Dealership pays bank to finance

[needbizcredit2006]

My brother in law found a truck at a small dealership. He has bad credit but the dealer says that he can get him done, but he will have to add $700 to the truck because the bank will charge him(dealer) to finance it. I sold new cars for a short time and I was told that dealers get a kick back for getting the financing done. This is a lie right?

[hurricanesfans27]

some high risk lenders will charge a fee as high as 2k from what i have seen

[MarvBear]

I got one approved today for a 28.98% fee.

 

If all else was in line.

[MarvBear]

 Maximum PTI:   11.00 %  Participation:  up to $0.00  
Min Cash Down:  $2,500.00  Maximum DTI:  up to 55.00 %  
Mileage:  up to 60,000  Term:  72  



LTV Options 0-150.00 
APR Buy Rate 24.99 % 
Acquisition Fee 26.00%

 

typical approval for a subprime customer.

[needbizcredit2006]

Cant believe that. He got approved for 24% apr and that is with him telling them that he would put $5k down on a $11k truck including tax, title, tags, PF. I personally wouldn't every pay 24% but he claims he has to have that truck.

[hurricanesfans27]

its a reality and done everyday.. personally it would be a pass for me but some people gotta do it.

[needbizcredit2006]

 Maximum PTI:   11.00 %  Participation:  up to $0.00  
Min Cash Down:  $2,500.00  Maximum DTI:  up to 55.00 %  
Mileage:  up to 60,000  Term:  72  



LTV Options 0-150.00 
APR Buy Rate 24.99 % 
Acquisition Fee 26.00%

 

typical approval for a subprime customer.

 

 

24.99% for 72 months man thats alot of interest.

[needbizcredit2006]

Acquisition Fee 26.00%

 

whats that?

[hurricanesfans27]

Acquisition Fee 26.00%

 

whats that?

 

marv will correct me if im wrong .. that is the fee that the bank gets to take the loan provided all the stips are met and the deal is in line. hence why the LTV is so high at 150

[mk_378]

I think it means that the dealer actually receives 26% less than the face value of the loan (the "Amount Financed"). Legally though, the buyer absolutely positively owes the full face value. In effect, the loan brings the finance company more net income than the APR would indicate.

 

So in your friend's example

Buyer pays:

Down payment $5,000

Amount to finance $6,000

= Price of truck $11,000

 

 

Dealer gets:

Down payment: $5,000

Loan proceeds: $6,000 - 26% = $4440

= gross sale price $9,440

 

So the dealer's profit is now $9440 minus whatever they paid for the truck instead of $11,000 minus whatever they paid for the truck.

 

When the buyer has good credit, the situation can be reversed. The finance company pays the dealer more than face value in exchange for the dealer having sent them a well-qualified customer. When this is done it is much much less than 26% of course.

Edited November 11, 2009 by mk_378

[MarvBear]

Acquisition Fee 26.00%

 

whats that?

 

 

It means that if I did a finance contract for $10,000.00, a primary bank would send me a check for the $10,000.00 that I financed thru them.

 

On a subprime deal on a finance contract for $10,000.00 the bank would keep $2600.00. meaning my check from that contract would only be $7400.00 hence a 26% fee.

[mixer99]

This is totally true. Many dealers call this acquisition fee 'juice'. For some subprime financing companies, the feel is lower, like Americredit...but with folks like 'Drive', hold on to your wallet!

[needbizcredit2006]

I have just seen this post after 3 years lol. I can not believe that 26% fee. So in Marv example the customer paid $2600 more for the car because the dealer would have taken $2600 off if they had a prime loan.

 

How much does Ford, chevy, toyota etc etc pay there dealerships to send the loan to there own finance company. Meaning Fordcredit, toyota finance,etc etc.

[MarvBear]

I have just seen this post after 3 years lol. I can not believe that 26% fee. So in Marv example the customer paid $2600 more for the car because the dealer would have taken $2600 off if they had a prime loan.

 

How much does Ford, chevy, toyota etc etc pay there dealerships to send the loan to there own finance company. Meaning Fordcredit, toyota finance,etc etc.

 

 

I believe the pinned topic bank rates, will give you a good idea of what prime banks will pay a dealer. I calculate it like this.

 

sell rate

subract buy rate

divide by sell rate

multiply by total finance charges

multiply by reserve split retention percentage

 

equals reserve paid to dealer.

 

Only works with prime banks.

[rpina1]

We do this also. The "fee" is added to the price. Though this doesn't always work because there is tipping point where raising the price equally raises the fee.

 

Still, I've been able to approve some really bad credit scores so it does work out for some people.

[MarvBear]

So in Marv example the customer paid $2600 more for the car because the dealer would have taken $2600 off if they had a prime loan.

 

Well if the consumer had "prime credit" he/she wouldn't have had to worry about the fee. It's all about risk based pricing. So that had to have been a risky loan, that no prime bank would have touched.

 

Can't pass the fee to the consumer without violating Fed Reg Z & TILA.

[mk_378]

Can't pass the fee to the consumer without violating Fed Reg Z & TILA.

Right, the purpose of the fee is to increase the bank's yield above the stated APR-- which is already at the legal limit. So presenting the fee to the customer as some sort of a finance related charge would make the loan illegal.

[MarvBear]

Can't pass the fee to the consumer without violating Fed Reg Z & TILA.

Right, the purpose of the fee is to increase the bank's yield above the stated APR-- which is already at the legal limit. So presenting the fee to the customer as some sort of a finance related charge would make the loan illegal.

 

 

TY for explaining it better than myself. I appreciate it.