How to Offer Financing as a Used Car Dealer: A Complete Guide

June 13, 2024

Offering Financing as a Used Car Dealer: Key Insights

Offering financing can be a significant competitive advantage for used car dealers. A majority of U.S. consumers prefer financing their vehicle purchases, making financing options crucial for attracting more customers. There are two primary types of financing options: In-house financing and through F&I (Finance and Insurance) services companies.

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In-House Financing

How It Works

In-house financing increases dealership revenue from interest but also poses financial risks. All financing processes occur within the dealership, providing a quicker loan approval and car delivery for customers. Dealerships gain greater control over rates, loan qualifications, and down payments.

Pros and Cons


  • Immediate fund availability for customers.
  • More control over the financial terms.


  • Increased financial risk due to lending the dealership’s own money.

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Working with an F&I Services Company

Process Overview

F&I companies act as intermediaries bridging dealerships with multiple finance companies like banks and credit unions. They source loans on behalf of consumers, connecting them with suitable financial products.

Financial Benefits

Revenue Streams: Dealerships can earn a flat fee or a percentage of the loan amount and interest on each sale. Partnerships with F&I companies allow access to a larger customer base and enhance competitiveness.

Example: Web Finance Direct

Web Finance Direct connects dealerships to a wide range of lenders and provides a team of financial experts to assist dealerships in securing financing for their customers.

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How Dealerships Make Money on Financing

Primary Methods

Dealerships make money on financing primarily through interest rates and flat fees.

  • Interest Rates: Adding an additional percentage to the bank's offered interest rate. For example, a bank offers a 5% rate; the dealership adds 1-3%, making it the “sell rate”.
  • Flat Fees: Negotiating fees with banks and credit unions for selling loans.

Strategic Offers

0% Financing: While not profitable from interest, it boosts sales, especially in periods of low consumer activity, and can promote higher-priced models, increasing overall revenue.

Back-End Services

Offering warranties, maintenance plans, and insurances, such as gap insurance, provides higher profit margins than front-end sales. GAP insurance ensures the car is covered if it's totaled or damaged before the loan is paid off.

FAQs Breakdown

The profitability of both in-house financing and partnerships with F&I companies comes through flat fees or interest percentages. Offering financing ensures market competitiveness by providing flexible spending options. Additionally, 0-down financing benefits boost sales during low purchasing times and can promote the sale of more expensive models, ultimately increasing long-term revenue.

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