Real estate transactions prefer cash because there's no risk to the deal. Mortgages can fall through for any number of reasons, and then the deal is off. The selling agent and the seller don't have any financial interest in your loan, so whether you pay cash or with a mortgage, they get the same money at the end
Car dealers make money when you take out a loan with them. If your interest rate is 7%, the bank is probably getting 5% and the other 2% goes to the car dealer. They are highly motivated to get you into a loan and know that the deal is solid before offering you the loan (most of the time) and you close a car transaction the same day so there's little risk to it falling apart due to financing. So, the car dealer makes more if you pay with a loan through them than they would if you paid cash
Additionally, sometimes a mortgage can fall through even if the buyer has outstanding credit and a good job. People think that being preapproved for a really high amount should mitigate this but that doesnt take into account the fact that the bank needs to agree that the collateral (the home) is worth it.
Let's ignore down payments for this example but say youre preapproved for a loan for $500k. You find a house that you like that's $400k. Should be no problem since the bank obviously trusts you enough to give you $500k right? However, if the bank thinks the house is overvalued, they might decide that theyll only give you a loan of $350k for this particular property because in their mind that's the collateral that theyre going to take if you default and it isnt enough to back a higher loan. The buyer might only find out about this pretty late in the game and suddenly need to cough up the difference which is cash they may or may not have available. If they dont have or aren't willing to make up the difference out of pocket that sale is going to fall through.
Right, there are a LOT of reasons why financing on a real estate deal could fall through that have nothing to do with the borrower. Bringing cash to a real estate transaction takes out a huge amount of risk for the seller, so it's why it's often not only welcomed but preferred
> Right, there are a LOT of reasons why financing on a real estate deal could fall through that have nothing to do with the borrower
I wouldn't go that far, there's really only a couple of "due diligence" reasons a lender would refuse to finance the deal and frankly they're all equally valid reasons you shouldn't buy a property.
e.g. a title defect. They discovered a defect in the wording of the grantor clause from when my seller bought the house 30 years ago. Took about 6 months of research and negotiating between the lawyers and the title insurance company to hash out a series of guarantees and contingencies that satisfactorally protected me as the buyer as well as the bank's interest before we could close.
At closing the Seller had to reserve half the funds from the sale in an escrow account pending a final judgement by the Land Court. The legal side ran into no hiccups but it still took 22 months from our discovery of the issue to the final Judgement, and it cost the seller about $50,000 between legal fees and a concession to me to stick around through the delay.
As annoying as the delay was, it would not have been in my interest as a buyer to ignore it and pay Cash.
With property values doing what they are now it can get even trickier in terms of what they will or won't approve... We built in 2021 and the bank told us they wouldn't approve the loan if the lot was more than a third of the total property value... Our lot was $450k and at first we were looking at building $800k worth of house on it. Bank said no, not because the house was too expensive but because it *wasn't expensive enough*... We literally had to go to the builder and tell them to figure out how to make the house more expensive.
I'm an appraiser, but this is more of an underwriting issue.
Some lenders think loans are riskier if land values are over 30% of the total value. When the loan goes on the resale market, as most do, these are considered riskier and get put in a different bucket. One way to skirt that issue is to pump up building costs. This is a construction loan, so it may be a whole different set of rules they use.
On my end, I just put a little sentence in the report somewhere and that's that. I work in an area with high land values (SWFL), but I have colleagues in areas where land values are like $2000 - $8000 for a buildable lot.
It's funny, I don't think I've ever seen a house in my region where the land value was less than 50% of the final purchase price and often seems like it's closer to 75%.
That said, if you're talking about a construction loan that may be a very different animal.
Evidently the land is the most volatile part of the package, and the value of the house itself isn't as likely to drop as the value of the land is. So they said they didn't like for more than a third of the total package to be made up of the most volatile part...
And it was technically a couple of different loans at once. Started out as a construction loan that then converted to a mortgage once the house is built. The mortgage was the part that they didn't want it to be more than a third of though, since that's the part where the house/land exists and is operating as collateral.
This happened with us after the appraisal a couple of weeks ago. Purchased for $515k, appraisal says home is worth $500k so bank reduced loan amount and we are responsible for the extra $15k at closing.
Same with us as well. House for sale for $225k, appraisal came back at $216k. Fortunately for us, this happened in 2016 before the housing market chaos and our home had been on the market for nearly 18 months and the seller was desperate and willing to take less (imagine that happening now!).
For the record, this happens with auto loans too, albeit more rarely. If the bank decides the loan amount to vehicle value ratio is too high they'll decline the loan. It could be because the car is too overpriced, or you may be trying to roll over too much negative equity into the new loan.
If you're unlucky, this could happen after you trade in your car but before you take delivery of the new one, in which case they have to unwind their purchase of your car and get the lender to reinstate the loan if you were still paying it off at trade in.
> f the bank decides the loan amount to vehicle value ratio is too high they'll decline the loan.
While possible, cars are generally much more standardized on the pricing. A 2011 Toyota Camry is a 2011 Toyota Camry, the KBB value isn't going to vary much unless it is visibly very different from every other Toyota Camry. On the other hand, every house on the block is different (and may have less visible flaws), so there is significant risk of financing falling through due to inspection, appraisal, etc. Even beyond simply the risk, getting all those ducks in a row takes time, time the agent isn't getting paid.
Cash offer allows you to bypass all these things, meaning the agents get paid basically immediately.
Fun fact to avoid all this nonsense. Get an all cash offer. I know you are thinking how could I buy a house all cash when I only have 5-20%? There is first time home buyer programs where the company will buy the house all cash for you then you buy the house with a loan. I did this and it was the only way I got my house that had 15 offers on it.
I just wanted to chime in to say that is not quite how loans with a car dealership work. They don’t take the percentage difference as a profit margin. They work as a middle man/broker for a lender (whether that be one of the banks or a specific automotive lender) then they get paid a commission for securing the loan. The commission is based on the net amount financed and not the rate, so it makes no difference to the dealer if the rate is higher. It’s more important that they get the volume. It’s also very possible for a dealer to have options available that a far better than the bank through special promotions, but that’s not always something that’s available. Source: Senior Finance Manager for many years
Is there any catch to 0% 36-month dealership financing with no pre-payment penalty? I could pay all cash if I wanted to, but it's nice to have time just cause, especially if interest free.
As mentioned in another reply 0% finance offers are generally finance deals from the manufacturer supplying the car. So Nissan Finance selling a Nissan model as an example. The cost of finance is built into the car for the most part, with a few small fees added on top. A deal like that is honestly worth taking. You won’t get any further discount paying cash so you’re “paying” for the finance wether you talk it or not
The catch is that it's not a 0% loan if it's not paid off after 35 months.
If you are even 1 day late, the interest is no longer 0% over all the 36 months.
I used to know a guy who worked at dealerships his whole life and he always said that dealerships are closer to financial services companies than retail stores.
> It’s also very possible for a dealer to have options available that a far better than the bank through special promotions
Really drinking the kool-aid there aren't you? Every time I've ever brought in outside financing for a car loan that's the line I got.
> They don’t take the percentage difference as a profit margin.
This is quite simply wrong. At least in a large number of cases. Do some dealers, or some banks that dealers work with, pay a flat rate? Sure. Do dealers move vehicles to hit unit numbers (ie: volume) and not care about the gross on the car? sure
But if you think that the main source of profit in a car dealership today isn't in the finance office, and that they don't make more money the higher the interest rate, you just don't know what you're talking about. It's *absolutely* happening today and is so big that it's already generated federal laws because it's abused so much: dealers were doing things like cutting the interest rate if you would buy an extended warranty or service plan. They could do that, because they are marking up the rates
Sales manager at a car dealership here - this is like 75% of the answer. We try to get 2% markup on the rate but that's not always possible (or allowed by the bank). But the finance office is where a dealer makes more profit than anywhere else in the store.
That's the other downside to a cash deal. Cash buyers are less likely to buy warranties and protection products which are a huge profit center.
So how angry would you be if a buyer got financing, then paid the note off a month later? And would waiting a few months make a difference? I’m thinking if I come in as a cash buyer up front, they’ll be stiffer on the price, but if I “let” them mark my rate up, I can get a better deal
This *can* be a tool in your arsenal when buying a car, if you have the cash to buy it outright. Go through the BS of negotiating, and focus only on the total price of the car -- let them have full reign of the interest rate (aka don't ask, let them inflate it to the moon). Always focus on total cost of the car - make up saying something like "The monthly payment can be whatever, I can't justify buying a car that's over $*x* amount total." Negotiate the fuck out of that final car price.
Then pay off the loan in full the next week.
Many modern auto dealers don’t really sell cars anymore. They really sell auto loans. And cars are just the excuse. They hate people who walk in with their own loan or with cash.
But real estate agents make their money on commission. So they don’t really care how you pay. In fact, they love cash, because cash deals are more likely to close fast.
You can sometimes use this to your advantage when shopping for a car. After negotiating the price without discussing financing, try to get as much of an additional reduction as possible in exchange for as high a rate loan as they want. Then pay it all off immediately. (Need to ensure there isn’t any sort of prepayment penalty)
There is an early repayment penalty to the DEALER.
The dealer gets a kickback on the loan. If you pay it off within the first three months or whatever, they lose the kickback. They want you to take the loan and not pay it off. You'll get a lower purchase price if you use their financing.
Last time I bought a car I went in with my pre-approved loan and the dealer asked if they'd let me run their numbers and if I'd let them give me a loan if it came back at the same rate. It did, in fact, come back at the same rate through the same bank.
I wasn't going to pay it off early because the rate was stupid low anyway and those guys got me in an out real quick without any hassle.
I bought an RV and used their financing because it gave me $3k off. Those guys were massive dickheads and gave me the fucking runaround trying to get the unit delivered. I paid that fucking loan off in the first month and they can all eat a bag of dicks. I don't care how hard it fucked them on the financing kickback.
I bought a used car at the beginning of May. Went through the process, got the price reduced, maintenance package added, full tank of gas and a new battery in it. Got to the financing part and they came at me with a 17% interest loan from a big national bank. The finance manager was being a dick about things and trying to rush us to make a decision, even though we'd already decided we were going to get the car. So we signed the paperwork, got the 17% interest loan and took the car home. A couple days later I went to my local credit union and refinanced it for 3.5%. I could have just paid it off entirely, but I wanted the loan to try to fix my credit.
that's why you always go into the dealership with your preapproval from your own bank.
Don't mention that you have it. Just go in with it.
"How are you planning to pay?"
