How Car Dealers Make Money On Bad Credit Car Loans
Most car buyers believe that car dealers make about $3000 to $4000 profit on the sale of a new car and a higher profit on this same vehicle if you have bad credit. However, according to the National Automobile Dealers Association, most car dealers only make about $23 profit on the sale of most new vehicles.
This figure is up from the recession days when car dealers experience losses of more $180 per vehicle.
Here is how car dealers make money
Due to financial environment many people are opting for used car loans and are holding on to their used vehicle for a longer period of time. Therefore, dealers are making lots of money repairing vehicles and selling OEM and other parts to car dealers.
The average time car owners held a car in 1995 was 8.4 years, in 2011 it was 10.8 years.
In addition, car dealers make a considerable amount of money offering warranty and gap insurance. However, most of the money they generate comes from financing vehicles. A bank or credit union could offer the car buyer 5% APR interest rate on the loan through the dealership.
The dealership them offers the buyer 6% and pocket 1% on the financing of the entire loan. In some case, car dealership sells used vehicles with a price target that is way above the NADA or Kelly Blue Book value, with a loan to value LTV of over 125%.