Why Dealers Push Financing Over Cash—And How to Flip the Script
Dealerships don't just sell cars; they sell loans. Understanding how they profit from financing is your best defense against overpaying on your next vehicle.
4 key moments
Dealerships don't just sell cars; they sell loans. Understanding how they profit from financing is your best defense against overpaying on your next vehicle.
Carvia InsightCarvia InsightTelling a dealer you're paying cash upfront removes their biggest profit opportunity: financing. This makes them less likely to offer a deep discount on the vehicle's price, as they have no way to make that money back on the 'back end' of the deal.
Carvia InsightThe rate the bank approves you for (the 'buy rate') is often lower than the rate the dealer offers you. The difference is pure dealer profit. A 2% markup on a typical auto loan can cost you thousands over the life of the loan.
Carvia InsightWalking into the dealership with a pre-approved loan from your own bank or credit union gives you a benchmark. It forces the dealer's finance office to either match or beat your rate, saving you money and putting you in control of the negotiation.
Carvia InsightTo find the lowest 'buy rate' (and maximize their potential markup), dealers often send your credit application to multiple lenders at once. While auto loan inquiries within a short period are often treated as one, this 'shotgun' approach underscores why having your *own* financing secured first is so important.
Carvia Insight**Never lead with 'I'm paying cash.'** Keep your payment method to yourself until you've negotiated the final out-the-door price of the car.
**Get pre-approved for a loan *before* you shop.** Visit your bank or a local credit union first. This is your negotiation floor and your best defense.
**Treat the car price and financing as two separate deals.** Settle on the vehicle price first, then discuss financing options as a distinct negotiation.
Carvia InsightCarvia.ai is an independent editorial platform. This content includes curated commentary from the creator and is not a direct endorsement or partnership.
**Challenge the dealer's first offer.** When they present a rate, counter with your pre-approval and ask, 'Can you beat this?' Make them compete for your business.
**Understand the numbers.** A small difference in the interest rate (APR) can add up to thousands of dollars over a 60- or 72-month loan. Use a **Car Payment Calculator** to see the real cost.