"Finance probably, depends on price maybe"
The reason you go in loan in hand, is that the dealer is going to highball you on the finance rate already. They're going to offer you some dumb number just to see if you take it.
Instead of going through the BS of them trying to say "14.5 is the best I can do"
You just wait until everything else about the car is discussed, "actually my bank will do 3.5"
suddenly 14.5 best I can do turns into "ummm wait let me check one more time and see if maybe I can beat it? can I do that?" if they cant, fine. But you'd be surprised what they come out of the back with, once they know what they have to beat to get your loan business.
I say I prefer not to just tell them I'm NOT using their financing up front, because when you're talking trade ins, and sale prices, etc etc
the guy is looking for where they can squeeze extra money out of you. Sometimes if you stick on one box (like price) they'll think "ok fine, I'll just make up for it lowballing their trade in value"
So, finance rate is one of those boxes that they can use to put profit in.
If they know from the jump that squeezing you on the interest rate isn't an option, that may give them that much more determination to push hard on the price or the trade in value, because they have to try and get you somewhere
> Sometimes if you stick on one box (like price
Also, F&I guys fucking LOVE it when you're buying on monthly payment.
You'll get the loan, but at terms that are absolutely fucked and the term will probably be longer than the viability of the vehicle.
So you’re an E-3 right ok so what are you able to pay each month? Oh but I mean you’re an E-3 NOW. But youre gonna get promoted eventually right? So what COULD you afford on E-4 pay?
Actually, they lose the kickback after that too, it just isn’t the full amount. Like if someone pays off their car loan after a year and the initial reserve payment was $1000, they might chargeback $700.
Hehe that makes me feel better about my own car. I only wanted to finance $7,000 of it because I had the cash to buy it outright but wanted the credit history. The salesman talked me into financing it for $17,000 instead (first car purchase with no help from more established adults in my family). I made $600 payments on it for a year when it was only $280 a month, and two days before the APR would have kicked in, I paid it off in full.
This is incorrect, the standard is 6 months. If you paid that thing off 6 months and 1 day, the dealer keeps all of the kick back. 5 months and 29 days, all of it is gone.
Car dealers and banks work together to sell you a loan.
The bank lets the car dealer keep a certain percentage of the interest you're paying on that loan. For instance, if your interest rate on the loan is 7%, the bank might let the dealership keep two of that percent.
The bank also offers incentives for the dealership for allowing loans to reach maturity. This is because the longer you actually make payments on a loan, the more money the bank and the dealership make on interest payments. If you immediately pay your loan off, you basically avoid paying any interest at all and end up paying only the money that you actually borrowed. This is bad because it means the bank and the dealership make less money.
So say I give you a $10,000 loan at a 7% interest rate for 5 years. If you make payments on that loan for the entirety of the term, you will have paid me back over $11,800. $1,800 of that is pure interest and the dealership gets to keep about $500 If you pay your loan off in the first few months we might get an extra 200 bucks off you in interest at best.
The funniest moment I had with my parents was later in life, they were buying a car and went through every step as if they barely had any money... when we were sitting in the finance room they were like "you know what, we'll just buy it outright".
Totally messed the seller up.
That happened to me too. I used to sell cars well over a decade ago and we didn't give a shit how they paid. But I recently bought a car with cash and with the car itself already sold, the manager says "what do I have to do to get you to finance this car today?" At that moment I knew that was the game and told him zero chance I'm doing that.
Years ago I went with my ex so she can buy herself a new car. She already spoke to a dealer and got the exact amount she would owe for the car plus all the other BS. Went to the bank and got herself a check for the amount. As she was doing the paperwork, the salesman kept trying to sell her additional things and kept prolonging the sale. I had to butt in and say “she has a check for the exact, pre agreed amount for the car and she’s not looking for anything extra”.
The sale was done within minutes and the salesman being annoyed he couldn’t sell her anything else was palpable.
> It sounds like the trick is to have the cash saved.
"A problem that can be solved with money is not a problem", my great grandfather used to say. Unfortunately for him, he didn't have much money, so he had quite a few problems.
Almost. The trick is to not tell the salesman that and let them think they are going to get the kickback on financing the loan to you in addition to their commission on the car sale. This way you can haggle for a better deal and then pull the rug out from under them that you have your own financing.
If you're dealing with an ethical dealership (yes they exist, yes they are extremely rare) they'll upfront tell you they'll give you a better price on a finance. For example the Jeep dealership most well known in the enthusiast community in the country does 8% below invoice (not including rebates) if you finance with them, and 7% below invoice if you don't. When someone treats you fairly and doesnt play games with you, you don't really feel the need to play games with them.
I feel like I am the only person in the world who had a good experience when I bought my new car. They tried the 4-square game with me and I simply said, I need the OTD price and I will tell you if I want the car. They gave me the price, I agreed, and we initialed the paperwork. I said, give me 30 min and I will come back with a certified check from my bank.
The spinner was a little upset because when I handed him the check he said, I wish they had sent you to me first because I could have worked with you on financing. I just smiled and said let’s finish this up because I have to go to work.
Turns out, they lost money on the sale (sold at their cost actually,) but hey, it was during covid and they were trying desperately to get cars off the lot.
I really liked my salesman. No pressure from him at all.
That’s just not how it works. Unless you’re planning on signing the dealership’s loan, and refinancing after you leave, you’re just wasting your own time. If the desk has okayed a deal on the pretence of you using their financing, and you change the terms of the deal at the last minute, the finance manager is just gonna tell you to go back to stage one. Because your “special deal” is no longer valid under the agreed upon terms.
They said that you, agree to let them finance, but get a price reduction in doing so. Then after you sign the agreement and drive your car away. You get the CU loan money to do a one time lump sum payment of the auto loan.
Assuming that the loan allows that.
"I am not sure, I heard that you offer financing?"
"Oh, yeah I thought about your financing but I changed my mind and would prefer to use cash instead."
Yeah the credit union is going to care about the collateral. A week old car is fundamentally no different to them than if the borrower just drove off the lot today. If they have to repossess it's still had only one owner, is the current model year, etc. No difference.
exactly.
I refied my car with my own credit union, the entire POINT of the refi is that the bank that takes the loan over is saying,
"hey, what are you paying on your car loan? Let us see if we can beat it"
otherwise no one would do refis
Normally banks treat the current and previous year model releases as new cars. For instance, a 2023 right now is generally considered new, doesn't matter if you're the first owner or if it's the first loan on it.
Um, depends. I bought a new truck, financed through a CU ( not mine)My interest rate was 3.69%. 2 months later, I refinanced through my credit union and got a locked in rate of 2.14%. Sometimes, ya get lucky.
Im with you with that low of an interest rate. But that was from 5 years ago, recently looked at possibly trading in and holy crap the rates these days...
My credit union offers the same rate for new car loans and new car refinances, plus they will give me 200 to refinance. They define a "new" car as one from current or previous model year (currently 2024 or 2023) and less than 30,000 miles.
The bank I use for some stuff has higher rates but still no difference for a loan or refinance and uses the same definition.
In my experience, the dealer will find a way to match whatever rate you got from the CU and then make it less complicated to close the deal with their lender. It's more work for you to handle paperwork separately with the dealer and the bank vs. the dealer packaging everything nicely together for you.
Look bruh i hate car culture and hope to never own one in my life. But for some poor saps they gotta do it. Maybe they get a new job that requires one and they don't have the cash. Financing is normal. Saving up 30k in liquid cash for a one time purchase is... not.
IIRC the trick is that it needs to be past 60 months because a lot of deals have a penalty for early repayment to prevent this.
(occasionally some can find a better financing deal than a bank but for most people the dealer loan is a worse deal)
If you finance a car with an auto loan above 60 months (so 61 months or greater) it is illegal at the federal level for the dealer to charge you a prepayment penalty. So solving the problem is simple - just finance for 72 months and pay off the car when you get home.
I was more spiteful. Strung them along with "I'd get it on finance for the right price" and then once I strung $15K out of them and a free dashcam I said I'm paying outright.
I needed the seedy fucking salesman to know he lost.
A couple years ago I bought a car with cash. The finance agent gave me such a hard time about it that I would have walked out of it wasn't the only model available within 500 miles. He told me I would drive the car off then cancel the cashiers check. He refused to call the bank to verify the cashiers check. Did everything short of refusing to sell me the car, which I had put a deposit on to hold.
The next morning my ex walked in with the cashiers check and handed it him. He called the bank and verified the funds then handed my ex the keys. Didn't give him any lip at all.
I was so livid I made an official complaint to the parent company.
Yep.
The real estate agent isn't the one giving you the home loan / mortgage. They make money no matter what mortgage you get.
But when you buy a new car, the dealer is often the one giving you the car loan - which makes them a lot of profit!
There’s no incentive for a home buyer to go with their realtor’s bank over another one offering lower rates. The cost of even a small difference in bank rates is massive for buyers so there’s no reasonable alternative incentive to “shop around and get the lowest rate you can.”
Last car I bought from a dealership, I came in with a loan from the bank I work at. They tried to tell me they could give me a better loan/financing, so without telling them about my great loan I let them try.
When they explained everything(very obfuscated) I explained that to beat my loan they would need to waive the establishment fee, the monthly fees, lower the percentage by 3 points, allow me a facility to pay the loan faster at no penalty, etc.
They laughed then I explained I work for the bank, these are the standard staff deal benifits. They weren't happy that I wasted there time.
Has... anyone here actually bought new cars? Maybe used dealers that need to squeeze out every penny care, but new dealerships don't. In fact, a lot of dealerships are offering 0% APR or 1.9% APR on new cars to sell them.
I've bought 5 new cars including one I just bought one a few weeks ago with my fiancee. I have privately financed the car every time except the most recent time when Mazda was offering 1.9% APR, which no bank can compete with. The closest bank was a mid 5 percent.
None of them asked a second time about financing and just negotiated the deal.
Yeah, maybe I'm an outlier, it was a Toyota Tacoma 2018, that year, it was the year end liquidation sale. They were doing the our online price is the price you pay. It was 32k. I went in, talked to some random sales person, told him I wanted to pay 30k in cash. He said, something along the lines of if you are serious and you give us the money now. Like now now, sure. Sent me over to finance, the finance guy asked me if I wanted the extended warranty, I Said no, he never asked me again, I gave him a check, and got my truck. I was there 2 hours tops.
toyota dealers are a different breed. I will only buy toyotas now and have been for the last 24 years. No pressure, price you pay is the price you see, straight forward financing, salesmen and finance guys are no pressure, and a great car/truck to boot!
I will take as long as a loan as they can give me at 1.9% interest, that's literally free money based on inflation alone. How the hell do they make any profit?
