Dealer Rate Markup Explained by a Former Finance Director
By Joshua Matute · 20+ years in Houston dealership finance
What dealer markup is
When a dealership arranges your loan, the lender may approve you at one rate (often called the buy rate) and allow the dealer to offer you a higher one. The difference is compensation for the dealership. It is common, and in many cases legal, but it can cost you real money over the life of a loan.
Why it matters
On a $25,000 loan over 60 months, one extra percentage point of rate adds up to roughly $700 in interest. Two points is roughly double that. You may never see the difference unless you compare.
How to check if you are overpaying
Look at your APR on the contract. Then compare it with what a credit union or direct lender would offer someone with your credit today. If the gap is large and your credit has improved, a refinance could help.
Questions to ask at the dealership next time
Ask what rate the lender approved. Ask whether the rate includes dealer participation. Get a pre-approval from a credit union or bank before you walk in, so you have something to compare against.
Educational information only, not legal or financial advice. Texas Auto Refi is not a lender and may earn referral fees from partners. See how we get paid.