Making Sense of Dealer Financing

When you walk into the showroom of your local car dealership, a sales agent will usually work with you to find the car you’re looking for. Once you’ve decided on the car, you’ll start talking financing. If you haven’t been through this before, you may need some help understanding dealer financing. It’s not too complicated if you do a little homework upfront, understand the terminology, and use an auto loan calculator to help with the math.

The Psychology of Negotiating

Many people feel intimidated when they’re working with a sales agent to come to terms on a car loan. That’s because they’re sitting across from a professional agent who’s trained in sales tactics that put pressure on unsuspecting buyers. Don’t let them pressure you into signing a deal you don’t want. Instead, ask questions, be assertive, and maintain a poker face during negotiations.


When you understand the terminology, you can make sense of what the dealer is telling you, and you’ll know what questions to ask. You’ll also project more confidence which could make you a better negotiator.

  • Sticker Price – This is the publicly listed price on the vehicle. It’s also known as MSRP (Manufacturer’s Suggested Retail Price). Consider it a starting place for negotiations, not the final cost.
  • Dealer Invoice Price – This is what the dealership pays the manufacturer for the car. You can research this information online so you’ll know what the dealer paid before you even walk into the showroom.
  • Down Payment – This is the amount you pay upfront when buying the car. The higher your down payment, the lower your monthly payments will be. You can play around with an auto loan calculator to see how increasing the down payment will affect your monthly payments later on.
  • Interest Rate (APR) – The amount (percentage) of interest you’ll pay over the life of the loan. You don’t have to accept the interest rate they offer at first. Instead, try negotiating for a better deal on interest. It will save you quite a bit over the term of the loan. Use an auto loan calculator to determine how much.
  • Rebate – This is usually offered by the manufacturer as an incentive to buy a model that’s not moving off the lots fast enough. You can use the rebate to lower the total price of the car, or as a way to get a better financing deal.
  • Extras – Window tinting and rust protection may be tacked onto your financing package, sometimes without your knowledge. Be sure to look for these, and have them removed if you don’t want them.
  • Insurance – The dealership will often try to sell you loan insurance in case anything should happen to you. Make sure you decide before you walk in whether you want this kind of insurance, and don’t get pressured into taking it if you don’t want it.

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