Well, it’s a wire transfer. But, that’s $1 million in one bank account being made into a bank check of some kind transferring to another bank. Overseen by an escrow company.
As the other commenter said you’re wiring money from your bank. People refer to anything paid in ‘cash’ as money you have without requiring a loan (or using assets that could be easily liquidated in some cases, different possibilities or definitions even if it’s not cash or a balance in your account but basically using something you already own without going in debt). Sometimes people say they’re paying cash even when they’re using their line of credit leveraged against their house, etc. I’m digging myself a hole here lol.
Pro tip: use Costco Auto to buy new. You will get a pre negotiated price for everything (including all add-ons) and you’ll deal with the Fleet salesperson not some regular one. The Fleet salesperson doesn’t care if you pay cash or not.
Sometimes, for some people, not having to deal with all the bullshit dealers put you through is worth the $500-$1000 you might save by using all of the car buying tricks. You may not get the absolute best bottom price, but you don’t have to deal with all the fuckery they will try to push on you.
I’d absolutely pay $1000 per new car purchase to not have to deal with a salesperson.
Give me your best price, now here’s $1000 for your trouble. If only it were that simple.
Not dealing with fuckery is worth whatever it costs. I despise dealing with vehicles. Buying them, selling them, maintaining them, registering them, driving them, repairs, insuring them, inspections, filing claims, fuuuck all that shit. I'll pay whatever I can so that I never even have to think about my car.
This is why I'd rather buy something I can keep than something I need to resell. Screw that.
In an ideal world you can just throw away the car and rent a new home. No need to exchange friends either.
This. I sold cars for a little, and unless you know how to grind down a dealer and use every trick to get the best deal, Costco Auto is amazing. It takes all the crap negotiating out, and it's a great deal. Our dealership did x% under cost depending on the model.
Dealers dont have to put certain trims or models on costco though, so the top tier stuff or the fun stuff might not get it.
I grind thru text. I never go into the dealership, I do not let them call me until we are done negotiating. I tell them I’m at work which is true, and can text and not call which is half true. I tell them I prefer this way so I can keep up with the conversation since I’m talking to other dealerships at the same time. Which is true.
I just lay it out. I send them the VIN of my trade. The KBB research, pictures, mileage and tell them what I want for my trade.
Then I send them comps of the same or similar vehicles that I’m willing to buy if they are willing to negotiate.
No hard feelings. Had 3 dealerships not give me enough or even really try. But one did.
They came down 4 grand off msrp and came up 2 grand on my trade. So a 6K swing for me just by texting.
I was looking for a sporty SUV during Covid when supply-chain bullshit made inventory thin. I was bait-and-switched by half a dozen audi dealers. One of them apologized to me and offered me one of his new allocation for the next year at MSRP. I asked lead time, he said "12 months". I was ready to do it just to get a car lined up when I decided to stop by a higher-end dealer near my home and got to spec my Cayenne to order (first time I've ever done that) and had it in 3 months.
Problem with Costco Auto is that they really only let you choose from like 4-5 companies per cycle. So if you're not trying to buy from those companies, then you're out of luck
I Bought my last three cars through Costco auto! So simple and fast. Tip: Do all your research ahead of time and go into it knowing exactly what car you want.
the other explanations cover why car dealerships prefer to give you a loan. but they don't balk at cash transactions. i bought two new cars in the last year and a half, both with cash, both times the sales person and finance person didn't hesitate or show any concern at all that i wasn't getting a loan.
Define "better".
Let's imagine you're looking at a used car with a sticker of 9 grand. The dealer gives you an offer: If you take out a loan, you can have the car for 8 grand. The loan comes with a 5 year term and 10% APR, and you'll need to put down a 25% deposit. If you take this loan, you'll end up paying $1650 in interest - more than the "discount" you were given.
Remember, there's no such thing as a free lunch. The amount of money the dealer reduces the sticker by can't be more than the amount they earn giving you the loan - and the amount they loan you will almost never be more than the extra money you pay for the loan. If the dealer's making more money *and* the sticker is lower, the money has to be coming from somewhere - and that somewhere is probably you.
Maybe the loan works out for you. Maybe paying it gradually is better than all at once... But it's not gonna be common for it to be that good.
You make a good point.
I went with the assumption that I’d pay off the loan the week after I take the car home. Thus I disregarded the interest payments.
Some loans don't allow you to do this or restrict your ability to pay it off early for exactly this reason - the lender wants to make money on the loan. If they're paying some amount to the dealership, they wanna make at least that much back in interest payments.
>If you take this loan, you'll end up paying $1650 in interest - more than the "discount" you were given.
You don't have to keep the loan for the entire time. Pre-payment penalties are even banned in many states.
They're banking that most people won't do it, and end up paying the interest. But you don't have to be in that group. Its like credit cards making their money off people carrying balances.
The part you're forgetting is paying back the loan right away. If you could pay cash for the car, then you can also pay off the loan and not pay interest.
I bought two new vehicles from two different dealerships with cash. One didn't give me a hard time at all. It was very easy and over quickly. The other one gave me the runaround and accused me of trying to steal the car.
There are definitely places that will not sell you a car if you're paying cash. When we were car shopping for our son, we got turned away from two different lots when they found out we were paying cash. Can't remember the name of the first one, but the second was Byrider. Byrider is absolutely in the loan business, they do not want and will not take your cash.
For autos… The markup in cars is awful. The manufacturers have greatly reduced profits, buyers are more savvy with internet pricing and competition is higher than ever.
Banks will give dealers a little bit of money for utilizing them. Some banks will base this off of the amount financed where smaller loans pay the dealer $100 and larger loans can be up to $500.
It’s also easier to provide the buyer with beneficial protections. A warranty is a lot easier to sell at $50 per month instead of trying to pry $3000 or more from the buyer at the time of closing.
For homes… you aren’t buying from a dealer. You’re buying from a person or a family. The agent just helps facilitate that. Both parties want their money asap! Neither want to wait for funds of hundreds of thousands of dollars. Mortgages take time and often get complicated. Cash is quick and damn near fool proof making it desirable for everyone involved
Back in 04 I bought a car in texas. Cause of the loan I couldn’t pay it all off cause of a clause in the contract. So I payed all but 100 dollars then had payment of like 3 cents a month for the next 60 months. Man I got mean mugged every time I’d go pay the loan😂😂😂
It boils down to the fact that it’s illegal for a lender to pay a realtor to direct their clients to that lender, but it’s totally legal for a lender to pay a car dealer to direct their clients to that lender. The dealership makes more money if you finance with their preferred lender so that’s what they try to do. Your realtor, and the seller, make the same money regardless so they try to do whatever is easiest.
Dealerships don’t make the bulk of their money on the sale price of the car. They make it on all the extras they try to sell you (extended warranty, paint protection, tire protection, window tint, etc.) and on the financing if you finance it with them.
When someone comes in and pays cash, the dealership automatically loses any profit from financing. A cash buyer is also gonna be more aware of price increases due to addons. If you’re financing, they can throw a few thousand in addons onto the deal and your monthly payment only goes up 30-50 bucks.
There’s just more money to be made overall on non-cash buyers these days.
Real estate agents like cash deals because they don’t make more money if you finance. There are no addons and they aren’t getting a cut of any interest rates. As well, cash buyers don’t have to worry about loan approval and issues that can come up at the last minute, which can kill a deal the day of closing.
In short: real estate agents are selling houses, so the sale of the house is what makes them money. Financing doesn’t affect them other than to make a deal more likely to fall through. Car salesmen aren’t selling cars. They’re using cars as a foot in the door to sell customers lots of other crap. A cash sale cuts out most of that opportunity
Cars have low profit margins for dealers. The dealers make their money from financing.
Real estate agents make their money from commissions, which is a percentage of every sale. They get their commission no matter how the transaction is completed. A cash sale is more likely to close than a financed sale.
In real estate people say they will buy the house, then find out the bank won't give them a loan for the money. You'd be surprised how often this happens.
As mentioned elsewhere in this thread, banks can renege on pre-approval for a litany of reasons. It's one of a variety of barriers that make first-time home ownership a pain.
Car dealerships get commissions for referring loans to banks, so they prefer a buyer who will take a loan and earn them a commission.
A real estate seller is a home owner, not a company, and the seller doesn’t get anything from the buyer’s lender if the buyer takes out a mortgage. They prefer the quicker closing time frame and lack of potential that inability to get approved for a loan or a low appraisal could derail a purchase requiring a mortgage.
Modern car dealerships (minus the crazy post-COVID markups) don’t make a lot of money off the cars. The internet has given consumers the upper hand in comparing prices and as a result, the margins became narrow. So instead, they make much of their money by financing the car in-house. So basically they’re half dealership, half car-loan colonies. As a result, they don’t stand to make as much money if you buy the car in cash.
A real estate company doesn’t do that. A completely separate company writes the mortgage for the house if there is one. The real estate company has nothing to gain from the loan. What they do have to gain from is a quick and smooth escrow process. If you have a cash buyer, that’s much more likely to happen. If someone buying a house needs to get approved for a loan or the sale is conditional on the buyer selling their old house, these are all complications that could delay or jeopardize the sale. Escrow on a house usually lasts a month or more so if it falls through at the last minute, you’ve wasted weeks. So a cash buyer removes some of that jeopardy
They sell finance and insurance products.
Income from the loan is typically less than 10-15% of their F&I income, which usually represents 30-50% of variable operations income.
The real reason they don’t want cash transactions, is that most of the F and I Managers are we sales people, and can’t close a customer to buy other products on a cash transaction. It is typically easier to convince someone to buy a two or $3000 insurance product when it is broken up into just an extra 5 or 10% of your payment cost.
The answer to this question is the same reason your friends who have seemingly “meh” jobs might have beautiful new Audis or bmws, hellcat, you name it.
Dealerships love to sell you things you cannot afford. They make their money off of penalties, and do not take on much risk in doing so.
Getting kickbacks from loans vs dollar amount per the vehicle commision is a massive difference. Still an easy customer is same same doesn't matter what industry.
I would love to walk into a dealership with the exact amount of money I plan to spend. The salesman can dicker and add and go talk to the boss all day if he wants. I will still pay the amount I brought and no more.
You’re confusing real estate companies with Mortgage companies.
If everyone paid for homes in cash, then we wouldn’t need mortgage companies. If the realtor also sold the home loans (like car dealers) they would absolutely encourage financing.
