In auto financing, the buy rate is the wholesale interest rate a lender quotes to a dealership on your loan application, before the dealership adds its own markup. The rate printed on your contract, called the sell rate, equals the buy rate plus whatever the dealer tacked on. You never see the buy rate itself, and no federal law requires anyone to show it to you. The gap between the two is where a meaningful share of dealership financing profit comes from, and it’s the reason two buyers with the same credit score can walk out of the same showroom with different interest rates.
Buy Rate Versus Sell Rate
When you apply for financing at a dealership, the dealer sends your information to one or more lenders. Each lender reviews your credit profile, the vehicle, and the loan terms, then sends back a buy rate. That number is the minimum interest the lender will accept to fund your loan. It covers the lender’s cost of capital, overhead, and profit margin, and it reflects how risky the lender considers you.
The buy rate is a business-to-business number. It passes from the lender to the dealer and, in most cases, never reaches you. Dealers have no financial incentive to volunteer it.
The sell rate, sometimes called the contract rate, is what appears on your retail installment sales contract. It equals the buy rate plus the dealer’s markup. If the lender’s buy rate is 5% and the dealer adds 1.5 percentage points, you sign at 6.5%. You pay 6.5% on every dollar you borrow for the life of the loan, and nothing on the paperwork tells you how much of that is the lender’s share and how much is dealer profit.
The difference is often called the spread. The lender collects its buy rate out of your monthly payments; the rest goes to the dealer as compensation for originating the loan. The dealer’s share is known in the industry as dealer reserve or dealer participation. Most lenders cap how much a dealer can add, often around 250 basis points (2.5 percentage points), though caps vary by lender, loan term, and credit tier.1U.S. House Committee on Financial Services. Problem Statement Re Dealer Markup Some lenders have moved to a flat per-loan fee instead of a markup.
Direct Lending Skips the Markup
When you borrow directly from a bank, credit union, or online lender, no dealer sits in the middle, so there is no markup. The rate you’re quoted is the lender’s actual rate for your risk profile. That’s one reason direct financing often beats dealership financing, and it’s why a direct offer in hand gives you a concrete benchmark against the dealer’s number.
What the Markup Costs You
A percentage point or two of markup sounds abstract until you run it through a real loan. On a $35,000 loan financed for 60 months, a 2-percentage-point markup adds roughly $1,900 in additional interest over the life of the loan. That money goes to the dealership, not the lender, and it reaches them through monthly payments most buyers never question.
Longer terms make it worse. A 72-month loan gives the markup more time to accumulate interest, and an 84-month loan more still. Buyers focused on keeping the monthly payment low often stretch the term without realizing the markup eats harder into their budget the longer the loan runs. Most of the money lost in dealership financing is lost here: not to a bad base rate, but to a markup the buyer never knew existed, riding on a term that magnifies it.
What Determines the Buy Rate
Lenders set buy rates based on the risk they’re taking. Your credit score is the single biggest factor. Borrowers in the top credit tier see dramatically lower rates than those in subprime territory, and the gap widens on used vehicles. Based on early 2025 data, average new-car rates ran from about 5.2% for buyers with scores above 780 to over 13% for buyers scoring between 501 and 600. Used-car rates were steeper across the board, with the same subprime tier averaging close to 19%.
Beyond credit score, lenders weigh several variables:
- Loan term. Longer terms carry higher rates because the lender is exposed to default risk and market shifts for more years.
- Vehicle age and mileage. Newer cars with higher resale values qualify for lower rates since the collateral holds more value if you default. A ten-year-old car with 120,000 miles is a riskier bet.
- Down payment. A larger down payment lowers the loan-to-value ratio, which lowers the lender’s risk and often pulls the buy rate down.
- Prevailing interest rates. When the Federal Reserve raises the federal funds rate, banks’ borrowing costs rise and flow through to auto loan rates.
What the Dealer Has to Disclose
The Truth in Lending Act requires dealers to disclose the annual percentage rate, the finance charge, the amount financed, and the total of payments on every consumer credit contract.2Office of the Law Revision Counsel. 15 USC 1638 – Transactions Other Than Under an Open End Credit Plan Those numbers show you the total cost of borrowing at the sell rate.
What the law does not require is disclosure of the buy rate. The APR on your contract is the sell rate, and nothing in the paperwork tells you how much of it is the lender’s rate and how much is the dealer’s markup. The dealer knows exactly what the lender offered. You don’t.
One limit does apply to how the markup can be used. The Equal Credit Opportunity Act makes it illegal for any creditor to discriminate against a loan applicant based on race, color, religion, national origin, sex, marital status, or age, and lenders who allow dealer markup are considered creditors under that law.3Office of the Law Revision Counsel. 15 USC 1691 – Scope of Prohibition When dealers can add anywhere from zero to a couple of points at their discretion, similarly qualified borrowers of different backgrounds can end up paying different rates. The CFPB flagged that risk in a 2013 bulletin.4Bureau of Consumer Financial Protection. Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act The underlying law still applies.
How to Push the Sell Rate Down
You can’t negotiate the buy rate, because you’ll never see it. You can absolutely negotiate the sell rate. The most effective tool is a competing offer. Before you walk into a dealership, get preapproved for an auto loan from a bank, credit union, or online lender.5Consumer Financial Protection Bureau. Can I Negotiate the Interest Rate on an Auto Loan with the Dealer A preapproval letter gives you a real number to measure the dealer’s offer against. If the dealer’s rate is higher, markup is almost certainly baked in.
Negotiating can be as simple as telling the finance manager you have a preapproved offer at a specific rate and asking whether they can beat it. Sometimes they can, because lenders occasionally give dealers promotional buy rates lower than what a bank would quote you directly. Other times the dealer matches your outside rate, which means they’re giving up most or all of their markup to close the sale. Either way, you save.
When you shop multiple lenders for preapproval, keep the applications inside a 14- to 45-day window. Credit scoring models treat multiple auto loan inquiries during that period as a single inquiry, so your score won’t take repeated hits.5Consumer Financial Protection Bureau. Can I Negotiate the Interest Rate on an Auto Loan with the Dealer Pull your credit reports first, dispute any errors, and know roughly where your score falls. A buyer who walks into a dealership knowing their credit tier and holding a preapproval letter is playing a different game than one who asks the finance office to see what they can do.