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But auto loans (like most loans) usually have origination fees and other amounts lumped into the loan. So by taking a loan and paying it off you are immediately

But auto loans (like most loans) usually have origination fees and other amounts lumped into the loan. So by taking a loan and paying it off you are immediately paying a premium on the cash value of the loan.

baldeagle 5y ago
Read your Retail Installment Contract - it will call out all the fees and things. Most dealers pay the origination fees, but often make up the difference in something call 'participation', where they charge you a higher APR and share the extra interest charges with the lender
- pc86 5y ago
  And most dealers, especially nicer manufacturers, are completely open and willing to negotiate all these percentages. Especially now with loan rates well below inflation, you can really save a lot of money by negotiating things other than purchase price, even if you end up with a higher purchase price at the end.
  - otterley 5y ago
    With dealer stocks being low and demand being high, there’s little room for negotiation on any material term right now. That’s the whole point of this article.
    - pc86 5y ago
      You're completely right, my mistake. I haven't bought a car since 2019 but my partner got one about 6 months ago and it was as you say, basically "this is the price, take it or leave it."
nradov 5y ago
My most recent auto loan had no origination or other fees. If you finance through the manufacturer's captive lender then they often don't charge any such fees.
- beerandt 5y ago
  Just because it's not a line item doesn't mean it's not there. It's just baked into the negotiated price. Of course despite the past jokes about "hands are tied" re the sale price of new cars, the manufacturers actually do have relatively rigid controls today on dealers lowering allowable sales price. (But not raising, which has turned into an interesting situation.) In reality, it just means you need to be trading in something to negotiate against any of that baked in finance cost, since trade-in amount is the one thing manufacturers can't really influence. Which isn't to say that captive/manufacturer financing isn't often cheaper. It's just that the actual cost of financing isn't as transparent as claiming "no fees". (You see this in gimmicks like having "no/low cost" financing, but at the expense of foregoing "cash back", which even in today's market is often upwards of $3k-5k.)
  - nradov 5y ago
    Nope. I negotiated the purchase price and trade-in value before discussing financing. Nothing was baked in. And there was no manufacturer "cash back" offer on the vehicle I bought.
    - beerandt 5y ago
      There's an entirely separate system of dealer approved discounts that customers never see. Regardless, you aren't getting a few lunch. It just means your negotiated price had the margins to absorb whatever financing they ended up offering. And the manufacturers are directly and indirectly controlling those margins based on complying with their approved discounts, whether advertised or unpublished. They even have a discount type for sales to immediate family, that applies to any car that doesn't keep dealer plates and dealer insurance.
  - cityofdelusion 5y ago
    At least where I live in the United States, the base out-the-door price is generally negotiated _before_ you indicate if you will be paying in cash or via financing. I've never seen an origination fee on an auto loan here.
brianwawok 5y ago
Check the paperwork, this is very uncommon in the US. Not sure on the legal limits, but the math is very simple. Car for 45k - 10k cash = 35k loan over 6 years at X% APR = $Y per month payment. You can replicate on a calculator and see no hidden fees.
dazc 5y ago
The loans may also be genuine interest free - but with a few caveats such as settling by a certain date to avoid penalty fees and such. There will be enough people falling into this trap to make it profitable for the loan company. Quite often the same loan company is also financing the dealer's stock so there are also hidden incentives for him to push loans - such as preferential rates for himself.
vba616 5y ago
Not in my experience. What difference would it make anyway? The price is the price however you divide it up. If the interest rate is below market, which it usually is, that can be converted to a lump sum discount. The math has to be done.

baldeagle 5y ago

Read your Retail Installment Contract - it will call out all the fees and things. Most dealers pay the origination fees, but often make up the difference in something call 'participation', where they charge you a higher APR and share the extra interest charges with the lender

pc86 5y ago
And most dealers, especially nicer manufacturers, are completely open and willing to negotiate all these percentages. Especially now with loan rates well below inflation, you can really save a lot of money by negotiating things other than purchase price, even if you end up with a higher purchase price at the end.
- otterley 5y ago
  With dealer stocks being low and demand being high, there’s little room for negotiation on any material term right now. That’s the whole point of this article.
  - pc86 5y ago
    You're completely right, my mistake. I haven't bought a car since 2019 but my partner got one about 6 months ago and it was as you say, basically "this is the price, take it or leave it."

nradov 5y ago

My most recent auto loan had no origination or other fees. If you finance through the manufacturer's captive lender then they often don't charge any such fees.

beerandt 5y ago
Just because it's not a line item doesn't mean it's not there. It's just baked into the negotiated price. Of course despite the past jokes about "hands are tied" re the sale price of new cars, the manufacturers actually do have relatively rigid controls today on dealers lowering allowable sales price. (But not raising, which has turned into an interesting situation.) In reality, it just means you need to be trading in something to negotiate against any of that baked in finance cost, since trade-in amount is the one thing manufacturers can't really influence. Which isn't to say that captive/manufacturer financing isn't often cheaper. It's just that the actual cost of financing isn't as transparent as claiming "no fees". (You see this in gimmicks like having "no/low cost" financing, but at the expense of foregoing "cash back", which even in today's market is often upwards of $3k-5k.)
- nradov 5y ago
  Nope. I negotiated the purchase price and trade-in value before discussing financing. Nothing was baked in. And there was no manufacturer "cash back" offer on the vehicle I bought.
  - beerandt 5y ago
    There's an entirely separate system of dealer approved discounts that customers never see. Regardless, you aren't getting a few lunch. It just means your negotiated price had the margins to absorb whatever financing they ended up offering. And the manufacturers are directly and indirectly controlling those margins based on complying with their approved discounts, whether advertised or unpublished. They even have a discount type for sales to immediate family, that applies to any car that doesn't keep dealer plates and dealer insurance.
- cityofdelusion 5y ago
  At least where I live in the United States, the base out-the-door price is generally negotiated _before_ you indicate if you will be paying in cash or via financing. I've never seen an origination fee on an auto loan here.

brianwawok 5y ago

Check the paperwork, this is very uncommon in the US. Not sure on the legal limits, but the math is very simple. Car for 45k - 10k cash = 35k loan over 6 years at X% APR = $Y per month payment. You can replicate on a calculator and see no hidden fees.

dazc 5y ago

The loans may also be genuine interest free - but with a few caveats such as settling by a certain date to avoid penalty fees and such. There will be enough people falling into this trap to make it profitable for the loan company. Quite often the same loan company is also financing the dealer's stock so there are also hidden incentives for him to push loans - such as preferential rates for himself.

vba616 5y ago

Not in my experience. What difference would it make anyway? The price is the price however you divide it up. If the interest rate is below market, which it usually is, that can be converted to a lump sum discount. The math has to be done.