Arrange financing with a bank or credit union first before heading to a dealership, the Consumer Financial Protection Bureau says. This way, you’ll be able to compare the auto loan you’re approved for with dealership financing to see which offer is better. It also gives dealers a target they can either meet or beat, giving you more negotiating power in the process.
Apparently, dealers see this more as a challenge than a threat. The National Automobile Dealers Association says dealers can actually meet or beat an offer because they send your credit application to several auto lenders in their network. These lenders would then compete for the business.
Aside from that, dealers are very eager to get your business because they would also want you to come back to them for parts and services. Actually, most of the money they make comes from the services they provide and used-car sales. They also make money by selling extended warranties and service contracts.
A report from Forbes.com explains that arranging financing for customers account for only a small portion of a dealership’s revenue. Service and used-car sales make the chunk. New-car sales, if you’re wondering, also account for much but, interestingly, turn in only little profit.
Getting pre-approved for an auto loan before stepping into a dealership is a good idea; especially if it will help you get the best deal. But it does not mean that dealers would not try to talk you into their offer. And if they do, they might be successful more often than what you’d expect.