All articles 8 min read

Negotiating Dealer-Arranged Financing and Understanding the Buy Rate

This guide presents selected U.S. government consumer education from CFPB. References to “we” or “us” in the source material refer to the issuing agency. Source dates and links appear below.

Can I negotiate a car loan interest rate with the dealer?

Yes, just like the price of the vehicle, the interest rate is negotiable. Dealers might not offer you the lowest rate that you qualify for. To get the best interest rate, shop around with multiple lenders and negotiate.

There are a number of ways you can get or finance an auto loan, including going directly to a bank, credit union, or finance company, or going through your dealer.

If you choose to arrange your financing through your dealer, they will collect your information and send that information to one or more lenders, who will propose an interest rate to the dealer. This is known as the “buy rate.” The dealer will choose the offer to present to you, but they may have an incentive to charge you more than the proposed buy rate. When the dealer provides you with a loan at a rate above the “buy rate”, he sells the loan to the creditor for more than the face amount you borrowed. That is, the dealer can sell your loan at a premium. This means that the interest rate you receive through a dealership is generally higher, but you can negotiate this rate, along with other loan terms.

How to get the lowest interest rate for your car loan

Auto lenders will generally consider a number of factors when they’re determining the interest rate and loan terms to offer you, including credit score and history, income, amount of loan, down payment, and loan terms. However, they are not generally required to offer you the best rates available.

Before you begin shopping for a car or visit an auto dealer, it’s helpful to:

Check your credit

Review your credit reports before you shop for a car or apply for a loan. You can review your credit reports for free from nationwide credit reporting companies including, Experian, TransUnion, and Equifax. If you find any errors or inaccuracies dispute this information to see if it can be removed.

Get prequalified or preapproved

Second, get prequalified or preapproved for an auto loan from a bank, credit union, or other lender. Again, shopping around and comparing offers can help ensure you’re getting the best deal.

Getting quotes from multiple lenders generally won’t impact your credit score. If you have multiple lenders checking your credit, it’s a good idea to keep your shopping within 14 to 45 days. This way, these credit checks count as only one credit inquiry.

You might not get the best deal by getting financing directly through a dealer. If you go through a dealer, they will reach out to several lenders on your behalf and offer you one of those loan offers. Dealers profit when they offer higher interest rates than they receive from the lender. You can save a lot of money by comparing loan offers and negotiating for the best interest rate available to you. Negotiating can be as simple as asking the dealer if you qualify for a loan with better terms.

Negotiating your interest rate can help save you hundreds or thousands of dollars over the life of the loan. Negotiating can be as simple as asking the dealer if those are the best loan terms they can offer you or by pointing out lower rates available at a competing lender.

Types of auto loans

Most auto loans are fixed rate, which means the interest rate on your loan will not change over the life of your loan. You can see your payment for each month and the total you will pay over the life of a loan based on that fixed interest rate. You might prefer fixed rates if you are looking for a consistent monthly payment.

Variable-rate financing is where the interest rate on your loan can go up or down, based on the prime rate or other “index” rate.” The interest rate on the loan changes as the index rate changes, meaning that it could go up or down.

Variable interest automobile loans are uncommon, but you may be offered a variable-rate loan if you need a longer loan term or need to keep your initial payments low, as the interest rate offered is usually less than a fixed-rate loan. However, be aware that variable introductory rates can end up with a much higher interest rate, than if you go with a fixed-rate loan.

Know what is negotiable

Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.

Find out more about auto loan negotiation

What is a buy rate for an auto loan?

A buy rate is the interest rate that a financial institution quotes to the dealer when you apply for dealer-arranged financing. The actual interest rate offered to you may be higher to compensate the dealer.

When you find a car you like, the dealer’s finance and insurance department will obtain loan quotes from banks, credit unions, and other lenders. The rate the dealer receives is called the “buy rate,” and the rate the dealer offers you is called the “contract rate.”

In other words, the interest rate you receive through a dealer may be higher and include more fees than if you work directly with a bank or credit union to secure your financing before you shop for a car.

Keep in mind that dealers and lenders are not required to offer the best rates available, and you may save hundreds or thousands of dollars over the life of the loan by getting quotes directly from other lenders, comparing offers, and negotiating for the best interest rate available to you.

Know what is negotiable

Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.

Find out more about negotiating loan basics

Am I required to get my auto loan through a dealership?

No, you don’t have to get a loan from the dealer. In fact, you may get better interest rates and auto loan terms if you get quotes from other lenders before you shop for a car.

When you shop for a car or auto loan, there are different ways you can secure financing. You can go directly to a bank, credit union, or other lender.

It’s common for people to get a loan through the dealer because the car shopping process often starts with people looking for a car first. Then, people get introduced to the dealer’s finance and insurance (F&I) department to discuss financing. But in fact, you may save money over the life of your loan if you get preapprovals from multiple lenders before you shop for a car.

A loan quote from a bank, credit union, or other lender can help you negotiate a better deal. You can compare what you’re offered by the dealer and decide which loan to accept. If you do decide to ask about dealer financing, know that it is negotiable.

If you experience an issue with an auto loan, submit a complaint with the CFPB.

See different ways to get an auto loan

You have several options to consider when buying a new car or getting an auto loan. Learn how they can affect your overall money picture.

Read more about the ways to finance your loan

What is a Finance and Insurance (F&I) department?

A car dealership’s F&I department (sometimes called the Business Department) handles financing, auto loan features, and sells optional add-on products.

When you decide to purchase a vehicle through a dealership, the salesperson will usually refer you to someone in the F&I or business office. This person will discuss dealer financing options and handle the contracts, paperwork, and agreements associated with the purchase of the vehicle. The F&I department also sells optional add-on products and features, including extended warranties.

Dealer-arranged financing is when you choose to get a loan or lease through the dealership. The F&I salesperson offers you loans from banks, credit unions and other lenders they have a relationship with. Dealer-arranged financing can be more expensive than going directly to a bank or credit union before you shop for a car. This is because the dealer may have an incentive to charge you more for a loan. You can save a lot of money by comparing loan offers and negotiating for the best interest rate available to you. Negotiating can be as simple as asking the dealer if you qualify for a loan with better terms.

If you agree to any optional add-ons, keep in mind that it will also increase your loan amount. As with financing, dealers are not the only sellers of most of these products, and you may find better prices or more generous terms if you shop around. You should also fully evaluate whether any of these products are necessary. Remember you are not required to purchase add-on products to secure financing through the dealer and you may have the right to cancel them later if you change your mind.

See different ways to get an auto loan

You have several options to consider when buying a new car or getting an auto loan. Learn how they can affect your overall money picture.

Read more about the ways to finance your loan

Sources and publication details

The federal agency source text is U.S. government work in the public domain. Fynoptic selected, adapted, and formatted it for this guide. No agency endorsement is implied. Follow the linked sources for current program details and the rules applicable to your circumstances.

Back to all articles