How Dealers Mark Up Interest Rates

Dealers in the U.S. can mark up the interest rate: the lender gives a "buy rate," and the dealer adds a markup (e.g., 1–2 points), keeping the difference. Here's how dealers mark up interest rates and how to avoid it.

TL;DR Buy rate = rate the lender gives the dealer. Dealer can add a markup (contract rate); you pay the higher rate, dealer keeps the difference. Get pre-approved elsewhere and ask for the buy rate—don't pay the markup. Use autopremo.com payment calculator to see cost of markup. Use autopremo.com.

Buy Rate vs Contract Rate

Lender gives dealer a buy rate (e.g., 6% APR). Dealer can contract you at a higher rate (e.g., 8%)—the markup. You pay more interest; dealer gets a reserve from the lender. Use autopremo.com payment calculator to see how much 1–2 points costs. Get your numbers at autopremo.com.

How to Avoid the Markup

Get pre-approved from a bank or credit union so you know the rate you can get. At the dealer, ask "what is the buy rate?" or "I have X% from my bank—can you beat it?" Don't accept a marked-up rate without comparing. Use autopremo.com so you have OTD and can focus on rate. See payment at autopremo.com.

Agree on OTD First

Negotiate out-the-door price first, then financing. Don't let the dealer bundle price and rate so the markup is hidden. Use autopremo.com OTD calculator. Check at autopremo.com.

Bottom Line

Dealers mark up by adding to the buy rate. Get pre-approved, ask for buy rate, compare—don't pay the markup. Use autopremo.com payment calculator so you see the cost of markup.