Markups on Auto Loan Packages Reach $1,791, According to Outside Financial Data
Consumers paid an average of $1,791 in undisclosed fees and markups last year on new car loans sourced through car dealers, according to data released by consumer financing source Outside Financial.
That’s a 5% increase from 2017 and a 71% increase since 2010.
“This is why consumers must shop around for financing before they visit the dealership, and why car loan refinancing can help so much. As car prices have become more transparent, dealers have increasingly relied on loan markups to grow profitability. We calculate that for the first time ever, in November 2018, auto dealers made more from financing new cars than from selling them,” said Sonia Steinway, Outside Financial’s president.
How can this happen? “More than two-thirds of consumers don’t realize dealers can mark up their interest rates. Because markups on auto loans and ancillary products can vary greatly, even for the same car or product at the same dealership, the consumer is vulnerable to the extent they don’t know their options. That’s why we empower our customers to make the right financing choices,” said Steinway.
Get financing before you go to the dealership
As a customer, one of the best ways to avoid these fees – and to know the rate you qualify for, is to line up financing before you ever enter a car dealer’s lot.
Sites like Outside Financial provide options, but they often leave out some of the best options around: credit unions. This is because credit unions don’t usually partner with consumer-facing sites.
By all means check out all your online options, but don’t agree to anything until you’ve seen your local credit union. CUs are not-for-profit, member-owned organizations. You are the boss.
CUs typically have some of the lowest costs among financial institutions, and they pass those savings on to members by design. Hence, CUs have some of the best auto lending rates around.
Even when you get financing at the dealer, there are options
Let’s say you don’t “do your homework” and get financing through a dealer. Don’t despair; you can always refinance. Again, there are many options for auto loan refinancing. Often, consumers save hundreds per month on monthly payments versus what the dealer signed them up to. (That shows how bad dealer markups have become, as Outside Financial points out.
So, make sure you evaluate all your options before going to shop for a new vehicle. Make sure that includes your local credit union.
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