The first thing you need to realize is that this is where dealerships make the majority of their profits. Dealerships typically have 15 to 20 relationships with different banks. The banks sell the financing to the dealers at a discounted rate. This rate is called the "buy rate." The dealers then have the opportunity to sell that rate adding 1, 2, or 3 percentage points to it, which is called the "sell rate."

It works like a mortgage broker. They buy the rate for 4%, add 25% to it, then they say they can finance you at 6%. That 2% is called the finance reserve. On an $80,000 car over a 5 year loan, that can earn the dealer $5,000 worth of reserve, which is all profit.

The way the dealers get paid on that reserve is simple. As soon as the deal funds, the dealer is cut a check by the bank for the full amount of the reserve...all $5,000. As long as you don't refinance the original loan, that profit is in the dealership's pocket.

For more information about financing your new or used car, visit Edmunds.com.