Why trust this: VaultRubric's owner spent years in dealership sales and management. This guide explains how the deal is built from the other side of the desk, and every number is either cited or yours.
Short answer: the dealer's rate often includes a markup over the lender's “buy rate” that the dealer keeps as pay. Walk in with your own approval and make the dealer beat it.
Best pick for your situation
Best fit for these offers: Credit union at 6.49% for 60 months, $678 less interest than the next-best offer (Bank). Compare total interest, not the monthly payment: a longer term lowers the payment but usually costs more.
The math:
Payment = P×r÷(1−(1+r)^−n), P = $30,000, r = APR÷12, n = months. Total interest = payment × months − P.
Rate markup example: a $30,000 loan at a 6.49% buy rate for 60 months costs $5,211 interest; with a 1.25-point dealer markup (7.74%) it costs $6,274, $1,063 more.
A best fit for the situation described, not financial advice or a buy/sell recommendation. Partner links never change a pick.
Your roadmap
Get pre-approved at a credit union and your bank before shopping (see the auto lender tracker for published rates).
Shop rates within a short window; the CFPB's guide explains that multiple auto-loan inquiries close together are generally treated as one for scoring.
Negotiate the car price first, then let the dealer try to beat your approval: “Can you beat 6.49% for 60 months?”
Compare APR, term and amount financed side by side here (FTC). Same term, same amount.
Check the contract APR matches what you agreed before signing.
Your offers side by side
Offer
APR
Months
Payment
Total interest
Dealer-arranged
8.49%
72
$533.20
$8,391
Credit union
6.49%
60
$586.84
$5,211
Bank
7.29%
60
$598.15
$5,889
The rate markup, explained
With dealer-arranged financing, the lender quotes the dealer a buy rate; dealers are allowed to charge you more as compensation, so the rate is negotiable (CFPB guide, CFPB key terms). The FTC says the APR you negotiate “usually includes an amount that compensates the dealer for handling the financing” (FTC).
How big can it be? In federal fair-lending orders, lenders had let dealers mark rates up as much as 2.25–2.5 percentage points, and agreed to caps of 1.25 points (5 years or less) and 1 point (longer) (Fifth Third, 2015; Honda, 2015). The CFPB's 2013 guidance on dealer markup was later disapproved by Congress in 2018 (CFPB Bulletin 2013-02), so markups remain legal; there's no general federal cap.
From the desk: a dealer can often match a credit union rate because the markup is room to give. Showing your approval is the fastest way to get it.
The difference between the lender's buy rate quoted to the dealer and the rate on your contract. The dealer keeps it as compensation (CFPB).
Is a credit union auto loan cheaper than dealer financing?
Often, but not always: manufacturer promotional rates can be lower. Compare APR, term and amount financed side by side.
Is a longer loan worse?
A longer term lowers the payment but usually raises total interest and the time you may owe more than the car is worth (CFPB).
Estimates, not financial advice. Taxes, insurance, PMI and fees vary by lender, county and city; confirm with your lender, dealer and state agency before acting.