What is a Factory Holdback?

Reader question:

I’m going to buy a car and want to know about the fees that come with it. What is a factor holdback fee?


Excellent question, Arthur.

Car dealers and other places that sell cars like to give you one price and then fli around and show you another price, the actual price, on a contract that you might not read over completely before signing. It’s various fees and hidden costs that make car buyers pay a lot more than they really should be paying. Before going to buy as car, you should look into this to find out what these fees are. A factory holdback fee is one of them.

Manufacturers of cars in the United States generally pay car dealerships a factory holdback fee of what is about three percent of the MSRP price for every car that they sale. The reason why it is called holdback is because the manufacturer doesn’t give the car dealership the money that it involves until the car is sold. They make the charge on the dealer in the invoice price, and then pay them the money back after they sell the car. It’s part of the invoice price of all cars, and it’s basically a way to help the dealer along and make sure they turn a profit.

A lot of times dealers will add this holdback price as part of the contract in order to turn a little extra profit. That away, when they pay back the factory, they have at least that much extra. However, it is the factory’s responsibility to pay the holdback fee, not the customer’s. If you are charged for the factory holdback fee, then the dealer is pretty much milking you to get the money twice. Once from you, and again after the sale is final and the factory pays him back.


Fashun Guadarrama.

About the Author:

Austin Davis, consumer car repair advocate. "Hi there! I love to help people solve their car repair problems and I hope my site was helpful to you today. Thank you for stopping by."