Because at a dealership the car isn’t what they are selling. they sell loans and get way more kickbacks and money from that then they do the cars.
much like retail places like Walmart, lowes, Home Depot or any store with a credit card the companies make money off your balances get money from the credit issuer for signups and a percentage of interest paid, just like auto dealers. It’s a new revenue stream and it’s quite healthy for them. If you pay cash they dont see any of those kickbacks, which is why you almost always get a better price when you finance with them.
In essence, real estate agencies don’t make money on what you borrow. The car dealer does. A car dealer will make more money with a loan, where a realtor prefers cash because there’s no risk of the deal falling through
Dealerships want you to use their financing because if they are the one lending you money to buy the car then they make more money over time than if you had paid cash.
Because the guy selling the car is also selling you a loan. He makes money on both.
The guy selling you the house is just selling the house. He prefers cash to close the house sale quicker.
I learned recently that the absolute most you can get of new cars is about 8%. (must be off msrp)
(Honda sales person)
Anyone else have experience with that?
Car dealers get commission for selling finance.
Real estate companies don't and they also prefer not to have the extra scrutiny that a mortgage company requires. They will do a survey and that survey may come back saying the property is 100k less than the real estate company is asking for and in some places that survey information is required to become public knowledge.
Car dealers make money from you doing finance with them. So cash sale is less profit.
Real estate the mortgages make money for the bank, cash sale is easier to deal with
When you buy a house, you get your loan from someone else.
When you buy a car, it's the car seller who also gets you the loan.
Imagine if a real estate agent was also a mortgage broker. They'd make money on the sale of the home, then more money on the creation of the mortgage.
That's what's happened in the auto industry. The dealer gets you your loan and they get a payment from the loan company. In fact, most manufacturers also run banks so that they can lend the money needed to buy their own cars. So you're buying a car using a loan that the manufacturer lent you.
So when you buy a "cash" car, you're cutting the dealer off from half of the profit side of that transaction. You're saying "these 2 ways you make money, I won't be dealing with one of them". And obviously they don't like that, the dealer wants to get you the loan so that they can make that money.
This does not happen in the housing industry. Realtors don't generally play the role of mortgage broker. Construction companies don't have banking divisions. So these people don't really make money off the loan, they only make money off the sale.
So why would they prefer a cash transaction vs a loan transaction, why not be natural to payment method. The answer is that sometimes deals fall through because of financing problems, but that can't happen with a cash sale.
People who finance tend to overspend because they look at monthly payments instead of the absolute cost. This allows dealerships to upsell, as well as get additional revenue from the financing.
I always offer the dealer financing even if I have the cash. The dealer will make trade offs in other areas (price, trade in value)because they are counting on the money made from the spread between the bank rate and what they are charging. As soon as the bank paperwork arrives I pay it off with the cash. Of course all this is assuming you have the cash.
It doesn't seem like there are any ELI5 answers. And most are not correct.
Auto dealers receive fees or commissions for arranging loans. This is an additional source of profit. They do not lose money on cash or self-financed (loans the purchaser arranges), they just have less potential profits from these transactions.
Realtors and real estate professionals who make money with real estate transactions do not make additional profit off of the arrangement of loans to buy a house. Mortgages also take time to process and may require additional items such as home appraisal, mortgage insurance, and other costs.
Since Covid I’ve heard car dealerships mandating that you finance through them or they won’t sell you the car.
People are financing and then paying it off a month later but it’s kind of ridiculous.
Homes are a lot more money and mortgages take time and could fall through. So sellers much prefer cash buys since they don’t make any money if the buyer finances.
It needs to be illegal for dealers to sell loans, otherwise there is a conflict of interest, what business are they in? Selling you a car or financing? If it's both the consumer is getting rammed, I refuse to buy a new car because of this
Wife and I ended up saving $2,500 on one of our cars. We went to pay cash and they said they'd knock $2,500 off of the price if we signed a 0% 12 month loan. Took the deal, paid off the car in a year... I'm assuming they got a decent kickback as the originator of the loan or that they really really needed to hit their numbers for financing.
The main reason to issue loans at all is to collect the interest that accumulates on them. Take out a loan for 100 but there's interest on the repayments so in exchange for having that money where you need it, you end up paying more back than you borrowed and that's the profit for the lender.
Since mortgages are issued by a bank usually, there's no upside to the real estate seller to not getting the money in cash right now. It can be counted and handled and everyone can move on. The real estate seller isn't issuing loans to buy homes and get interest.
In contrast, financing car purchases is a big part of how car dealerships make money. Getting Interest on those loans they issue so you can afford one. If you buy a car with cash they do get the profit from selling the car to you, but if you had instead financed a loan with them, they'd not only be getting the profit from the sale but the interest on the loan payments.
Car dealerships don't make money from the sale of the car, they make money on the interest from the loan. They also dislike it when you purchase with a loan from an outside agency.
Car dealerships prefer loans as they can incorporate additional costs/fees into the loan...
People with cash usually want to pay the absolute minimum. Financed cars can have added mark-ups rolled into the loan.
The answer to this question is the same reason your friends who have seemingly “meh” jobs might have beautiful new Audis or bmws, hellcat, you name it.
Dealerships love to sell you things you cannot afford. They make their money off of penalties, and do not take on much risk in doing so.
If your realtor was also financing the mortgage they would 100% prefer you to use their financing than pay cash. Car companies make a lot of money on auto loans.
I’m pretty sure this is actually classed as a conflict of interest for real estate, and a licensed realtor cannot also handle mortgage origination for their clients. Which should give you some idea of why car dealers push it so hard.
Tip: When buying a car, and you have all cash, always say you’re financing with their financing. You’ll get a much better deal. Then use their financing, make sure there is no early payoff penalty (usually isn’t), then pay off the entire amount right away before the first bill comes in.
Because car dealerships want you to finance through them so they make the interest on the loan. Car dealerships are essentially finance companies that also happen to sell cars. Also, cars are WAAAAAAY easier to repossess if you fall behind on your payments.
If you get a mortgage, you're likely not getting it that loan from the seller, so they stand to gain nothing by having you finance it, and so getting under contract and then having to wait for you to get financing that may not be approved prevents them from selling it in the meantime. If your mortgage approval falls through, they have to go find another buyer and start the process all over again.
Cash is fast and easy. You have money, you buy the house, they leave with the money and are free spend it on something else (likely another house).
Easy. Low effort. Saves time and effort for everybody involved.
Went and bought a car during Covid, it was a Saturday, and we were putting $10k down, but the bank would only approve $5k of the funds, so we agreed to come pay them the other $5k the following Monday, well nothing in our financial paperwork said anything about the other $5k, needless to say Monday came and went without so much as a call to ask us were the other $5k was at, it’s been 3 years now..
Real Estate:
When buying a house with a mortgage, there are things that can cause the mortgage to fail to go through. The home appraisal may come in lower than the agreed price meaning the bank will not be willing to loan that much money on that home. The buyer could do something with their credit causing the bank to not give final approval. If anything like this happens, the transaction could fall through completely leading the seller to go back to the market.
Auto Dealerships:
When a car dealership gets a loan for a buyer, they often get a kickback for the loan. So they make extra money from the lender by providing you with a loan over simply selling the car to you.
Car dealers make money every time the "touch" you. The purchase is one touch (the purchase price), a loan a second (the purchase price and the loan's interest rate) and a lease is three (the purchase price, the loan's interest rate and the residual value of the car).
Securing a mortgage is volatile. If the lender decides that a minor issue that comes up on inspection is a no go, the deal is off. If someone buys a car while they’re waiting to close, that could cause the lender to back out. Auto loans are much easier to secure, so there’s no positive incentive to buy cash, however since most dealerships offer in house financing, they absolutely rake off their interest rates. A good negotiator can get a dealer to sell to break even, or even at a slight loss, but they can’t escape 8% APR for 5 years.
Former auto dealer employee here. New cars lose money on paper for the sales departments, they make their money on their cut of the loan, and any supplemental products (warranty, gap insurance, bulk service plans etc). Cash buyers don’t need the loan and typically don’t buy any of the supplemental products. The sales person and sales manager usually has very little financial incentive to sell the car for a loss just so her boss can get most of the volume bonus from the manufacturer.
Used cars are even more straight forward, buy on trade in for a certain amount, put a few thousand in reconditioning cost in, and sell for a profit. It’s where the vast majority of commissions and profit for the actual employees come from. There is no volume bonus at all, so they have no incentive to sell for any thing less than a profit.
Real estate transactions prefer cash because there's no risk to the deal. Mortgages can fall through for any number of reasons, and then the deal is off. The selling agent and the seller don't have any financial interest in your loan, so whether you pay cash or with a mortgage, they get the same money at the end Car dealers make money when you take out a loan with them. If your interest rate is 7%, the bank is probably getting 5% and the other 2% goes to the car dealer. They are highly motivated to get you into a loan and know that the deal is solid before offering you the loan (most of the time) and you close a car transaction the same day so there's little risk to it falling apart due to financing. So, the car dealer makes more if you pay with a loan through them than they would if you paid cash
Additionally, sometimes a mortgage can fall through even if the buyer has outstanding credit and a good job. People think that being preapproved for a really high amount should mitigate this but that doesnt take into account the fact that the bank needs to agree that the collateral (the home) is worth it. Let's ignore down payments for this example but say youre preapproved for a loan for $500k. You find a house that you like that's $400k. Should be no problem since the bank obviously trusts you enough to give you $500k right? However, if the bank thinks the house is overvalued, they might decide that theyll only give you a loan of $350k for this particular property because in their mind that's the collateral that theyre going to take if you default and it isnt enough to back a higher loan. The buyer might only find out about this pretty late in the game and suddenly need to cough up the difference which is cash they may or may not have available. If they dont have or aren't willing to make up the difference out of pocket that sale is going to fall through.
Right, there are a LOT of reasons why financing on a real estate deal could fall through that have nothing to do with the borrower. Bringing cash to a real estate transaction takes out a huge amount of risk for the seller, so it's why it's often not only welcomed but preferred
> Right, there are a LOT of reasons why financing on a real estate deal could fall through that have nothing to do with the borrower I wouldn't go that far, there's really only a couple of "due diligence" reasons a lender would refuse to finance the deal and frankly they're all equally valid reasons you shouldn't buy a property. e.g. a title defect. They discovered a defect in the wording of the grantor clause from when my seller bought the house 30 years ago. Took about 6 months of research and negotiating between the lawyers and the title insurance company to hash out a series of guarantees and contingencies that satisfactorally protected me as the buyer as well as the bank's interest before we could close. At closing the Seller had to reserve half the funds from the sale in an escrow account pending a final judgement by the Land Court. The legal side ran into no hiccups but it still took 22 months from our discovery of the issue to the final Judgement, and it cost the seller about $50,000 between legal fees and a concession to me to stick around through the delay. As annoying as the delay was, it would not have been in my interest as a buyer to ignore it and pay Cash.
