How do second hand car dealers make money?

Car dealers making money on the finance?

• OK, I have heard car dealers get paid a kick back from a bank if they get the customer to finance with then. What happens if I buy a car and the dealer sets up the financing and I make one payment and refinance car after like 5 weeks to my credit union. Will dealer still recieve kick back? I just wondering cause I did exzactly that. I was financed with city bank which was going to charge me 5 dollars to pay online each payment. That fee cost them my loan. I am hoping the dealer wont get the kick back Is that true?

• Answer:

  wow. Well, first off, yes - dealerships receive comission on finance contracts. That comission is called 'reserve' and it is set by the lender who assumes the loan. Most lenders limit dealer reserve to 2% of the agreement. So if the bank has a buy rate of 5%, the dealer is allowed to write the contrct at up to 7% APR. The difference in interest is paid to the dealer. Will they still get the reserve? Probably not. If the loan is bought out by the customer or another lender other than the one the dealer places it with, within a timeframe set by the bank, then the dealer will lose the reserve. The bank is not making money, so they won't pay out the comission on the loan. That is a variable that is set between the lender and the dealer though. Some lenders will pay the reserve no matter what - some won't pay if hte contract is bought out in less than 90 days. But that is a private matter, negotiated between the bank and the dealership. Why would you not want the dealer to make their comission on the sale? Its not THEIR fee that got you all worked up. Dealers place hundreds of loans a month, and they place them with whatever bank buys the loan. Your issue is not with the dealer, its with Citi.