You most likely know if you have credit problems you will be charged a higher interest rate. Most customers even expect that. But did you know you may have to pay thousands extra than a customer with good credit for the same car? And the bank or finance company financing your car knows all about it. As a matter of fact, they are getting your extra money. You're already being penalized with a higher interest rate, why would the same car cost you thousands more than your friend or neighbor with good credit?
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The answer is a "discount" or "bank fee". These are additional fees that a bank or finance company charge just to loan you their money. The fees vary, and can be anywhere from 100 dollars to 3 to 4 thousand dollars depending on the credit severity. To be fair, the banks use this fee to offset any losses they may incur on a higher risk customer. When they finance someone with credit problems they are taking a higher risk than with a conventional, good credit loan. Customers have shown with past credit history they may not pay, or may not pay on time. That involves more collections and maybe even repossession expenses for the bank financing the loan. So depending upon how much risk they feel they are taking, they usually decide to charge the dealership a fee just for purchasing the loan from them. When your approval is sent from the bank to the finance manager it will state the amount of the specific discount, or fee for your loan. Some banks take a percentage of the amount financed. Others a flat dollar amount. All fees are held from the dealers proceeds when the bank sends us the money for your contract. The banks tell the dealerships not to pass that extra charge to the customers. In other words I'm not allowed to tell you I may charge you $6,000 for a car that we would sell to everyone else for $5,000. There's even a name for that "disclosure of discount". Some banks even make us get a form signed by the customer stating that we did not raise the selling price after we found out you had credit problems. Bank fees put the dealership in a sticky situation. If we give you a price for a car, then find out we have to pay a discount on your loan, it may mean we lose too much money or are not making sufficient profit. It's unrealistic to think the dealership can absorb what can amount to thousands of extra dollars in fees without charging the customer all or part of the fee. After all, a car dealership is there to make a profit, and even though the banks tell us we can't pass that charge along to you, it has to come from somewhere. If the bank fee is $800.00 for example, unfortunately that is going to be built into the selling price of your car, and until now you never would have known the good credit customer beside of you may be able to buy the same car for less.
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