Why do auto dealerships balk at cash transactions, but real estate companies prefer them?
In: Economics
Many modern auto dealers don’t really sell cars anymore. They really sell auto loans. And cars are just the excuse. They hate people who walk in with their own loan or with cash.
But real estate agents make their money on commission. So they don’t really care how you pay. In fact, they love cash, because cash deals are more likely to close fast.
Pro tip: use Costco Auto to buy new. You will get a pre negotiated price for everything (including all add-ons) and you’ll deal with the Fleet salesperson not some regular one. The Fleet salesperson doesn’t care if you pay cash or not.
Real estate transactions prefer cash because there’s no risk to the deal. Mortgages can fall through for any number of reasons, and then the deal is off. The selling agent and the seller don’t have any financial interest in your loan, so whether you pay cash or with a mortgage, they get the same money at the end
Car dealers make money when you take out a loan with them. If your interest rate is 7%, the bank is probably getting 5% and the other 2% goes to the car dealer. They are highly motivated to get you into a loan and know that the deal is solid before offering you the loan (most of the time) and you close a car transaction the same day so there’s little risk to it falling apart due to financing. So, the car dealer makes more if you pay with a loan through them than they would if you paid cash
For autos… The markup in cars is awful. The manufacturers have greatly reduced profits, buyers are more savvy with internet pricing and competition is higher than ever.
Banks will give dealers a little bit of money for utilizing them. Some banks will base this off of the amount financed where smaller loans pay the dealer $100 and larger loans can be up to $500.
It’s also easier to provide the buyer with beneficial protections. A warranty is a lot easier to sell at $50 per month instead of trying to pry $3000 or more from the buyer at the time of closing.
For homes… you aren’t buying from a dealer. You’re buying from a person or a family. The agent just helps facilitate that. Both parties want their money asap! Neither want to wait for funds of hundreds of thousands of dollars. Mortgages take time and often get complicated. Cash is quick and damn near fool proof making it desirable for everyone involved
It boils down to the fact that it’s illegal for a lender to pay a realtor to direct their clients to that lender, but it’s totally legal for a lender to pay a car dealer to direct their clients to that lender. The dealership makes more money if you finance with their preferred lender so that’s what they try to do. Your realtor, and the seller, make the same money regardless so they try to do whatever is easiest.
the other explanations cover why car dealerships prefer to give you a loan. but they don’t balk at cash transactions. i bought two new cars in the last year and a half, both with cash, both times the sales person and finance person didn’t hesitate or show any concern at all that i wasn’t getting a loan.
In real estate people say they will buy the house, then find out the bank won’t give them a loan for the money. You’d be surprised how often this happens.
Back in 04 I bought a car in texas. Cause of the loan I couldn’t pay it all off cause of a clause in the contract. So I payed all but 100 dollars then had payment of like 3 cents a month for the next 60 months. Man I got mean mugged every time I’d go pay the loan😂😂😂
Cars have low profit margins for dealers. The dealers make their money from financing.
Real estate agents make their money from commissions, which is a percentage of every sale. They get their commission no matter how the transaction is completed. A cash sale is more likely to close than a financed sale.
Getting kickbacks from loans vs dollar amount per the vehicle commision is a massive difference. Still an easy customer is same same doesn’t matter what industry.
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