I saw online one time that someone (for example) was buying a car. Let’s say this car is listed at 22k. The person makes an agreement with the dealership to finance through the dealer at a higher interest rate and lower cost. For example 18% at 18k. Then after the deal is met, you just pay the car off in cash. Anyone heard of anything like this working? I plan on paying for a car in cash once my 2014 car no longer works. I’m hoping in 2030 to get a 2025 car. Thanks in advance
Has anyone tried getting a cheaper price for a car by financing through the dealership at a higher interesting rate, then paying off the car in cash right away?
byu/LuckyC1723 inFrugal
Posted by LuckyC1723
6 Comments
It can but the big thing to “understand” is most financing through a dealer has a penalty for pre payment
You need to know what that is to see if it makes sense (which it normally does) but it’s not guaranteed
I’ve done this several times
Yes. Mine required 4 payments before the prepayment penalty dropped, so check your financing agreement
The dealer interest was top loaded, the required down payment was all applied to the interest and there was a substantial early payoff. That was with a four year old Nissan Rouge. It was cheaper to just pay cash. That made it zero down payment and nothing per month, zero interest. This cut $2500 off the dealer’s profits.
I’ve done this often, usually refinancing the loan from the dealer to a loan from my credit union that has a much lower rate.
You just need to make sure that there’s no prepayment penalty on the dealership loan.
The rebates/discounts are rarely going to be like 4k. Maybe a few hundred unless it’s a new car rebate from the manufacturer. Think like 1%. Maybe 2 but thats the maximum allowable rate participation a dealer can do.
And dealerships sell cars every single day. This “magic loophole” that you heard about on youtube/tiktok isn’t some secret. No decent business would give up guaranteed front end money for the chance at slightly more on the back end that could be cancelled any time. Ones that do have steep discounting for taking their in-house higher rates also have steep pre-payment penalties to avoid just that from happening.