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Do Car Dealers Make Money on Financing?
Car dealers typically make a commission for arranging a loan, sometimes in the form of an increased interest rate.
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Shannon Bradley is a NerdWallet authority on autos and home services. Before joining NerdWallet in 2021, Shannon spent 30-plus years as a writer, content manager and marketer in the financial services industry. In these roles, she developed financial expertise and created educational content covering a wide range of personal and business topics. Shannon is based in Newburgh, Indiana.
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Auto dealerships make a lot of money off of financing. They act as intermediaries to connect their customers with banks, credit unions and captive lenders (the financing arm for automakers). In turn, they may earn either a flat fee for each loan referral or a portion of the interest through what’s called a rate markup.
Some loans make a dealer very little, $100 or even less, but some can generate thousands of dollars in profit.
How do dealers profit from car loans?
The most common way dealers profit off of auto loans is a system known as dealer reserve (also called finance reserve). Dealers have a “buy rate” with each lender that represents the minimum interest rate on a loan that the lender will accept. The dealership can mark up that rate by an agreed-upon amount, usually capped at about 2-3 percentage points, depending on lender policy and state laws. That markup is known as the “sell rate,” and it’s the rate the dealer is likely to offer you.
About 78% of dealer-arranged loans carry marked-up interest rates, according to a 2023 analysis by the Massachusetts Institute of Technology, with an average markup of 1.13 percentage points
. According to Experian, in the third quarter of 2025, slightly more than 80% of new-car buyers and more than 35% of used-car buyers financed their purchase
Say you take a $30,000, five-year auto loan through a dealership that has marked up the interest rate from 6% to 7%. Over the life of the loan, that markup would result in you paying an additional $840 in interest, and the dealer would earn some portion of this. In some cases, lenders pay dealers only part of the calculated reserve to account for loans that are paid off early, which can help avoid a chargeback to the dealer.
Marking up interest rates is not illegal. Dealers are not required to tell you if you have been offered a loan with a marked-up interest rate.
How dealer profit affects your deal
Car dealers make money off of financing, but they also make money in other ways: off the vehicle itself, from selling your trade-in, from the sale of warranties and other add-ons, as well as from servicing vehicles. So, they may view profit in one area of the sale as justification for a discount in another.
Some dealers may be more willing to negotiate a car’s price if you finance through them because that gives them an opportunity to earn commissions from financing. It also increases the amount of time you will spend in the finance office, making you a better prospect for vehicle add-ons.
Your best strategy for getting the lowest interest rate is to bring a preapproved auto loan to the dealership, representing the best rate you can find on your own. This approach can minimize the amount of dealer markup, if they’re attempting to meet or beat your preapproved rate.
If you do end up with a higher interest rate from a dealer in order to get a better vehicle price, pay your loan off as soon as it’s financially feasible, or refinance your car loan with another lender if you can qualify for a lower rate.
Just keep in mind that while a dealership may say it’s “making you a deal,” it’s also a business wanting to maximize profit. Pay attention to everything you’re being charged, and always ask for the out-the-door price.
🤓Nerdy Tip
Some car dealerships have been known to decline a sale if the buyer doesn’t use their financing. While this isn’t illegal, it is a questionable business practice. It’s also a red flag that you might be better off buying a car elsewhere.
How do dealers profit through captive financing?
New car dealerships often arrange loans through automaker captive lenders, such as Toyota Financial Services or Ford Credit, in the same way that they do banks or credit unions. The dealer may earn compensation similar to other dealer-arranged loans, such as a flat fee or interest-based commission.
Captive lenders are the primary source of promotional loans, such as 0% or low-APR financing for borrowers with the best credit. This type of financing leaves less room for dealer profit, so dealerships may be less likely to negotiate car prices or offer other incentives. However, low-rate financing can be a tool dealers use to boost car sales and generate revenue in other ways, such as selling add-ons like extended warranties or prepaid maintenance plans.
If you qualify for a low-rate loan through a dealer’s captive financing, be aware that while you may save on interest, you could pay more in other ways.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for borrowers with good or excellent credit who want fast approval and funding to buy a new car.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.5
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.99 - 15.74%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for applicants who want to compare multiple new car purchase loan offers.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.0
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.24 - 29.90%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Auto Credit Express
New car purchase loan
Not yet rated
Best for new-car buyers who can’t qualify for a lower-rate loan through a traditional lender and need help finding a dealer with subprime lending.
Min score: None
Amount: No min. - $100,000
Min. AmountNo min.
Max. Amount$100,000
Not yet rated
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
N/A - N/A
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Buy here, pay here dealers (BHPH) operate differently than traditional car dealerships. BHPH dealers work with used-car buyers who have poor credit and may not be able to get a loan elsewhere. Financing through a BHPH dealer isn’t through a bank or credit union. Instead the dealer uses its own money, with advertising like “We Finance” or “Your Paycheck is Your Credit.”
Because there’s a higher risk that the borrower could default on the loan, interest rates and fees are often higher. This type of in-house financing is the most expensive way to buy a car, and it’s very profitable for the dealer. Also, according to Experian, vehicles purchased this way are more likely to be repossessed, which can give the dealer a chance to resell the same vehicle for additional profit
Your loan’s interest rate is only part of your financing. As you review a dealer’s financing offer, make sure to check the various parts. Those include:
Your down payment. A dealer may need to increase your down payment to lower the offered rate.
Origination fees. These typically go to the lender and not the dealer, and many lenders don’t charge such a fee. But some BHPH dealers may charge such a fee and increase it to compensate for a lower interest rate.
The loan term. A dealer could extend the term of the loan — say from 60 months to 72 months — which will lower the payment but increase the interest you pay, for their benefit.
It’s helpful to know how car dealerships make money, but it isn’t something to worry about. Car dealerships are in business to make a profit, and that’s understandable. But you, as a customer, are also entitled to the best interest rate and loan terms for which you can qualify.
To strike a balance, check your credit report and run numbers through an auto loan calculator that factors in credit scores, so you know what kind of interest rate to expect. Have a pre-approved auto loan for the dealer to match or beat. And if you know what kind of car you’re buying, use online pricing guides, like Kelley Blue Book or Edmunds, to know what you should expect to pay. The bottom line is that you don’t want to walk into a dealership with no way to gauge the offers presented to you.
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