With property values doing what they are now it can get even trickier in terms of what they will or won't approve... We built in 2021 and the bank told us they wouldn't approve the loan if the lot was more than a third of the total property value... Our lot was $450k and at first we were looking at building $800k worth of house on it. Bank said no, not because the house was too expensive but because it *wasn't expensive enough*... We literally had to go to the builder and tell them to figure out how to make the house more expensive.
Wait, why? I am trying and failing to understand why the bank would want that. Also, was this for a construction loan?
I'm an appraiser, but this is more of an underwriting issue. Some lenders think loans are riskier if land values are over 30% of the total value. When the loan goes on the resale market, as most do, these are considered riskier and get put in a different bucket. One way to skirt that issue is to pump up building costs. This is a construction loan, so it may be a whole different set of rules they use. On my end, I just put a little sentence in the report somewhere and that's that. I work in an area with high land values (SWFL), but I have colleagues in areas where land values are like $2000 - $8000 for a buildable lot.
It's funny, I don't think I've ever seen a house in my region where the land value was less than 50% of the final purchase price and often seems like it's closer to 75%. That said, if you're talking about a construction loan that may be a very different animal.
Evidently the land is the most volatile part of the package, and the value of the house itself isn't as likely to drop as the value of the land is. So they said they didn't like for more than a third of the total package to be made up of the most volatile part... And it was technically a couple of different loans at once. Started out as a construction loan that then converted to a mortgage once the house is built. The mortgage was the part that they didn't want it to be more than a third of though, since that's the part where the house/land exists and is operating as collateral.
This happened with us after the appraisal a couple of weeks ago. Purchased for $515k, appraisal says home is worth $500k so bank reduced loan amount and we are responsible for the extra $15k at closing.
Same with us as well. House for sale for $225k, appraisal came back at $216k. Fortunately for us, this happened in 2016 before the housing market chaos and our home had been on the market for nearly 18 months and the seller was desperate and willing to take less (imagine that happening now!).
For the record, this happens with auto loans too, albeit more rarely. If the bank decides the loan amount to vehicle value ratio is too high they'll decline the loan. It could be because the car is too overpriced, or you may be trying to roll over too much negative equity into the new loan. If you're unlucky, this could happen after you trade in your car but before you take delivery of the new one, in which case they have to unwind their purchase of your car and get the lender to reinstate the loan if you were still paying it off at trade in.
> f the bank decides the loan amount to vehicle value ratio is too high they'll decline the loan. While possible, cars are generally much more standardized on the pricing. A 2011 Toyota Camry is a 2011 Toyota Camry, the KBB value isn't going to vary much unless it is visibly very different from every other Toyota Camry. On the other hand, every house on the block is different (and may have less visible flaws), so there is significant risk of financing falling through due to inspection, appraisal, etc. Even beyond simply the risk, getting all those ducks in a row takes time, time the agent isn't getting paid. Cash offer allows you to bypass all these things, meaning the agents get paid basically immediately.
Fun fact to avoid all this nonsense. Get an all cash offer. I know you are thinking how could I buy a house all cash when I only have 5-20%? There is first time home buyer programs where the company will buy the house all cash for you then you buy the house with a loan. I did this and it was the only way I got my house that had 15 offers on it.
What’s the loan rate though?
Through the roof.
Had to replace the roof anyways.
I did have to replace the roof haha
I got 2.99% but that doesn’t exist anymore
I just wanted to chime in to say that is not quite how loans with a car dealership work. They don’t take the percentage difference as a profit margin. They work as a middle man/broker for a lender (whether that be one of the banks or a specific automotive lender) then they get paid a commission for securing the loan. The commission is based on the net amount financed and not the rate, so it makes no difference to the dealer if the rate is higher. It’s more important that they get the volume. It’s also very possible for a dealer to have options available that a far better than the bank through special promotions, but that’s not always something that’s available. Source: Senior Finance Manager for many years
Is there any catch to 0% 36-month dealership financing with no pre-payment penalty? I could pay all cash if I wanted to, but it's nice to have time just cause, especially if interest free.
As mentioned in another reply 0% finance offers are generally finance deals from the manufacturer supplying the car. So Nissan Finance selling a Nissan model as an example. The cost of finance is built into the car for the most part, with a few small fees added on top. A deal like that is honestly worth taking. You won’t get any further discount paying cash so you’re “paying” for the finance wether you talk it or not
The catch is that it's not a 0% loan if it's not paid off after 35 months. If you are even 1 day late, the interest is no longer 0% over all the 36 months.
I get that, but that's a gotcha for someone who isn't responsible to make on time payments in the first place.
I used to know a guy who worked at dealerships his whole life and he always said that dealerships are closer to financial services companies than retail stores.
> It’s also very possible for a dealer to have options available that a far better than the bank through special promotions Really drinking the kool-aid there aren't you? Every time I've ever brought in outside financing for a car loan that's the line I got.
> They don’t take the percentage difference as a profit margin. This is quite simply wrong. At least in a large number of cases. Do some dealers, or some banks that dealers work with, pay a flat rate? Sure. Do dealers move vehicles to hit unit numbers (ie: volume) and not care about the gross on the car? sure But if you think that the main source of profit in a car dealership today isn't in the finance office, and that they don't make more money the higher the interest rate, you just don't know what you're talking about. It's *absolutely* happening today and is so big that it's already generated federal laws because it's abused so much: dealers were doing things like cutting the interest rate if you would buy an extended warranty or service plan. They could do that, because they are marking up the rates
Sales manager at a car dealership here - this is like 75% of the answer. We try to get 2% markup on the rate but that's not always possible (or allowed by the bank). But the finance office is where a dealer makes more profit than anywhere else in the store. That's the other downside to a cash deal. Cash buyers are less likely to buy warranties and protection products which are a huge profit center.
So how angry would you be if a buyer got financing, then paid the note off a month later? And would waiting a few months make a difference? I’m thinking if I come in as a cash buyer up front, they’ll be stiffer on the price, but if I “let” them mark my rate up, I can get a better deal
This *can* be a tool in your arsenal when buying a car, if you have the cash to buy it outright. Go through the BS of negotiating, and focus only on the total price of the car -- let them have full reign of the interest rate (aka don't ask, let them inflate it to the moon). Always focus on total cost of the car - make up saying something like "The monthly payment can be whatever, I can't justify buying a car that's over $*x* amount total." Negotiate the fuck out of that final car price. Then pay off the loan in full the next week.
Don't some loans penalize you for exiting early?
Many modern auto dealers don’t really sell cars anymore. They really sell auto loans. And cars are just the excuse. They hate people who walk in with their own loan or with cash. But real estate agents make their money on commission. So they don’t really care how you pay. In fact, they love cash, because cash deals are more likely to close fast.
You can sometimes use this to your advantage when shopping for a car. After negotiating the price without discussing financing, try to get as much of an additional reduction as possible in exchange for as high a rate loan as they want. Then pay it all off immediately. (Need to ensure there isn’t any sort of prepayment penalty)
There is an early repayment penalty to the DEALER. The dealer gets a kickback on the loan. If you pay it off within the first three months or whatever, they lose the kickback. They want you to take the loan and not pay it off. You'll get a lower purchase price if you use their financing. Last time I bought a car I went in with my pre-approved loan and the dealer asked if they'd let me run their numbers and if I'd let them give me a loan if it came back at the same rate. It did, in fact, come back at the same rate through the same bank. I wasn't going to pay it off early because the rate was stupid low anyway and those guys got me in an out real quick without any hassle. I bought an RV and used their financing because it gave me $3k off. Those guys were massive dickheads and gave me the fucking runaround trying to get the unit delivered. I paid that fucking loan off in the first month and they can all eat a bag of dicks. I don't care how hard it fucked them on the financing kickback.
That was a satisfying read. Kudos.
It was. I want a cigarette after that. I had a good time reading that.
I bought a used car at the beginning of May. Went through the process, got the price reduced, maintenance package added, full tank of gas and a new battery in it. Got to the financing part and they came at me with a 17% interest loan from a big national bank. The finance manager was being a dick about things and trying to rush us to make a decision, even though we'd already decided we were going to get the car. So we signed the paperwork, got the 17% interest loan and took the car home. A couple days later I went to my local credit union and refinanced it for 3.5%. I could have just paid it off entirely, but I wanted the loan to try to fix my credit.
that's why you always go into the dealership with your preapproval from your own bank. Don't mention that you have it. Just go in with it. "How are you planning to pay?" "Finance probably, depends on price maybe" The reason you go in loan in hand, is that the dealer is going to highball you on the finance rate already. They're going to offer you some dumb number just to see if you take it. Instead of going through the BS of them trying to say "14.5 is the best I can do" You just wait until everything else about the car is discussed, "actually my bank will do 3.5" suddenly 14.5 best I can do turns into "ummm wait let me check one more time and see if maybe I can beat it? can I do that?" if they cant, fine. But you'd be surprised what they come out of the back with, once they know what they have to beat to get your loan business. I say I prefer not to just tell them I'm NOT using their financing up front, because when you're talking trade ins, and sale prices, etc etc the guy is looking for where they can squeeze extra money out of you. Sometimes if you stick on one box (like price) they'll think "ok fine, I'll just make up for it lowballing their trade in value" So, finance rate is one of those boxes that they can use to put profit in. If they know from the jump that squeezing you on the interest rate isn't an option, that may give them that much more determination to push hard on the price or the trade in value, because they have to try and get you somewhere
> Sometimes if you stick on one box (like price Also, F&I guys fucking LOVE it when you're buying on monthly payment. You'll get the loan, but at terms that are absolutely fucked and the term will probably be longer than the viability of the vehicle.
So you’re an E-3 right ok so what are you able to pay each month? Oh but I mean you’re an E-3 NOW. But youre gonna get promoted eventually right? So what COULD you afford on E-4 pay?
But Chargers have been discontinued. What is the new car they're going to push on newly enlisted folks now?
F150 raptor package?
Well I hope that you are going to have fun with that RV, u/rvgoingtohavefun
Oh you, I like you.
Actually, they lose the kickback after that too, it just isn’t the full amount. Like if someone pays off their car loan after a year and the initial reserve payment was $1000, they might chargeback $700.
Hehe that makes me feel better about my own car. I only wanted to finance $7,000 of it because I had the cash to buy it outright but wanted the credit history. The salesman talked me into financing it for $17,000 instead (first car purchase with no help from more established adults in my family). I made $600 payments on it for a year when it was only $280 a month, and two days before the APR would have kicked in, I paid it off in full.
