ladiver

I was looking at a 2019 Grand Sport 2LT and have run across a dealer who has a 2017 Z06 3LZ (fully loaded) that appears to be about the same price. I have access to employee pricing and there are discounts on top of the sticker price. What I am trying to understand is the discount if you finance it through a specific lender. Here are my questions; Why is it sometimes cheaper to finance that pay cash? How can a lender offer a $13,000 discount on a $90,000 vehicle? Even if one were to finance $90,000 at 6% for 60 months, the interest earned is $14,000. Realistically, one would finance significantly less and pay it off sooner.

Thanks,

Jeff

Billy346

If you can save on the total price by financing, it would be smart to finance but put as much down as possible and try to pay off early. If the total price is indeed less when financing (not allowing for interest expense if the loan is carried full-term) then it may be because the dealer is making money for selling the loan, which they tack on to the price of the car if it is not financed. I know a car dealer that sells cars for $500.00 below their cost, but makes up the difference plus profit when the buyer finances the car.

TEXHAWK0

I still don't understand why a dealer would sell a car for less just because it was being financed?

ladiver

Thanks Billy. Are you saying that the lenders are giving the dealers MORE than the loan amount? In your buddies situation, they are giving him the loan amount + $500 + acceptable profit ($1,000?).
I have always thought that a lender would negotiate a deal where they give the dealer 98% of the loan with no risk of default or anything else. Then, even if the buyer pays off early, they (lender) make 2% but if they (consumer) carry for full term then the rate is just what the lender felt was fair for fronting the money.

ladiver

That is exactly what I am trying to figure out. I do not believe that the finance company is paying the additional $13K for the consumer. There is ZERO business case for this. The best case scenario would be that the lender made $14,000 in interest over 5 years for a total profit of a whopping $1000. No way any business stays around by fronting $90,000 just to make a profit of $200 annually (or less).

Phanni

They get kickbacks from the lending company that exceeds the "loss".

JDSKY

Because the dealer is being paid by the lending institution for brokering the loan.

My son was going direct to his credit union to secure financing for a new car purchase last spring - which in my experience usually nets you the best rates vs shopping dealer financing. He then shopped several dealers to make the best deal he could on the car he wanted. The best deal he could negotiate ended up being with a dealer that also financed through his credit union. That dealer reduced the sales price of the car below what any of the other dealers were willing to do and he still received the same rate as if he had obtained the loan directly himself. There was money the dealer received from the credit union. Of course there are other variables at play but most of the dealers were very close on the price of the car but with financing in play the cost of the car was always better - lower than if paying with cash.

Parents did the same thing on the last two new trucks they purchased. By financing they actually got a better deal overall and then just turned around and paid off the lender before any interest was charged.

saleen556

ladiver

Saleen556, this is exactly my thoughts. If I get a 2017 Z06(Z07) for the same price as a 2019 Grand Sport, then GM already took the depreciation hit. :-)

NashvilleGrandSport

I financed a car recently for a short period due to not having the cash on hand. As I've dealt with the same F&I guy at this dealership 4 times now (they've always treated us right, after getting 30% off MSRP this time plus he gave me some extra incentives at the table to work with him on financing), I felt comfortable asking him how long the loan had to be in effect before they got their "kickback" from the finance company. He said after the third payment, so I paid the car off right after that payment cleared.

Win, win for all.

EDIT:THIS WAS NOT MY CORVETTE PURCHASE. I paid for that. These were Hyundai dealership purchases over the last 5 years, the most recent in April.

JJLAI724

So which one did you buy?

NashvilleGrandSport

See EDIT above (if that was directed to me).

JJLAI724

No wanted to see if the OP bought a new C7 to him.

Rebel Yell

This is the way a deal went on my brides car (an odd model called a Ford Mustang). At the time there was an extra finance incentive of $1000 to finance the car (we were paying cash at the time). I ask the F&1 guy who we know personally how that works. He said the discount is carried by the selling dealer, and then Ford would reimburse them after the loan was accepted by the bank or credit union. He then said since we wanted to pay cash we could finance the car, and pay the loan off anytime since it's a simple interest loan. All he ask is if we would pay at least three months to give Ford time to reimburse them. So, I paid a little interest then paid it off. I'm not sure how much interest, but I still saved more than I spent on those payments.

I'm not sure if GM has the same system, but I would bet it's dang close. I'm also betting that Jeff's F&I guy was just a little bit full of chit on the numbers he was throwing around. Jeff, I suggest you go back, and have another conversation. There could be some misunderstanding there. He may have been adding the dealer discounts into the finance incentives making it sound like it all came from the bank.

sstonebreaker

There is profit to be made on the front end and profit to be made on the back end. A good book to read that goes into a lot of detail is Remar Sutton's . He goes into a lot of detail on how the dealer gets additional rebates from the factory he doesn't tell you about.

Custom Corvette Accessories

Make sure you ask if there is an early payoff penalty...

...especially if you buy it used

Regards
Chip

JerryU

JALLEN4

Automotive sales is a highly competitive, capital intensive, incentive driven business. The sale of an automobile presents multiple profit opportunities for the dealer as well as several businesses that can be involved with the dealer. One area of potential profitability would be the financing of the vehicle sale either through a loan or a lease.

Lenders compete for the dealers potential finance sales generally by sharing in the proceeds in some manner, competitive rates offered, and occasional dealer incentives. Various states of jurisdiction can change how this actually works. Usually, the dealer is given a buy rate when the loan is approved and if he gives the customer this rate receives a small percentage of the total amount financed. In many, if not most states, the dealer has the option to "mark up" this rate. For example, the buy rate is 3% and the dealer finances the vehicle at a 4.5% rate. Depending on the lending agreement in effect, the dealer will receive most all of the difference between the two.

F&I Managers, Business Managers, or what ever name the dealer wishes to call the last guy you see, is paid based on what he can sell you as far as to financing, warranties, credit life insurance, or a potential plethora of add on products. This person is usually not paid on the sale of the vehicle for the bulk of his income. It could be advantageous to him and others to convince the buyer that the total pricing structure is based on the financing being controlled by their financing source. The OP's thought that no company offers $14,000 to make $1,000 is perfectly accurate but a good F&I guy may try to make you come to that conclusion.

The purchase and the financing of the purchase are two very separate transactions. Make the very best possible deal on the price of the vehicle before financing and then explore what the dealer offers to finance the vehicle. Dealers control a high number of potential loans and leases so therefore can command the very best of rates. It is a negotiation the same as the purchase price. Many dealers today make far more money in the F&I office than they do on actual car sales.

dbirdhouse1

A. Always walk in with financing already approved by your bank/cu

B. (Be closing, just kidding) Always give the dealer a chance to meet/beat your rate

C. Allow the dealer to earn a few schillings on their financing and share a little with you

Has worked for me, and the dealer more than once.....

JDSKY

This is very good advice that a majority of car buyers are just not aware of. I know my dad was shocked when he found out the best deal to be made on a new truck purchase was actually with financing and not paying cash. Yes, you have to read the fine print to make sure there are no additional markups hidden in there like additional doc fees, early payment fees, sky is blue fees etc, but in my experience additional costs like these have not been common at least for the last few deals we have made in my state.

My advice to anyone would be shop the banks and credit unions first. Then go shopping for the vehicle. Finally, while doing either of these tasks know your numbers and don't be swayed by a salesman in the financing department..... They are significant profit centers for the dealers.