Reed GraffDallas, Texas

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@itsreedgraff·November 9, 2026·37 views

How Does Dealership-Based Financing Work?

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There are two different ways dealership finance cars and one of them is way more controversial. So how does the loan actually work behind the scenes? First is indirect lending where you come to us for a car, we send your application to dozens of competing banks at once including one captive manufacturer bank like Mazda Financial Services or Toyota Financial Services and because those banks are bidding against each other for your loan, we'll find you the most competitive rate and the winning bank pays a dealership commission or a flat fee just for originating the loan.

Second is buy here pay here financing. These are the no credit no problem loans and it's something our family dealership generally stays away from. They're generally associated with the most predatory or aggressive dealerships.

They'll price your loan super high and expect the loan to default and they'll put tons of GPS trackers throughout the car so that when you do defaults on your loan, they can repossess the vehicle, keep the down payment and resell that same car all over again. That being said when run professionally and with real underwriting, large groups like Clay Cooley have used in-house financing to help subprime buyers and grow super fast as a dealership group. For most buyers having 20 banks compete is always cheaper while in-house financing is strictly kind of last resort to rebuild credit.

But what about pre-approvals? Actually do you walk in pre-approved from your own bank? Subscribe so you don't miss

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More Dealership & Auto Finance Breakdowns

Why do manufacturers give away cars?

Why do manufacturers offer huge cash rebates and 0% APR incentives? Tons of people from my previous video didn't even believe that this is possible to get or only exist on cars that nobody wants. But in reality, about 80% of manufacturers offer 0% APR on at least one model during the year. And you might think that's just on vehicles that aren't selling, but well, that's actually not the case. Let's look at three types of incentives. First is customer cash and subvented rates. For example, Mazda offers 0% for 72 months on the CX70 and CX90 PGVs, 0% on the gas models, and special rates for CPOS, even like 3.9% or 4.9% for 72. This category also includes low lease money factors and rebates for loyalty, conquest, military, college grad, or Costco. The second is dealer cash incentiv. Sometimes manufacturer incentives aren't just for the customer, but as dealers, we also get incentives to sell specific customer cars from manufacturers and can pass those savings onto our customers. Along with additional deals, dealers might offer on specific inventory, like cars that have been sitting on the lot for a long time. We'll often sell those specific vehicles at a loss just to move inventory, or things like a dealer paying over appraisal value on your tradein just to stack inventory for their pre-owned lot. And third are state and federal credits like on EVs. So, why do manufacturers offer these? If cars aren't moving and dealers start turning down Mazda's inventory, the manufacturers in the hall, they don't make money when us dealers sell cars to a customer. They make money when they sell a car to us. The first is that it offsets slower months. It's way too expensive for a factory to scale production up and down, so incentives keep sales more steady. Second, it pushes specific models that increase customer loyalty. For example, SUVs tend to have higher brand loyalty than sedans or sports cars. Third, it's just a pricing tool to stay competitive without permanently changing the car's MSRP. Fourth, and finally, it just flushes out older inventory, like EVs, where buyer interest has dropped drastically lower than predicted values for the year. Want to know the best times of the year to stack these incentives? Subscribe.

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When should you trade in your vehicle?

How long should you actually drive your car before trading it in? At the dealership we see people follow three main schools of thought. Three years, seven years, or 12 years. Trading every three years only makes sense if you're leasing because you're only paying for the depreciation. You're always under factory warranty, >> >> driving the safest tech, and usually getting subsidized deals from the manufacturers because they think that leasing gives higher brand loyalty. Some of the downsides of leasing include mileage caps, wear and tear fees, and always being locked in a basically never-ending payment. Unless you buy out the lease at the end, but that put you past three years. Now, on the opposite end is holding the car for 12 years, driving it until the wheels fall off. And it's something a lot of people consider when they buy a new car. Once the loan is paid off, you have zero monthly payment and you spread the initial depreciation of the vehicle over a full decade. However, around year eight, major repairs, transmissions, suspension, timing components, electronic components starts taking up pretty fast. And you risk places that you might trade your vehicle back into looking at your car instead of as a pre-owned vehicle and as an auction vehicle, making the car's value jump from about $10,000 to only about $500. So, the sweet spot for a lot of people is right around the middle. Around five to seven years, your loan is paid off, the steepest depreciation is behind you, and you still have a lot of trade-in equity before repair jobs start jeopardizing your car's value. So, when should you actually buy out your lease? Subscribe so you don't miss it.

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Should you buy in cash? Pt.2 Because the first one kind of sucked.

What if you could drive a $30,000 car for 8 years for only 4 grand? When you buy a car, you pay in cash or you can finance. And according to the internet, the choice is pretty obvious. Right? Every finance guy says pay cash to avoid paying interest, which isn't bad advice, but there are ways to use your money smarter. Buy a $30,000 car in cash and the second you drive it off the lot, it drops 10% to $27,000. By year six, it's worth about $18,000 and by year eight, just $16,000. You avoided interest, sure, but you locked $30,000 into a sinking asset and lost $14,000 in value. Now watch what happens when you finance that same car at an incentivized rate like 0.9%. Instead of handing the dealer $30,000, you park that cash in the stock market earning 8% and pull the $428 per month payment straight from that account. Month one, your investment beats out the loan interest by $171. By year six, the loan hit zero and you still have $8,500 left over by the market. Put that back on the graph. For six straight years, your investment growth cancel out the car's appreciation. After 8 years, your net worth is $26,000 instead of $16,000 making you $10,000 richer than the guy who paid in cash. But how do dealers actually structure these rates? Subscribe so you don't miss it.

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Recording audio when at a dealership be like.

And this have been on the lot for more than 200 days, so we're willing to make a deal and get these off the lot.

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