To understand car finance, understand car dealers.
The U.S. car finance market reached almost most $600 billion in 2006. With about 17 million new cars sold every year at an average price of $23,000 and an 80% financing rate, new car finance totals about $312 billion. Used car finance is not far behind with about 44 million used cars sold every year at an average price of $8,500 and an almost 75% financing rate. Totaling $280 billion, it’s growing fast.
Who are the biggest lenders?
Captive finance companies of the largest U.S. and foreign manufacturers are the biggest car lenders with about 40% of the market. Banks such as Chase Auto Finance and CapitalOne Auto Finance follow with a cumulative 30% market share. Credit Union car loans come in third with about 20% of auto lending. Credit union auto loans are growing fast. Their command of local markets and familiarity with consumers has helped them grow their market share by almost 50% in just the last few years. Car finance companies and acceptance corps close auto lending out with a bit over 10% of the market. Click here for more on auto finance companies.
While some of the top car lenders will probably not surprise you, what is surprising is how fragmented the auto lending market is. The largest lender, GMAC Auto Finance, has just over 6% of the market. Market share for the lending arms of the big three taken together is only 16%. Further, only 14 lenders have a greater than 1% market share. Fully 60% of the market goes to lenders with less than 1% market share.
So, how do I get the best car finance deal?
We suggest you get car loan quotes before heading to the dealership. Then read about how car financing works at the car dealership:
- Commission. Most salespeople earn commissions on the "payable gross" to the dealership. That is, how much the dealer makes after the cost of the car. The gross is often tiered. For example, if the payable gross was from $0 to $700, the salesperson’s commission may be 20%, from $700 to $1200 the commission may be 25%. When financing a car, keep in mind that such a commission structure motivates the salesperson to maximize the dealership’s gross on any one deal.
- 4-Square. A combination car finance worksheet and car sales tool, the 4-square is a sheet of paper containing 4-squares. Used car salespeople, particularly at franchise dealerships, use the 4-square to work out the terms of the sale and car finance. The four squares contain the sticker price of the car, the price of the trade-in, the down payment, and the monthly payment. If you want to finance a car, pay particular attention to the last box.
- The box. The box is a car sales office, cubicle or desk around which aspects of the sale are negotiated. To have a car buyer “in the box” means that they have found a car they find interested in enough to enter the dealership, sit down and begin discussing financing a used car.
- F&I. The bulk of dealership car finance is conducted in the F&I or Finance & Insurance office. Once you have agreed the purchase price of the car with the salesperson, the F&I manager is responsible for arranging car financing loan terms including the car financing rate, term and monthly payment. Click here for tips on navagating the F&I office.
When it comes to financing a car, the SmartCarCredit service offers a couple key benefits:
- Range of used car finance options. After submitting your profile online we screen car lenders and car dealers to find those that can meet your car financing loan needs. They analyze your application form and bring you car financing quotes. Quotes that you take with you to shop for your used car.
- Proven Lending Platform. We acquire dealerships in partnership with powerful car finance solutions such as CreditSmarts. This lending platform brings each dealer a portfolio of over 20 car lenders. Therefore, not only do we have direct access to those lenders, should you be contacted by one of our CreditSmarts dealers know that they have direct electronic access to a portfolio of lenders. Start your car finance application now!.
A note about used car loans.. When financing a used car, expect a higher interest rate. Used car financing rates are often 2-3 percentage points higher than new cars. While that spread varies depending on whether you are buying from a used car dealer or a private party, keep it in mind when calculating your used car loan payments.
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Disclosure: We developed the content for SmartCarCredit™ while working with automotive industry clients. We hope you find it helpful in making informed decisions. While we believe the information to be accurate, we do not guarantee its accuracy.
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