Can I negotiate a car loan interest rate with the dealer? | Consumer Financial Protection Bureau (2024)

FAQs

Can I negotiate a car loan interest rate with the dealer? | Consumer Financial Protection Bureau? ›

Yes, just like the price of the vehicle, the interest rate is negotiable. Dealers may not offer you the lowest rate that you qualify for. To get the best interest rate, shop around with multiple lenders and negotiate.

Yes – a loan term can result in thousands of dollars in savings over the life of a loan. Getting a lower rate could potentially lead to you paying out more at the end of the term if the loan is longer than a shorter-term loan with a slightly higher rate.

The CARS Rule prohibits misrepresentations about material information. The CARS Rule requires dealers to clearly disclose the offering price – the actual price anyone can pay to get the car. The CARS Rule makes it illegal to charge consumers for add-ons that don't provide a benefit.

Buying Down the Interest Rate

To induce a lender to accept the loans, the dealer "buys down" the interest rate by making an additional payment to the lender. To calculate this buy-down amount, check the loan and compute the dealer reserve using the Present Value method.

Make sure the financing is final before you take the car home. A clause in many contracts allows the dealer to renegotiate the deal after you drive the car off the lot.

The law says that lenders cannot charge more than 16 percent interest rate on loans. Unfortunately, some lending companies owned by or affiliated with vehicle makers have devised schemes whereby you are charged interest at rates exceeding the maximum permitted by law. This is called usury.

The CARS Rule prohibits dealers from using bait-and-switch claims to lure vehicle buyers to the lot, including about the cost of a car or the terms of financing, the availability of any discounts or rebates, and the actual availability of the vehicles being advertised.

Clearly Disclosing All Costs and Terms Up Front

The FTC CARS Rule also mandates that dealers must clearly disclose the total payment amount for a financed or leased vehicle. This includes the sum of all monthly payments plus any upfront costs the consumer needs to pay, like a down payment or trade-in value.

The Proposed Rule contains two general requirements that would apply broadly across all businesses. It would keep businesses from misrepresenting the nature of any fees. Businesses generally would be prohibited from misrepresenting the total costs of goods or services by omitting any mandatory fees.

How do dealerships make money on interest rates? ›

Dealers make money off in-house financing because they mark up your offered rate. For example, if you could qualify for a loan at 7 percent through a bank, you may receive an offer of 9 percent through dealership financing.

Loan Markup? Dealers make a commission known as the “dealer reserve” or “finance reserve” for arranging an auto loan for a car buyer. The dealer adds 1-2% to the bank's interest rate, which can cost hundreds or even thousands of dollars. Dealers have no obligation to tell you how much they're marking your loan up by.

Each lender will offer somewhat different rates on the same type of loan. Even a couple of percentage points can make a big difference in how high your money payment will be, so be sure to ask around. Negotiate mortgage rate and fees with desired lender.

Yes, just like the price of the vehicle, the interest rate is negotiable. Dealers may not offer you the lowest rate that you qualify for. To get the best interest rate, shop around with multiple lenders and negotiate.

Even if you think you may use dealer financing, starting with preapproval from a bank, credit union or online lender helps you squeeze the most out of your auto loan. Outside lenders are often able to offer more competitive interest rates than dealerships and don't need to mark up their rates to turn a profit.

As recently as December 2023, the futures market gave March 2024 rate cuts a 77% probability of occurring. Even Fed officials themselves are predicting lower rates soon, with 17 of 19 projecting that the funds rate will be lower at the end of 2024 than it is now.

What is a good APR for a car loan with my credit score and desired vehicle? If you have excellent credit (750 or higher), the average auto loan rates are 5.07% for a new car and 5.32% for a used car. If you have good credit (700-749), the average auto loan rates are 6.02% for a new car and 6.27% for a used car.

The amount dealerships are willing to offer can be taken off the top of your car loan financing. It's generally a good idea to open a separate negotiation after a deal has been made on the new or pre-owned vehicle.