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There are still recommendations on the web for consumers to pay cash for their next used car – because of the cash rebate. Time to dispel this myth.
- car dealers receive a commission for mediated car financing, which is why there is a lot of interest in this payment method.
- If you pay cash, there is no commission for the dealer.
- In the event of financing, the conditions should be compared in order to save money.
Cash buyers do not get a higher discount
Dealers first grant discounts on used cars regardless of how the car is paid for. Cash payers should say goodbye to being granted particularly generous discounts. Why? We will explain this with an example:
Used car: cash payment versus car loan
you want to buy a used car that would sell at the dealer for 9.999 euro is offered. The purchase price of the dealer was 7.000 euros, so its margin is 2.999 euro. With every euro he gives you discount, his margin shrinks and he also has the expense of taking the cash to the bank and depositing it in his account.
If, on the other hand, the car is financed via a car loan, the dealer receives a commission from the financing bank, which is based – and this is where it gets interesting – on the amount of the loan brokered AND – depending on the bank – the interest rate "sold" to his customer.
For the last point, we have to go back a bit: after entering the personal data of the potential buyer, the dealer’s bank checks the creditworthiness and – after a successful check – gives a minimum interest rate, let’s say in our example 4.99 percent effective annual interest rate. For each percentage point that the seller adds to this interest rate to his customer, there is more commission (talk privately with the used car dealer you trust).
Let’s assume a 3.0 percent commission, which the dealer receives for the arranged car loan. For each percentage point more, the commission increases by 0.5 percentage points. If the dealer now manages to offer you, with a firm, thoughtful expression, a credit commitment for 7.99 percent p.A. to announce, he is secretly pleased about 4.5 percent commission. At 9.999 EUR credit amount to about 500 euros.
The dealer is interested in his total profit
His total margin on the sale would then be around 3.000 euro profit margin plus the 500 euro commission amount. in case of cash payment, on the other hand, the maximum margin would be only 3.000 euro amount. As a customer, negotiate a discount to say 9.000 euro, so the dealer’s profit margin melts down to 2.000 euros together. In the case of financing customers, on the other hand, the discount consciousness is not so pronounced, because in the end they are happy to get the car financed somehow.
| purchase price | 7.000 € | |
| selling price | 9.999 € | |
| discount | 999 € | ./. |
| commission | ./. | 500 € |
| dealer profit | 2.000 € | 3.499 € |
as you can see, used car dealers have no interest in cash buyers in view of their profit margins – and even less interest in cash buyers who demand a discount for their cash payments.
But since the dealer’s financing offer often depends on how much of a markup on the best possible interest rate he can sell you, we recommend comparing his credit terms with those of more favorable car loans, which you can do right here:
Car loan
The comparison of an example of dealer financing and a favorable car loan from our comparison shows just how worthwhile a comparison can be:
| credit amount | 10.000 € | |
| term | 5 years | |
| interest rate | 7,99 % | 1,87 %* |
| monthly rate | 201,29 € | 174,62 € |
| total amount | 12.077,24 € | 10.477,33 € |
| credit costs | 2.077,24 € | 477,33 € |
| *minimum effective interest rate of the bank of scotland car loan, as of 15.05.2019 | ||
cash discount, bank loan or dealer financing?
Cash discounts can also be obtained by those who take out a classic bank loan for their car loan and then use the money to pay for the car or motorcycle in cash. But what is the most favorable offer for car financing?? Find out easily with our car loan savings calculator!
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