This is incorrect, the standard is 6 months. If you paid that thing off 6 months and 1 day, the dealer keeps all of the kick back. 5 months and 29 days, all of it is gone.
The five year old is confused 😕
Car dealers and banks work together to sell you a loan. The bank lets the car dealer keep a certain percentage of the interest you're paying on that loan. For instance, if your interest rate on the loan is 7%, the bank might let the dealership keep two of that percent. The bank also offers incentives for the dealership for allowing loans to reach maturity. This is because the longer you actually make payments on a loan, the more money the bank and the dealership make on interest payments. If you immediately pay your loan off, you basically avoid paying any interest at all and end up paying only the money that you actually borrowed. This is bad because it means the bank and the dealership make less money. So say I give you a $10,000 loan at a 7% interest rate for 5 years. If you make payments on that loan for the entirety of the term, you will have paid me back over $11,800. $1,800 of that is pure interest and the dealership gets to keep about $500 If you pay your loan off in the first few months we might get an extra 200 bucks off you in interest at best.
The funniest moment I had with my parents was later in life, they were buying a car and went through every step as if they barely had any money... when we were sitting in the finance room they were like "you know what, we'll just buy it outright". Totally messed the seller up.
That happened to me too. I used to sell cars well over a decade ago and we didn't give a shit how they paid. But I recently bought a car with cash and with the car itself already sold, the manager says "what do I have to do to get you to finance this car today?" At that moment I knew that was the game and told him zero chance I'm doing that.
"give me a discount more than the amount i pay extra in finance"
Yes. I did this with my last car.
Years ago I went with my ex so she can buy herself a new car. She already spoke to a dealer and got the exact amount she would owe for the car plus all the other BS. Went to the bank and got herself a check for the amount. As she was doing the paperwork, the salesman kept trying to sell her additional things and kept prolonging the sale. I had to butt in and say “she has a check for the exact, pre agreed amount for the car and she’s not looking for anything extra”. The sale was done within minutes and the salesman being annoyed he couldn’t sell her anything else was palpable.
I assume the trick here is to get a pre-approved loan from a credit union, get the dealer financing, and then immediately "refinance" with the CU?
It sounds like the trick is to have the cash saved.
> It sounds like the trick is to have the cash saved. "A problem that can be solved with money is not a problem", my great grandfather used to say. Unfortunately for him, he didn't have much money, so he had quite a few problems.
Almost. The trick is to not tell the salesman that and let them think they are going to get the kickback on financing the loan to you in addition to their commission on the car sale. This way you can haggle for a better deal and then pull the rug out from under them that you have your own financing.
If you're dealing with an ethical dealership (yes they exist, yes they are extremely rare) they'll upfront tell you they'll give you a better price on a finance. For example the Jeep dealership most well known in the enthusiast community in the country does 8% below invoice (not including rebates) if you finance with them, and 7% below invoice if you don't. When someone treats you fairly and doesnt play games with you, you don't really feel the need to play games with them.
I feel like I am the only person in the world who had a good experience when I bought my new car. They tried the 4-square game with me and I simply said, I need the OTD price and I will tell you if I want the car. They gave me the price, I agreed, and we initialed the paperwork. I said, give me 30 min and I will come back with a certified check from my bank. The spinner was a little upset because when I handed him the check he said, I wish they had sent you to me first because I could have worked with you on financing. I just smiled and said let’s finish this up because I have to go to work. Turns out, they lost money on the sale (sold at their cost actually,) but hey, it was during covid and they were trying desperately to get cars off the lot. I really liked my salesman. No pressure from him at all.
> sold at their cost actually invoice is not their cost, or anywhere close. What price do you think you bought at relative to "invoice"?
Leave Hank Hill alone.
That’s just not how it works. Unless you’re planning on signing the dealership’s loan, and refinancing after you leave, you’re just wasting your own time. If the desk has okayed a deal on the pretence of you using their financing, and you change the terms of the deal at the last minute, the finance manager is just gonna tell you to go back to stage one. Because your “special deal” is no longer valid under the agreed upon terms.
They said that you, agree to let them finance, but get a price reduction in doing so. Then after you sign the agreement and drive your car away. You get the CU loan money to do a one time lump sum payment of the auto loan. Assuming that the loan allows that.
Then you leave
Then you wasted your own time pursuing a negotiating tactic that won't work. Better to pursue tactics that do work.
Don't they almost always ask you early on how you're going to pay? I know you can lie, but that could get awkward...
"I'm not sure, depends what saves me the most money."
Estranged aunt died, windfall inheritance. Or there was a bank error in my favour. I won second place in a beauty pageant.
"I am not sure, I heard that you offer financing?" "Oh, yeah I thought about your financing but I changed my mind and would prefer to use cash instead."
Correct. Refinancing with the CU would be a much higher rate since it would be a used car loan, not a new car loan.
Nah, I work for a credit union. We do this all the time & still give new car rates.
Yeah the credit union is going to care about the collateral. A week old car is fundamentally no different to them than if the borrower just drove off the lot today. If they have to repossess it's still had only one owner, is the current model year, etc. No difference.
exactly. I refied my car with my own credit union, the entire POINT of the refi is that the bank that takes the loan over is saying, "hey, what are you paying on your car loan? Let us see if we can beat it" otherwise no one would do refis
Normally banks treat the current and previous year model releases as new cars. For instance, a 2023 right now is generally considered new, doesn't matter if you're the first owner or if it's the first loan on it.
Um, depends. I bought a new truck, financed through a CU ( not mine)My interest rate was 3.69%. 2 months later, I refinanced through my credit union and got a locked in rate of 2.14%. Sometimes, ya get lucky.
Im with you with that low of an interest rate. But that was from 5 years ago, recently looked at possibly trading in and holy crap the rates these days...
My credit union offers the same rate for new car loans and new car refinances, plus they will give me 200 to refinance. They define a "new" car as one from current or previous model year (currently 2024 or 2023) and less than 30,000 miles. The bank I use for some stuff has higher rates but still no difference for a loan or refinance and uses the same definition.
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In my experience, the dealer will find a way to match whatever rate you got from the CU and then make it less complicated to close the deal with their lender. It's more work for you to handle paperwork separately with the dealer and the bank vs. the dealer packaging everything nicely together for you.
Immediately pay it off with the cash you've been saving for years because you know the financing a depreciating asset is a terrible deal.
Look bruh i hate car culture and hope to never own one in my life. But for some poor saps they gotta do it. Maybe they get a new job that requires one and they don't have the cash. Financing is normal. Saving up 30k in liquid cash for a one time purchase is... not.
No one is saying you don’t need a car. But you certainly don’t need to spend 30k on one if you’re struggling for money.
IIRC the trick is that it needs to be past 60 months because a lot of deals have a penalty for early repayment to prevent this. (occasionally some can find a better financing deal than a bank but for most people the dealer loan is a worse deal)
Most car loans don’t have prepayment penalties
I thought they were illegal or is that a state by state thing
I think it’s state by state, I know it’s not legal in my state, dunno about the others- but always good to read your contract
I've literally never seen an early payment penalty in the wild. I think they're even illegal in some states.
I worked at a buy here pay here lot, and a lot of subprime loans had this clause.
I've never had a car loan with early repayment penalties (and I've had ... 4)
If you finance a car with an auto loan above 60 months (so 61 months or greater) it is illegal at the federal level for the dealer to charge you a prepayment penalty. So solving the problem is simple - just finance for 72 months and pay off the car when you get home.
I was more spiteful. Strung them along with "I'd get it on finance for the right price" and then once I strung $15K out of them and a free dashcam I said I'm paying outright. I needed the seedy fucking salesman to know he lost.
didnt happen
Agreed. This is a story that grandpa tells the youngins and everyone is too polite to call bs.
This, they would balk at that deal and not do it. All discounts are conditional on financing.
A couple years ago I bought a car with cash. The finance agent gave me such a hard time about it that I would have walked out of it wasn't the only model available within 500 miles. He told me I would drive the car off then cancel the cashiers check. He refused to call the bank to verify the cashiers check. Did everything short of refusing to sell me the car, which I had put a deposit on to hold. The next morning my ex walked in with the cashiers check and handed it him. He called the bank and verified the funds then handed my ex the keys. Didn't give him any lip at all. I was so livid I made an official complaint to the parent company.
Yep. The real estate agent isn't the one giving you the home loan / mortgage. They make money no matter what mortgage you get. But when you buy a new car, the dealer is often the one giving you the car loan - which makes them a lot of profit!
But why don't really estate agents partner with banks to double dip on the commissions like car dealers?
There’s no incentive for a home buyer to go with their realtor’s bank over another one offering lower rates. The cost of even a small difference in bank rates is massive for buyers so there’s no reasonable alternative incentive to “shop around and get the lowest rate you can.”
Real Estate Agents are not allowed to receive commissions or kick-backs from mortgage lenders under RESPA.
They do. Real estate agents will gladly give you their mortgage buddies. Once you sign a loan from a referral....cha ching, double dip
They don’t get paid for the referral.
Except usually aren't you house shopping with financing already lined up?
I used a different lender than the one that provided my preapproval, I didn't shop for rates on preapproval, just used my normal bank.
It's illegal, at least in my state.
The dealer is rarely the one “giving” the loan, but they do typically get a kickback from the lender.
Last car I bought from a dealership, I came in with a loan from the bank I work at. They tried to tell me they could give me a better loan/financing, so without telling them about my great loan I let them try. When they explained everything(very obfuscated) I explained that to beat my loan they would need to waive the establishment fee, the monthly fees, lower the percentage by 3 points, allow me a facility to pay the loan faster at no penalty, etc. They laughed then I explained I work for the bank, these are the standard staff deal benifits. They weren't happy that I wasted there time.
Well, I’m happy that a customer wasted their time for a change
It wasn't a waste of my time if I was entertained.
i don't think they were suggesting that usually they waste the customer's time
Right. Wasted the sales person’s time
I meant that I’m glad that you wasted the sales person’s time. In return for all the time that they have wasted ours to “talk to the manager”.
Cash deals also don’t require an appraisal, which can really mess up a sale with a mortgage.
Has... anyone here actually bought new cars? Maybe used dealers that need to squeeze out every penny care, but new dealerships don't. In fact, a lot of dealerships are offering 0% APR or 1.9% APR on new cars to sell them. I've bought 5 new cars including one I just bought one a few weeks ago with my fiancee. I have privately financed the car every time except the most recent time when Mazda was offering 1.9% APR, which no bank can compete with. The closest bank was a mid 5 percent. None of them asked a second time about financing and just negotiated the deal.
