It's not called rate jacking officially. The term coined most likely by some marketing department/lobbyist is participation. It's just the dealer "participating" in the loan haha.
Anyways, they get their money immediately. How it works is the lender has a cap typically for participation depending on lender policy and if they are running any incentives in the case of a captive lender (I've heard 1.5-4%, these days usually no more than 2%). The dealer can jack the buy rate from the bank upto this number.
The lender pays the dealer a split of the extra profit they expect to collect through interest. Think something like 75% of the extra goes to dealer, 25% to lender. This number varies by lender.
The dealer also earns a "flat" even if they don't jack up the rate, but this is as the name suggests flat. Around 50-350 (typically 100-300) depending on things like captive lender promos, credit tier of borrower, lender policy, blah, blah.
Both the participation and flat get reversed (aka finance company sends an invoice to dealer) if you pay off the loan or otherwise default before two or three month's payments. After this theshold, if you pay off, the dealer keeps both the flat and participation, it's the lender that loses out. So if you plan to do this, and there's some promo tied to financing with a captive or in general, don't be stupid and say you're going to pay off ASAP. Just sign the paperwork, then let the bank know you're paying off immediately. Also don't believe any dealer that says you'll face a penalty if you pay off immediately. Almost all car loans have no prepayment penalty (read your contract or call the finance company, not dealership), it's just the dealer loses profit, but why do you care?
Subprime turns this concept on its head. Many lenders such as Santander charge dealer's so-called acquisition fees to buy the loan from the dealership. Depends on collateral and credit history of the borrower. This ranges from 0 (typically for prime only) - upwards of 4k. The dealer still technically gets flat and participation, but it just cancels out the appropriate part of the acquisition fee. So the dealer still has to PAY the lender in many subprime deals.
The CFPB hates participation and alleges that their analysis shows participation leads to discrimination in lending by dealerships. NADA (the dealer's lobby) alleges CFPB uses junk menthodology in proving that. I have my opinion (probably would surprise most on this forum), but you decide who's right. In general, we're seeing lenders reduce caps on participation and be more watchful when dealers use it. If CFPB keeps at it, I'm guessing participation may go the way of the dinosaur in a couple years, we'll have to see.
