Can a dealer mark up my interest rate?

Yes, in many cases. When a dealer arranges financing, the lender may approve you at a 'buy rate' and allow the dealer to offer a somewhat higher rate, with the difference serving as dealer compensation. Limits vary by lender and state. This is legal, but it means the rate is often negotiable. Arriving with a pre-approval from your own bank or credit union gives you a benchmark and leverage to ask for a better rate.