What you need to know about financing a car with bad credit at a car dealership:

Did you know that when you arrange financing on a new or used car at an automobile dealership, they actually make money on your interest rate? What?!

It's true and there's currently a lot of legislation going into effect to attempt to put an end to it.

Many, many years ago, car dealers realized (thanks to a company called Reynolds & Reynolds)that they could really add to their bottom line in a big way by selling you the rate. Then they also realized that if they sold you warranties, credit life and disability insurance, gap insurance, car alarms and all these other gadgets, they would literally add tens of thousands to their bottom lines each and every month.

Most people with credit problems don't realize it, but when they go to a dealership and buy a car, the rate they pay is most often not the rate that they

actually got.

You know the drill...you finally find the car that you want, you negotiate on payments and the dealership keeps skirting the issue of what your interest rate is. The salesman tells you that he is going to introduce you to his Finance Manager and

that 'they' will go over your rate and answer any other questions that you may have.

You finally make it into this highly classified Finance Office only to first listen to a carefully crafted spiel on warranties and credit life. When you do find out the rate, it's very common for the Finance Manager to pull out your credit bureau and show you a 5 year-old charge-off for $15.00 to Nordstroms. They explain that if you didn't have that charge-off, they would have been able to get your rate down another half point orso.They then tell you the rate.

Well, heck, the rate sounds pretty good to you, what with that Nordstroms charge-off and everything. Plus, you never bothered to actually shop for rates anyway, because you've always financed with the dealer. That's just the way you've always done it and frankly, you're just happy to be getting a car.

Well...what actually happened is that they dealt with some of their banks on your car deal. They may have gotten 2 or 3 calls on your car deal. They went with the lowest rate and the longest term. The bank allows them to mark the rate up anywhere from 1 point to 1 and a half points over the rate amount from the bank. The amount they can mark it up

depends on the term of the loan.

So, let's say that your rate from the bank was actually 9.25%. The Finance Manager gleams that they can't believe they got you a rate of 10.75%! Wow!

They haven't seen that rate for awhile.

But, if you had done your homework before you got all antsy about having to have that car right now, you would have discovered what the rates actually were.

This is so easy to do in just a short span of time and you can do it all on your home computer. In addition, if you've read any of my other articles, you will already know that I am a strong advocate of setting up your own financing ahead of time and walking in with a check in your hand.

How not to get ripped off:

NEVER negotiate on payments! Only negotiate on the price of the vehicle. Before you decide to pull this little trick, you need to have a check in hand and be in the right ball park. Don't pick out a used car and think you're going to get $9,000 knocked off the

price. That is not realistic. Used cars are generally marked up around $2000 give or take a

little. It just depends on a lot of factors. This is one where you need to know trade-in values and the like.

In effect, what you did to yourself by allowing the dealership to dictate your interest rate was add additional thousands of dollars to your loan.

Don't get me wrong, I'm not an advocate for no one making money, but if you can control how much interest you're going to pay, then do it!

If more people with bad credit would use my techniques for getting pre-approved and having the check in hand AND learning a few simple tactics that will save oodles of time and eliminate the irritation factor...well, life would be so much simpler.

So the next time you get in the mood to buy a car, do your research first and save yourself a lot of money second.