One of the auto industry’s dirty little tricks is the practice of lenders giving kickbacks to dealers for charging high interest rates for the car loans. A good example of this would be when a buyer has been qualified for an 8% loan rate, the dealer can, and will in most cases, attempt to charge a higher rate. Many dealers will tell you they have a 12% rate available (a lot of consumers do not know better) and will jump at the deal just to get credit and drive away in a new or used car. Your $20,000.00 automobile over a 60 month period would have had a $433.56 payment at an 8% rate but now because you signed your loan agreement for a 12% rate you payment will be $475.64. Guess who get the extra $42.09 per month? You guessed right, the dealer who suckered you into the additional rate of interest. To get the best possible deal on a new or used car or truck, knowledge and information is your best bet. Knowledge is always power in these cases. Dealer scams such as the increased interest rate, packed payments and other common little tricks can quickly remove any savings that you thought you were receiving. Learn how to calculate you own monthly payments, use the internet to your advantage and learn how to negotiate with dealers.
Packed or loaded payments
This is one of the oldest tricks in the book. When a dealer “loads” your payment you are literally being ripped off. Here’s how it works: You ask how much the monthly payment will be on a certain automobile and the salesperson will quote you either a slighly higher APR or loan amount. It might not be much but if the actual loan payment should be $325 a month and their mathematical shenanigans push it up to $365.00 that could end up costing you an additional $2300 on a typical 60 month car loan. It doesn’t seem like a small amount anymore does it? It’s a very difficult scam to detect unless you go into the dealership with your homework completed. Before you go into a dealership, gather all of the pricing information on the cars you’re interested in so you know what the payments should be. An informed consumer is a lot harder to fool than an uninformed car buyer. This is no guarantee you won’t be ripped off but your odds will be a lot better. On the other hand, if you agree to this packed loan payment without comment the dealer will attempt to boost the final price again and again and again. If you’re not prepared for what can happen at each step of the car buying process a salesperson will use every trick in the book to separatate you from your money. As you work your way towards a final deal you’ll be offered high price items like extened warranties, undercoating and clear coat paint layers. If you’re not careful you’ll end up paying extra for items added to the car at the factory!
Auto Dealership Lease Scams
Sometimes car dealerships make more money leasing cars than selling them. Pushing cars out the door isn’t always enough. Margins are tight and profits are slim so some dealerships do their best to herd car buyers towards a leasing option. One way car dealers trick people into leasing is by quoting new cars at prices so highly inflated that the leasing option appears to be a better deal. The money you save if you fall for this is only an illusion. In reality you’ll pay far more to lease a vehicle than purchase it. Here’s another example that shows how doing your homework beforehand can save you a ton of cash at a car dealership. We can’t say enough about doing your due diligence and research all of the competitive rates on car loans, leases and prices of vehicles before you set foot on a dealer’s lot.
Car Dealership Extended Warranty Scams
One of the huge money makers of all time for car dealers is the ability to sell extended warranties. Most consumers have no idea how much profit there is on specific add on deal that the dealers try to sell them. Extended warranties are available though factory sources or from totally worthless sources and outlandish prices. All of these tactics are aimed at one thing only, “higher profits” for the dealers.
Auto Dealer Prep Fees
This is an old trick of the trade. It allows the dealer to pick up a quick profit anywhere from $500.00 to $1200.00 in a hurry. Some manufacturers had already paid the dealers for new car prep work. Most people do not know this and are duped into paying it again. This is pure rip-off profit for the car dealer; do not fall for this scam. Knowledge is power in this case.
Do your Research before you purchase a car from a dealership
If you rely on the internet too much you may be missing the boat. You will need to do a bit more research than what the World Wide Web has to offer. If you think that all you need to be armed with is the dealer invoice amount that you so diligently down loaded from the internet to get the best price can be sorely mistaken. This is not the same as dealer cost. Another common error is, not knowing the actual prices that other in your area are paying for the same vehicle. If you think that a dealer who belongs to an internet buying service will be giving you the best price in town then think again. Make your research pay for itself. Make sure you visit as many dealers as you can to discuss prices of the same vehicle and make double sure they are the same in engine size and all add on accessories.
It is also a good idea to already have your most recent credit report with you and also make sure you have learned to calculate both loan payment amounts and lease payment amounts.
Another good idea would be to check with other lenders on their rates or even pre-qualify yourself for the best loan you can find before you start visiting you local dealers.