Many car dealers work directly with banks to provide financing for customers. In these cases, the car dealers take a cut, so a customer who walks into the same bank might be pre-approved for a lower interest rate. (This doesn't always apply to big institutions like Chase and Ally that have huge, separate direct and indirect auto lending arms that never talk to each other.) But this profit is totally arbitrary - dealers can choose to make no profit (or even lose money) on financing if it helps them to make a sale. Most people don't realize this because you can't walk into your local credit union and negotiate the terms of an auto loan. That being said, even at $0 profit it's hard for dealer financing to beat a direct auto loan, because you (the customer) get your pick of the world's financial institutions, whereas the dealer is restricted to the lenders they happen to partner with.
Relatedly, it is significantly more convenient to accept dealer financing because you don't have to act as a middleman between the car dealer and your bank.
The point is that dealer financing is usually a rip-off (because it's fundamentally another axis along which dealers try to extract money from you), but it can still occasionally be a good deal.
> That being said, even at $0 profit it's hard for dealer financing to beat a direct auto loan, because you (the customer) get your pick of the world's financial institutions, whereas the dealer is restricted to the lenders they happen to partner with.
You're underestimating the power that the car-based financial institutions have.
For example:
> (This doesn't always apply to big institutions like Chase and Ally that have huge, separate direct and indirect auto lending arms that never talk to each other.)
Speaking of Ally bank... have you ever looked at their name before 2008?
GMAC: That's General Motors Acceptance Corporation. You're literally talking about GM's piggybank for financing deals.
Ally bank has changed a lot over the last century. But they still have tight connections with GM.
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It depends, it very, very strongly depends on the dealership, the auto-firm (ex: GM can get a very good deal with Ally bank... and Ford can get a very good deal from *Ford Motor Credit Company*, the in-house bank).
Toyota... not so much. Ford / GM? Yes. It depends.
I used to work at a big car dealership making indirect auto loans, so I don't think I am underestimating the power of in-house financing. And I definitely know Ally's history! ;)
,> The point is that dealer financing is usually a rip-off (because it's fundamentally another axis along which dealers try to extract money from you), but it can still occasionally be a good deal.
Last time I bought a car the dealership was offering a loan backed by my credit union with identical terms and rates.
Made my getting pre approval from my credit union a waste of time.
Relatedly, it is significantly more convenient to accept dealer financing because you don't have to act as a middleman between the car dealer and your bank.
The point is that dealer financing is usually a rip-off (because it's fundamentally another axis along which dealers try to extract money from you), but it can still occasionally be a good deal.