Aug 29 2008
Anatomy of a Car Deal: Selling the Paper
Now, the Dealer has to sell “the paper”. That means the Dealer has to get the Bank or some other lender to buy the retail instalment sales contract or the lease agreement, if they haven’t already. Most of the time, the Dealer has gotten a tentative (or even final) loan approval on the deal before the car is actually delivered to the customer.
One thing also to be aware of when you finance the purchase of a car through a dealer is that dealers receive a kickback from the lenders for the privilege of faxing your credit application to the lender. The dealer and lender share in an undisclosed “yield spread premium” as it’s called in the industry. Yield spread premiums are a dirty little secret, the auto lending industry has not owned up to. Car dealers do not do the actual money lending, but they send the buyer’s application to lenders, who tell them what interest rate the buyer would qualify for. That rate is called the “buy rate”. However, if the dealer already got the buyer to sign onto a loan with a higher interest rate, the dealer and lender split this extra “yield spread premium” which can result in thousand to several hundred dollars difference.
In those cases where financed has not yet been approved, the car is “spot delivered” to the customer. In California, a dealer has 10 days to get the financing approved. The forms Dealers use in California state that the customer agrees to either get their own financing or to bring the car back if the Dealer is unable to assign the loan within 10 days of the contract. The Dealer is required to refund any down payment or the trade in vehicle’s allowance, less some small charge for the customer’s use of the vehicle, often based on mileage driven.
