10 Ways to outwit a car dealer

Forbes.com
June 22, 2007

By Jim Henry

…auto dealers have their own colorful slang that says something about how the car business operates; some pitfalls to watch out for; and, in some cases, how some of the more cynical dealerships see the customer…

It's important to take your time. Read the fine print. Don't fall in love with a particular car – at least, not so much in love that you get in a rush and won't settle for anything else.

"Good advice," says Rosemary Shahan, president of the Consumers for Auto Reliability and Safety advocacy group, in Sacramento, Calif.

Money Grubbing
She says another term to watch out for is “dealer reserve.” Often poorly understood, it refers to the markup the dealer applies to the interest rate on your car loan.

Dealers make money for arranging loans. Based on how risky the customer is, the lender approves a loan at the so-called "buy" rate. The dealer hikes the buy rate to the rate you pay, up to a ceiling specified by the lender, usually a couple of additional percentage points. The difference, called "dealer reserve," is a big source of dealer profit….

People should know that the dealership, not the bank or the finance company, sets the final interest rate you pay. "Most people have no idea that the dealer is getting what in essence is a kickback on the loan," Shahan says. "It is an undisclosed conflict of interest." Potentially, the interest rate is even negotiable.

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