Car Dealer Tricks and Scams

List of Dealer Tricks to watch out for.

car dealer scamsAll of the tricks below have been highlighted in different parts of Car Buying help online.

The list below is just a reminder of things to watch for when buying a car.

The fact is, in today’s information age most new car dealers are extremely open and upfront when it comes to pricing a car.

They have to be, you have the invoice in your hand. It has become important to them to find other ways to increase profit per car. Unfortunately, some car dealers have chosen to use unsavory tactics, like the ones listed below.

The Subject to Financing clause scam.

This is a very common tactic finance salespeople use. If you see this on the contract do not sign and above all, do not drive the car home.

What usually happens here is several days after you drive home with your car, you receive a phone call from the salesperson that your loan fell through and you need to come back in and resign through another lender for more money.

They may say we have great news, we got you a lower payment, and all they have done is increased the length of your loan. They do this more often with bad credit or sub prime buyers who are usually more cooperative.

If they don’t have your loan approved, stand up and tell him that you will come back and sign when you have an approved loan with a payment book.

Never sign a contract without knowing your lender, interest rate, length of loan and monthly payment. 

Once you sign and drive home with your new car you are at their mercy and you will end up paying more.

The You need a Co-signer scam.

This happens all the time. They tell you your credit is bad or you do not have enough credit to qualify on your own. They will ask you to see if someone (usually a relative) with strong credit would be willing to co-sign the loan to get it done.

This puts the liability on the Co-signer in the event you do not make the payments. The scam occurs when the co-signer signs separate papers and finds out later the loan is entirely in their name. Make sure you are both there to sign the paperwork, and it states on the contract that you are a co-signer.

Do not sign separate contracts.

The Interest Rate Bump Trick.

If you are not securing your own financing, then you are relying on the Finance salesperson to shop for the best rate for you.

Unfortunately, he is shopping for the most profitable loan for the dealership. The most common trick is to get you approved at the lowest rate and then bump a couple extra points on it. They will get you 6% and tell you the best rate they can find is 8%. They pocket the profit.

You must know your credit score and the current interest rates or you will never know what interest rate is right for you. If he is too high tell him he needs to do better.

If he tells you he can’t, tell him you will come back tomorrow with your own financing. He will quickly rerun the numbers and you will win. Be careful that he does not increase the length of the loan to keep your payment lower.

You Credit Score (FICO) is lower then it really is scam.

If you do not have your recent credit report and FICO score in your hand, the dealer can run your credit and tell you it is lower than it really is. This will greatly affect your interest rate and loan terms. This happens all the time.

Used Car Trade In Scams.

There are several ways they get you here. The first is to tell you they are giving you a great price on your trade in and then on the contract it is much lower.

This happens a lot when you owe money on you trade in and have equity in it. They will put in the contract the pay off which is added to your loan amount but somehow forget to credit you with the additional equity you are using for a down payment.

Check your contract carefully and make sure they give you the equity you were promised.

Another common scam is to not pay off your trade in right away. You are still responsible for the payments until the car is paid off.

If the dealer takes months to pay it off, the lender will come after you for the back payments. This could hurt your credit. Make sure you have it in writing that they will pay off your trade in no more then 10 days.

Call your lender the following week to verify it was paid.

The Add On Requirement scam.

Most common here is you must buy an Extended Warranty or the lender will not approve the loan.

If a dealer tells you that you must have something to get the loan approved don’t sign. It is a lie and they will profit from it.

Another add on to watch out for is the so called Dealer Prep fee. The Dealer does have a few hours work getting the car unwrapped and ready for sale, but for $300-600.

Many dealers will not budge from this charge so you have to really push the issue. You can have it removed but you will have to threaten to unwind the deal to get them to credit you.

Advertise that they will pay off your current car loan no matter what you owe.

You hear the ads all the time. Your first impression is that you will buy a car from them and your old loan will be paid off.

They will pay off your old loan but then the balance will be rolled into your new loan. First of all they will low ball your trade and resell your old car at a fat profit. Then they will take the balance you owe, add it to your new car loan and in the end you will be financing 2 cars on one big loan.

If you owe more on your current car then it is worth you should consider hanging on to it until you have equity. If you have equity in your old car make sure it is included in the contract as your down payment and subtracted from the selling price before you sign.

Bad Deal. You owe 10,000 on your old car and the dealer gives you $5,000 for your trade. If you buy the new car for $15,000, your new loan will be for $20,000 because they will simply add the additional $5,000 to your new loan. Now you are seriously upside down in your new car.

Good Deal. You owe $5,000 on your old car and the dealer gives you $7,000 for your trade in. If you buy the new car for $15,000 your new loan should be $13,000.

They should pay off your old loan for $5,000 and credit an additional $2,000 for your down payment. Make sure they include the $2,000 equity in your contract.

Many Dealers will conveniently forget to include this and you will end up financing $15,000 giving the dealer an extra $2,000 in the deal.

Do not think that any car dealer is doing you a favor by offering to pay off your old loan no matter what you owe. They will simply roll the loan balance into your new loan and stretch the monthly payment out to give you a low monthly payment.

Will not accept your online lender financing.

Dealers want to get you financed in-house because they stand to make a good profit from your loan.

Some Finance salespeople will lie to you and say that they do not accept checks from that lender. They may tell you that their checks bounce all the time or that they simply do not accept financing from that lender. 

Do not fall for it! The only time you should forgo your online lender approval is if the Dealer can legitimately beat your rate and loan term. If a finance salesperson tells you he won’t accept your online loan, get up and leave.