Former Dealer EXPOSES Car Loan TRICKS (Don’t Get Screwed!)

My name is Ray Shefska. I sold cars and managed dealerships for 43 years and I'm going to help you save some money. Most people pay way too much on their auto loans and here's what you need to know so that doesn't happen to you. I'm filming this on St. Paddy's Day, March 17th. This way you'll have a reference point for the rates that we're about to talk about. Current average interest rates today according to Cox Automotive, new, 9.69%. That's the average. There are obviously rates lower than that and there are obviously rates much higher than that but the average of all the rates is 9.69%. On used, it's an unbelievable 14.73%. Here's what you need to know when you're at the dealership. If you put in a credit application with the dealership, that is what's known as indirect lending. You are not going to the bank or the lending source directly. The dealership is doing it for you. When they submit your credit application and they get an approval, the bank will tell them what the interest rate that they're going to charge the dealership. That interest rate, if it's a new car, might be 9% and the dealer can then turn around and sell that to you. Typically, they'd mark it up two points so they would sell that money to you for 11%. There's a two-point spread in there that they get paid on. What is buy rate versus sell rate? The buy rate is what the dealership buys the money for. The sell rate is what the dealership sells you the money for and that's legal when it's indirect lending. You need to have an idea as to what your credit scores are and what rates you might qualify for so that you can make sure there's little to no spread between buy rate and sell rate. Why does a dealer want you to wait 90 days before you pay off their car loan? Well, you know that two-point spread? They get paid on that. If you pay off the loan before 90 days, everything that they would have earned on that money that they've already been paid on, they have to give it back. It's called a chargeback. Dealerships hate that. Finance people hate that. They'll get their money assuming you keep the loan in place for at least 90 days. There could be a much smaller chargeback after 90 days, but before 90 days, it's 100% chargeback and they don't want to lose that additional profit. So when a dealership says, oh, you have to wait 90 days, you don't. The only reason they want you to is so they can protect some of their profit that they made by arranging that loan. What is a subventive rate? Well, that's a rate that the captive lender or the manufacturer artificially buys down for you. We know average new car rates are there 9.7 or 9.69. So if you see an interest rate of zero or 0.9%, well, that means that the captive lender had to buy that rate down. There's a cost to that. Subventive rates are typically for people with really excellent credit. So if you see 0% interest or 0.9% interest, know that that is for top tier credit. The subventive rate could be higher if you're a lower tier, or it might not be available to you at all if your credit score is subprime or worse. Now, one of the things you have to remember on a subventive rate, there's no buy-sell on that. There's no buy rate and sell rate. The rate is the rate. That is why the lender will pay the dealership a flat fee for having arranged the loan. That flat fee might be $100, $150, $200. When there's a subventive rate involved, rather than being able to make two points, which could generate thousands of dollars of additional income for the dealership, with a subventive rate, it's a flat fee of $100, $150, or $200. So the dealership gets paid a little something for having placed the loan and having done the paperwork. Now, how do you save money when you go through all this? Well, I don't know, get pre-approved prior to going to look for a car. Go to your credit union. Go to your bank. Ask them to run your credit and say, with my credit score, if I were putting down X amount of dollars and I was looking at a $30,000 car and I needed to finance it for, pick a term, what would my rate be? And get your credit union to get you a pre-approval so that you can go shopping. You might get a pre-approval at your credit union for 5.9%. And when the dealership tries to hit you at 9.9 or 8.9 or 7.9, you can say, hey, by the way, I have a pre-approval for my credit union for 5.9. I need you to match or beat that in order for me to do my loan through you. You need to get pre-approved. You need to know what your credit score is. You need to understand what your budget could be for the affordable payment that you're looking for. And you need to know all that before you go into the dealership. And once you know that, that could save you thousands of dollars in interest charges on your next car loan. Now, if you like this type of video and you like the way we present it, then please hit the like button. Hit the subscribe button. We always need more subscribers. And while I just like to be liked, so please hit that like button. And if you have any questions about any of this stuff, all this information is available to you for free at carage.com. Don't be afraid to go there.