lower interest rate even where it is making "dealer reserve" simply because of the volume of financing at the dealership and their business relationship with certain financing companies. But, since a higher interest rate can make a huge difference when purchasing a vehicle, it is certainly worth your time to "shop" a loan.
Another benefit to obtaining financing on your own is that it can give you the upper hand in negotiating a price. For instance, if you walk into the dealer and offer to purchase the vehicle with check in hand, the dealer may be willing to reduce the price of a vehicle on their lot to get a sale.
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