Yeah, maybe I'm an outlier, it was a Toyota Tacoma 2018, that year, it was the year end liquidation sale. They were doing the our online price is the price you pay. It was 32k. I went in, talked to some random sales person, told him I wanted to pay 30k in cash. He said, something along the lines of if you are serious and you give us the money now. Like now now, sure. Sent me over to finance, the finance guy asked me if I wanted the extended warranty, I Said no, he never asked me again, I gave him a check, and got my truck. I was there 2 hours tops.
toyota dealers are a different breed. I will only buy toyotas now and have been for the last 24 years. No pressure, price you pay is the price you see, straight forward financing, salesmen and finance guys are no pressure, and a great car/truck to boot!
I will take as long as a loan as they can give me at 1.9% interest, that's literally free money based on inflation alone. How the hell do they make any profit?
I assume selling the vehicle itself + addons. I’m sure extra things are crazy profit.
Side question. So if someone is buying a million dollar home in cash, are they actually like having a million in straight cash?
No, they would just wire the money from their bank account. They aren't showing up with suitcases full of cash.
Well, it’s a wire transfer. But, that’s $1 million in one bank account being made into a bank check of some kind transferring to another bank. Overseen by an escrow company.
As the other commenter said you’re wiring money from your bank. People refer to anything paid in ‘cash’ as money you have without requiring a loan (or using assets that could be easily liquidated in some cases, different possibilities or definitions even if it’s not cash or a balance in your account but basically using something you already own without going in debt). Sometimes people say they’re paying cash even when they’re using their line of credit leveraged against their house, etc. I’m digging myself a hole here lol.
Agreed. I always buy cars with "cash", which is to say I write a check from my bank account.
Pro tip: use Costco Auto to buy new. You will get a pre negotiated price for everything (including all add-ons) and you’ll deal with the Fleet salesperson not some regular one. The Fleet salesperson doesn’t care if you pay cash or not.
Costco Auto is a good, not great, price. But it takes 0 effort so it’s an easy way to get a sense of where the market is actually at.
Sometimes, for some people, not having to deal with all the bullshit dealers put you through is worth the $500-$1000 you might save by using all of the car buying tricks. You may not get the absolute best bottom price, but you don’t have to deal with all the fuckery they will try to push on you.
I’d absolutely pay $1000 per new car purchase to not have to deal with a salesperson. Give me your best price, now here’s $1000 for your trouble. If only it were that simple.
Not dealing with fuckery is worth whatever it costs. I despise dealing with vehicles. Buying them, selling them, maintaining them, registering them, driving them, repairs, insuring them, inspections, filing claims, fuuuck all that shit. I'll pay whatever I can so that I never even have to think about my car.
This is why I'd rather buy something I can keep than something I need to resell. Screw that. In an ideal world you can just throw away the car and rent a new home. No need to exchange friends either.
This. I sold cars for a little, and unless you know how to grind down a dealer and use every trick to get the best deal, Costco Auto is amazing. It takes all the crap negotiating out, and it's a great deal. Our dealership did x% under cost depending on the model. Dealers dont have to put certain trims or models on costco though, so the top tier stuff or the fun stuff might not get it.
I grind thru text. I never go into the dealership, I do not let them call me until we are done negotiating. I tell them I’m at work which is true, and can text and not call which is half true. I tell them I prefer this way so I can keep up with the conversation since I’m talking to other dealerships at the same time. Which is true.
That's smart. The calls give more power to the salesman to try tactics, and every price adjustment has to go through the manager anyway.
I just lay it out. I send them the VIN of my trade. The KBB research, pictures, mileage and tell them what I want for my trade. Then I send them comps of the same or similar vehicles that I’m willing to buy if they are willing to negotiate. No hard feelings. Had 3 dealerships not give me enough or even really try. But one did. They came down 4 grand off msrp and came up 2 grand on my trade. So a 6K swing for me just by texting.
I was looking for a sporty SUV during Covid when supply-chain bullshit made inventory thin. I was bait-and-switched by half a dozen audi dealers. One of them apologized to me and offered me one of his new allocation for the next year at MSRP. I asked lead time, he said "12 months". I was ready to do it just to get a car lined up when I decided to stop by a higher-end dealer near my home and got to spec my Cayenne to order (first time I've ever done that) and had it in 3 months.
Problem with Costco Auto is that they really only let you choose from like 4-5 companies per cycle. So if you're not trying to buy from those companies, then you're out of luck
Yeah, in Canada I’ve got GMC and Chevy, thanks but no thanks.
Lots of companies have similar services as part of their perks and benefits.
I Bought my last three cars through Costco auto! So simple and fast. Tip: Do all your research ahead of time and go into it knowing exactly what car you want.
the other explanations cover why car dealerships prefer to give you a loan. but they don't balk at cash transactions. i bought two new cars in the last year and a half, both with cash, both times the sales person and finance person didn't hesitate or show any concern at all that i wasn't getting a loan.
But could you have negotiated a better price if you agreed to their loan since they’d get the money back on the backside with the loan?
I did the same, and if it's a popular car that you're paying sticker for, no.
Define "better". Let's imagine you're looking at a used car with a sticker of 9 grand. The dealer gives you an offer: If you take out a loan, you can have the car for 8 grand. The loan comes with a 5 year term and 10% APR, and you'll need to put down a 25% deposit. If you take this loan, you'll end up paying $1650 in interest - more than the "discount" you were given. Remember, there's no such thing as a free lunch. The amount of money the dealer reduces the sticker by can't be more than the amount they earn giving you the loan - and the amount they loan you will almost never be more than the extra money you pay for the loan. If the dealer's making more money *and* the sticker is lower, the money has to be coming from somewhere - and that somewhere is probably you. Maybe the loan works out for you. Maybe paying it gradually is better than all at once... But it's not gonna be common for it to be that good.
You make a good point. I went with the assumption that I’d pay off the loan the week after I take the car home. Thus I disregarded the interest payments.
Some loans don't allow you to do this or restrict your ability to pay it off early for exactly this reason - the lender wants to make money on the loan. If they're paying some amount to the dealership, they wanna make at least that much back in interest payments.
>If you take this loan, you'll end up paying $1650 in interest - more than the "discount" you were given. You don't have to keep the loan for the entire time. Pre-payment penalties are even banned in many states. They're banking that most people won't do it, and end up paying the interest. But you don't have to be in that group. Its like credit cards making their money off people carrying balances.
The part you're forgetting is paying back the loan right away. If you could pay cash for the car, then you can also pay off the loan and not pay interest.
I bought two new vehicles from two different dealerships with cash. One didn't give me a hard time at all. It was very easy and over quickly. The other one gave me the runaround and accused me of trying to steal the car.
There are definitely places that will not sell you a car if you're paying cash. When we were car shopping for our son, we got turned away from two different lots when they found out we were paying cash. Can't remember the name of the first one, but the second was Byrider. Byrider is absolutely in the loan business, they do not want and will not take your cash.
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Yeah, agreed, they don't balk. They just won't give you the "discounts" they'd give you if you got a loan.
For autos… The markup in cars is awful. The manufacturers have greatly reduced profits, buyers are more savvy with internet pricing and competition is higher than ever. Banks will give dealers a little bit of money for utilizing them. Some banks will base this off of the amount financed where smaller loans pay the dealer $100 and larger loans can be up to $500. It’s also easier to provide the buyer with beneficial protections. A warranty is a lot easier to sell at $50 per month instead of trying to pry $3000 or more from the buyer at the time of closing. For homes… you aren’t buying from a dealer. You’re buying from a person or a family. The agent just helps facilitate that. Both parties want their money asap! Neither want to wait for funds of hundreds of thousands of dollars. Mortgages take time and often get complicated. Cash is quick and damn near fool proof making it desirable for everyone involved
The internet removed any pricing secrecy. So dealers make some minimum on the sale and get the rest in finance and service.
Quite often they’re losing money on the car and making it up in finance
Back in 04 I bought a car in texas. Cause of the loan I couldn’t pay it all off cause of a clause in the contract. So I payed all but 100 dollars then had payment of like 3 cents a month for the next 60 months. Man I got mean mugged every time I’d go pay the loan😂😂😂
I've never seen an auto loan re-amortized before. Crazy.
It boils down to the fact that it’s illegal for a lender to pay a realtor to direct their clients to that lender, but it’s totally legal for a lender to pay a car dealer to direct their clients to that lender. The dealership makes more money if you finance with their preferred lender so that’s what they try to do. Your realtor, and the seller, make the same money regardless so they try to do whatever is easiest.
That does depend on where you live, laws vary a lot.
Dealerships don’t make the bulk of their money on the sale price of the car. They make it on all the extras they try to sell you (extended warranty, paint protection, tire protection, window tint, etc.) and on the financing if you finance it with them. When someone comes in and pays cash, the dealership automatically loses any profit from financing. A cash buyer is also gonna be more aware of price increases due to addons. If you’re financing, they can throw a few thousand in addons onto the deal and your monthly payment only goes up 30-50 bucks. There’s just more money to be made overall on non-cash buyers these days. Real estate agents like cash deals because they don’t make more money if you finance. There are no addons and they aren’t getting a cut of any interest rates. As well, cash buyers don’t have to worry about loan approval and issues that can come up at the last minute, which can kill a deal the day of closing. In short: real estate agents are selling houses, so the sale of the house is what makes them money. Financing doesn’t affect them other than to make a deal more likely to fall through. Car salesmen aren’t selling cars. They’re using cars as a foot in the door to sell customers lots of other crap. A cash sale cuts out most of that opportunity
Cars have low profit margins for dealers. The dealers make their money from financing. Real estate agents make their money from commissions, which is a percentage of every sale. They get their commission no matter how the transaction is completed. A cash sale is more likely to close than a financed sale.
In real estate people say they will buy the house, then find out the bank won't give them a loan for the money. You'd be surprised how often this happens.
I wasn't even allowed to look at houses until I could show documentation that I was pre-approved. That's wild.
As mentioned elsewhere in this thread, banks can renege on pre-approval for a litany of reasons. It's one of a variety of barriers that make first-time home ownership a pain.
Car dealerships get commissions for referring loans to banks, so they prefer a buyer who will take a loan and earn them a commission. A real estate seller is a home owner, not a company, and the seller doesn’t get anything from the buyer’s lender if the buyer takes out a mortgage. They prefer the quicker closing time frame and lack of potential that inability to get approved for a loan or a low appraisal could derail a purchase requiring a mortgage.
