Short answer: when a car dealer arranges your loan, it sends your application to one or more lenders. A lender that agrees to finance the loan quotes the dealer a rate, called the “buy rate”. The CFPB says the rate the dealer then offers you, the “contract rate”, may be higher to compensate the dealer, and that the rate is negotiable. A loan quote from a bank, credit union or other lender before you shop gives you a number to compare. Before you sign, the creditor must give you written disclosures with the APR, the finance charge and the total of payments. This is general information, not legal or financial advice.
How dealer-arranged financing works
The CFPB describes it this way (CFPB, last reviewed November 8, 2022, read October 30, 2026; this page may be out of date):
- The dealer’s finance and insurance department collects your information and forwards it to one or more prospective lenders. This is also called indirect auto financing, because the dealer is between you and the lender.
- A lender that agrees to finance the loan gives the dealer a quote, the “buy rate”.
- The CFPB says interest rates through a dealer are generally higher because the rate offered to you is the buy rate “plus additional interest that compensates them for handling your financing.”
- You can ask whether there were other offers and whether those had lower rates or better terms.
The CFPB’s buy rate page says “dealers and lenders are not required to offer the best rates available” (CFPB, last reviewed January 30, 2024; this page may be out of date). Its page on negotiating says that when the dealer gives you a loan above the buy rate, the dealer can sell the loan to the creditor at a premium, and that you can negotiate the rate along with other loan terms (CFPB, last reviewed November 8, 2024).
You do not have to finance through the dealer
The CFPB says you do not have to get a loan from the dealer, and that a loan quote from a bank, credit union or other lender can help you negotiate; you can compare it with the dealer’s offer and decide which loan to accept (CFPB, last reviewed January 30, 2024). It also says that if several lenders check your credit, keeping your shopping within 14 to 45 days means the checks count as only one credit inquiry (CFPB). To compare a car loan with other ways to pay, see a personal loan vs an auto loan for a car.
What one percentage point costs, only for the math
This example is only for the math, and all figures are example figures, not rates or terms from any lender or dealer. You finance $25,000.00 for 60 months with no fees. The lender’s quote is 7%, and the contract rate you are offered is 8%.
| At 7% | At 8% | |
|---|---|---|
| Monthly payment | $495.03 | $506.91 |
| Total of payments (payment x 60) | $29,701.80 | $30,414.60 |
| Interest (total minus $25,000.00) | $4,701.80 | $5,414.60 |
One point more costs $506.91 - $495.03 = $11.88 a month, and $30,414.60 - $29,701.80 = $712.80 over the loan. On your own offer, compare the total of payments on each disclosure, not only the monthly payment.
Read the Truth in Lending disclosure
The creditor must make the disclosures “before consummation of the transaction”, that is, before you are bound by the contract (12 CFR 1026.17(b), eCFR, text up to date as of October 28, 2026, read October 30, 2026). For a car loan they include (12 CFR 1026.18, eCFR):
| Term | What the rule says it is | Section |
|---|---|---|
| Amount financed | “the amount of credit provided to you or on your behalf” | 1026.18(b) |
| Finance charge | “the dollar amount the credit will cost you” | 1026.18(d) |
| Annual percentage rate | “the cost of your credit as a yearly rate” | 1026.18(e) |
| Payment schedule | The number, amounts and timing of payments | 1026.18(g) |
| Total of payments | “the amount you will have paid when you have made all scheduled payments” | 1026.18(h) |
| Total sale price | In a credit sale, the cash price, other amounts financed and the finance charge, with your down payment | 1026.18(j) |
If the amount financed is higher than the price you agreed on, ask what was added; see gap insurance on a car loan. For the difference between an interest rate and an APR, see APR vs interest rate.
What happened to the 2013 dealer markup bulletin
On March 21, 2013, the CFPB issued a bulletin, “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act”, with guidance for indirect auto lenders that let dealers raise consumer interest rates and pay dealers part of the extra interest. On May 21, 2018, Public Law 115-172, a joint resolution of Congress under the Congressional Review Act, said the bulletin “shall have no force or effect” (GovInfo, read October 30, 2026). The law names it CFPB Bulletin 2013-02. The CFPB’s page now says the bulletin has no force or effect and that the materials on it are for reference only (CFPB, page last modified June 4, 2026).
The Equal Credit Opportunity Act itself still makes it unlawful for a creditor to discriminate against an applicant in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age (if the applicant can contract), because income comes from public assistance, or because the applicant used a right under the law in good faith (15 U.S.C. 1691(a), Cornell LII). If you think a lender or dealer discriminated against you, ask a lawyer, and you can submit a complaint at consumerfinance.gov/complaint.
Related guides
If the dealer calls after you drive the car home to say the financing fell through, see yo-yo car financing. Dealers that make the loans themselves are covered in buy here, pay here car loans. If you already signed at a higher rate, see car loan refinance options, and for a car from a private seller, financing a used car in a private sale.
Questions to ask the dealer
- Which lenders did you send my application to, and were there other offers?
- What is the buy rate the lender quoted, and is the contract rate higher?
- Can you match this loan quote I got from another lender?
- What is the total of payments at this rate, and at the rate in my other quote?
Checklist
- Get a loan quote from a bank, credit union or other lender before you shop.
- Keep rate shopping within 14 to 45 days, per the CFPB.
- Ask about the buy rate and other offers; the rate is negotiable.
- Compare APR, finance charge and total of payments on the written disclosures before you sign.
- Check that the amount financed matches the price you agreed on.
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Sources
- CFPB: What are the different ways to buy or finance a car or vehicle? (page last modified April 28, 2023)
- CFPB: What is a buy rate for an auto loan? (last reviewed January 30, 2024)
- CFPB: Can I negotiate a car loan interest rate with the dealer? (last reviewed November 8, 2024)
- CFPB: Am I required to get my auto loan through a dealership? (last reviewed January 30, 2024)
- eCFR: 12 CFR 1026.17, General disclosure requirements (Regulation Z), current text up to date as of October 28, 2026
- eCFR: 12 CFR 1026.18, Content of disclosures (Regulation Z), current text up to date as of October 28, 2026
- GovInfo: Public Law 115-172 (S.J. Res. 57, May 21, 2018), joint resolution under the Congressional Review Act on the indirect auto lending bulletin
- CFPB: Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act, bulletin page with the note on the 2018 joint resolution (page last modified June 4, 2026)
- Cornell LII: 15 U.S. Code 1691, Scope of prohibition (Equal Credit Opportunity Act)
- CFPB: Submit a complaint
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.