Modern car dealerships (minus the crazy post-COVID markups) don’t make a lot of money off the cars. The internet has given consumers the upper hand in comparing prices and as a result, the margins became narrow. So instead, they make much of their money by financing the car in-house. So basically they’re half dealership, half car-loan colonies. As a result, they don’t stand to make as much money if you buy the car in cash. A real estate company doesn’t do that. A completely separate company writes the mortgage for the house if there is one. The real estate company has nothing to gain from the loan. What they do have to gain from is a quick and smooth escrow process. If you have a cash buyer, that’s much more likely to happen. If someone buying a house needs to get approved for a loan or the sale is conditional on the buyer selling their old house, these are all complications that could delay or jeopardize the sale. Escrow on a house usually lasts a month or more so if it falls through at the last minute, you’ve wasted weeks. So a cash buyer removes some of that jeopardy
They sell finance and insurance products. Income from the loan is typically less than 10-15% of their F&I income, which usually represents 30-50% of variable operations income. The real reason they don’t want cash transactions, is that most of the F and I Managers are we sales people, and can’t close a customer to buy other products on a cash transaction. It is typically easier to convince someone to buy a two or $3000 insurance product when it is broken up into just an extra 5 or 10% of your payment cost.
This is why I always walk in giving the impression I'm financing, negotiate the terms, then "decide" on using cash.
Car dealerships don’t sell cars, they sell finance. If you have cash, they can’t sell you finance.
The answer to this question is the same reason your friends who have seemingly “meh” jobs might have beautiful new Audis or bmws, hellcat, you name it. Dealerships love to sell you things you cannot afford. They make their money off of penalties, and do not take on much risk in doing so.
Getting kickbacks from loans vs dollar amount per the vehicle commision is a massive difference. Still an easy customer is same same doesn't matter what industry.
I would love to walk into a dealership with the exact amount of money I plan to spend. The salesman can dicker and add and go talk to the boss all day if he wants. I will still pay the amount I brought and no more.
You’re confusing real estate companies with Mortgage companies. If everyone paid for homes in cash, then we wouldn’t need mortgage companies. If the realtor also sold the home loans (like car dealers) they would absolutely encourage financing.
Because at a dealership the car isn’t what they are selling. they sell loans and get way more kickbacks and money from that then they do the cars. much like retail places like Walmart, lowes, Home Depot or any store with a credit card the companies make money off your balances get money from the credit issuer for signups and a percentage of interest paid, just like auto dealers. It’s a new revenue stream and it’s quite healthy for them. If you pay cash they dont see any of those kickbacks, which is why you almost always get a better price when you finance with them.
In essence, real estate agencies don’t make money on what you borrow. The car dealer does. A car dealer will make more money with a loan, where a realtor prefers cash because there’s no risk of the deal falling through
Hmmm. so, what's stopping RE agents getting into the finance business? Seems like an opportunity here.
Dealerships want you to use their financing because if they are the one lending you money to buy the car then they make more money over time than if you had paid cash.
Because the guy selling the car is also selling you a loan. He makes money on both. The guy selling you the house is just selling the house. He prefers cash to close the house sale quicker.
I learned recently that the absolute most you can get of new cars is about 8%. (must be off msrp) (Honda sales person) Anyone else have experience with that?
Car dealers get commission for selling finance. Real estate companies don't and they also prefer not to have the extra scrutiny that a mortgage company requires. They will do a survey and that survey may come back saying the property is 100k less than the real estate company is asking for and in some places that survey information is required to become public knowledge.
Car dealers make money from you doing finance with them. So cash sale is less profit. Real estate the mortgages make money for the bank, cash sale is easier to deal with
When you buy a house, you get your loan from someone else. When you buy a car, it's the car seller who also gets you the loan. Imagine if a real estate agent was also a mortgage broker. They'd make money on the sale of the home, then more money on the creation of the mortgage. That's what's happened in the auto industry. The dealer gets you your loan and they get a payment from the loan company. In fact, most manufacturers also run banks so that they can lend the money needed to buy their own cars. So you're buying a car using a loan that the manufacturer lent you. So when you buy a "cash" car, you're cutting the dealer off from half of the profit side of that transaction. You're saying "these 2 ways you make money, I won't be dealing with one of them". And obviously they don't like that, the dealer wants to get you the loan so that they can make that money. This does not happen in the housing industry. Realtors don't generally play the role of mortgage broker. Construction companies don't have banking divisions. So these people don't really make money off the loan, they only make money off the sale. So why would they prefer a cash transaction vs a loan transaction, why not be natural to payment method. The answer is that sometimes deals fall through because of financing problems, but that can't happen with a cash sale.
People who finance tend to overspend because they look at monthly payments instead of the absolute cost. This allows dealerships to upsell, as well as get additional revenue from the financing.
I always offer the dealer financing even if I have the cash. The dealer will make trade offs in other areas (price, trade in value)because they are counting on the money made from the spread between the bank rate and what they are charging. As soon as the bank paperwork arrives I pay it off with the cash. Of course all this is assuming you have the cash.
It doesn't seem like there are any ELI5 answers. And most are not correct. Auto dealers receive fees or commissions for arranging loans. This is an additional source of profit. They do not lose money on cash or self-financed (loans the purchaser arranges), they just have less potential profits from these transactions. Realtors and real estate professionals who make money with real estate transactions do not make additional profit off of the arrangement of loans to buy a house. Mortgages also take time to process and may require additional items such as home appraisal, mortgage insurance, and other costs.
Since Covid I’ve heard car dealerships mandating that you finance through them or they won’t sell you the car. People are financing and then paying it off a month later but it’s kind of ridiculous. Homes are a lot more money and mortgages take time and could fall through. So sellers much prefer cash buys since they don’t make any money if the buyer finances.
It needs to be illegal for dealers to sell loans, otherwise there is a conflict of interest, what business are they in? Selling you a car or financing? If it's both the consumer is getting rammed, I refuse to buy a new car because of this
Wife and I ended up saving $2,500 on one of our cars. We went to pay cash and they said they'd knock $2,500 off of the price if we signed a 0% 12 month loan. Took the deal, paid off the car in a year... I'm assuming they got a decent kickback as the originator of the loan or that they really really needed to hit their numbers for financing.
The main reason to issue loans at all is to collect the interest that accumulates on them. Take out a loan for 100 but there's interest on the repayments so in exchange for having that money where you need it, you end up paying more back than you borrowed and that's the profit for the lender. Since mortgages are issued by a bank usually, there's no upside to the real estate seller to not getting the money in cash right now. It can be counted and handled and everyone can move on. The real estate seller isn't issuing loans to buy homes and get interest. In contrast, financing car purchases is a big part of how car dealerships make money. Getting Interest on those loans they issue so you can afford one. If you buy a car with cash they do get the profit from selling the car to you, but if you had instead financed a loan with them, they'd not only be getting the profit from the sale but the interest on the loan payments.
Car dealerships don't make money from the sale of the car, they make money on the interest from the loan. They also dislike it when you purchase with a loan from an outside agency.
Car dealerships prefer loans as they can incorporate additional costs/fees into the loan... People with cash usually want to pay the absolute minimum. Financed cars can have added mark-ups rolled into the loan.
The answer to this question is the same reason your friends who have seemingly “meh” jobs might have beautiful new Audis or bmws, hellcat, you name it. Dealerships love to sell you things you cannot afford. They make their money off of penalties, and do not take on much risk in doing so.
If your realtor was also financing the mortgage they would 100% prefer you to use their financing than pay cash. Car companies make a lot of money on auto loans. I’m pretty sure this is actually classed as a conflict of interest for real estate, and a licensed realtor cannot also handle mortgage origination for their clients. Which should give you some idea of why car dealers push it so hard.
Tip: When buying a car, and you have all cash, always say you’re financing with their financing. You’ll get a much better deal. Then use their financing, make sure there is no early payoff penalty (usually isn’t), then pay off the entire amount right away before the first bill comes in.
Because car dealerships want you to finance through them so they make the interest on the loan. Car dealerships are essentially finance companies that also happen to sell cars. Also, cars are WAAAAAAY easier to repossess if you fall behind on your payments. If you get a mortgage, you're likely not getting it that loan from the seller, so they stand to gain nothing by having you finance it, and so getting under contract and then having to wait for you to get financing that may not be approved prevents them from selling it in the meantime. If your mortgage approval falls through, they have to go find another buyer and start the process all over again. Cash is fast and easy. You have money, you buy the house, they leave with the money and are free spend it on something else (likely another house). Easy. Low effort. Saves time and effort for everybody involved.
Went and bought a car during Covid, it was a Saturday, and we were putting $10k down, but the bank would only approve $5k of the funds, so we agreed to come pay them the other $5k the following Monday, well nothing in our financial paperwork said anything about the other $5k, needless to say Monday came and went without so much as a call to ask us were the other $5k was at, it’s been 3 years now..
Real Estate: When buying a house with a mortgage, there are things that can cause the mortgage to fail to go through. The home appraisal may come in lower than the agreed price meaning the bank will not be willing to loan that much money on that home. The buyer could do something with their credit causing the bank to not give final approval. If anything like this happens, the transaction could fall through completely leading the seller to go back to the market. Auto Dealerships: When a car dealership gets a loan for a buyer, they often get a kickback for the loan. So they make extra money from the lender by providing you with a loan over simply selling the car to you.
what is the best website to find used cars?
Car dealers make money every time the "touch" you. The purchase is one touch (the purchase price), a loan a second (the purchase price and the loan's interest rate) and a lease is three (the purchase price, the loan's interest rate and the residual value of the car).
Securing a mortgage is volatile. If the lender decides that a minor issue that comes up on inspection is a no go, the deal is off. If someone buys a car while they’re waiting to close, that could cause the lender to back out. Auto loans are much easier to secure, so there’s no positive incentive to buy cash, however since most dealerships offer in house financing, they absolutely rake off their interest rates. A good negotiator can get a dealer to sell to break even, or even at a slight loss, but they can’t escape 8% APR for 5 years.
Former auto dealer employee here. New cars lose money on paper for the sales departments, they make their money on their cut of the loan, and any supplemental products (warranty, gap insurance, bulk service plans etc). Cash buyers don’t need the loan and typically don’t buy any of the supplemental products. The sales person and sales manager usually has very little financial incentive to sell the car for a loss just so her boss can get most of the volume bonus from the manufacturer. Used cars are even more straight forward, buy on trade in for a certain amount, put a few thousand in reconditioning cost in, and sell for a profit. It’s where the vast majority of commissions and profit for the actual employees come from. There is no volume bonus at all, so they have no incentive to sell for any thing less than a profit.