New Car buying scams are something everyone should know about and how to avoid getting taken for a ride.
When it comes time to look for that new car, it is not as simple as a trip to the store to pick up some essentials. Your vehicle is an everyday necessity to get to work or school. It is the second biggest investment most young people, and first-time car buyers will make.
It is important to know how to get the best deal on a new car without falling victim to car buying scams or being manipulated by the salesperson.
One of the biggest car dealer tips for buying a new car is knowing the dealer tricks and car dealership scams. It is best to treat shopping for a new or used car as you would when deciding where to live or what type of employment to seek. “Learn the facts!”
When you finance a car through an auto lender from a car dealer, you start with no set loan amount. This allows the dealer to start with a lower priced car and add their well-rehearsed selling scams to maximize the loan amount for your credit when doing the paperwork. Thus, they sell you an overpriced car.
The auto dealer makes a significant profit from the finance charges and will make it all look like the best deal you can get with your personal credit rating. Car buying scams are everywhere, even at the largest and most trusted dealerships. Many car buyers have no idea what a good deal is, how to go about getting proper financing or even qualifying with a low credit score.
Tricks and car scams and car warranty scams abound. Also, while it may be a stereotype that car dealership salespeople are not the most trustworthy or ethical of people around, there is some truth behind the myth.
We will look at the auto financing side of dealer rip offs first. Then we offer car dealer tips that will help you understand which added fees are OK and what is dealer over charging.
Car Dealer Financing Scams
Car dealer loans can be risky
Car dealerships offer all sorts of financing, and of course, the better your credit profile is, the more likely you are to be offered what appears to be a great deal.
In actuality, the car dealerships are not looking for those with perfect credit any more than they are looking for those who might be a risk of defaulting on their auto loan. Financing is often geared to the middle-class buyer with an “average credit score,” who can be up-sold on a better vehicle by extending the loan term payments.
Never start with telling the dealer what monthly payment you want.
It is important to remember that car loan lenders make money off of interest, so the smaller the monthly payment, the longer you will be paying that car off–with interest.
They make buyers think they are getting incredibly low payments but pay more than usual for high interest and an overpriced car. Car sales scams often come in beautiful packages, such as offers of “no down payment,” “0% interest for the first six months”, or free upgrades to the car that are secretly tacked on to the base price.
The new car buying scams presented to you when working on financing with a car dealership do not seem to be car scams at all, and so it is easy to trap the unsuspecting car buyer into paying more than they should.
Dealers can claim your credit score is low.
It is common for a dishonest car dealer to tell the car buyer that their credit score is preventing them from getting a better interest rate on their auto loan. Then they will tell you that the high-interest auto financing that they can offer you is a better deal than you could get from your own lender.
They are trying to prevent you from comparing lenders and seeking an auto lender that will offer you a better rate than you can get from them.
You should seek your own auto financing for two good reasons.
1 If you shop around for a loan online you will be working with lenders who compete with lower rates to get your business
2 If you have a low credit score you will have a better chance at qualifying for a car loan from companies who choose to work with those struggling with credit issues to get a better loan terms.
Car dealers will not do this because this eliminates their ability to add extra charges to your loan agreement and manipulate your monthly payments.
If you cannot qualify for a car loan without someone cosigning the loan for you, the dealer may suggest you have a friend co-sign the loan for you. This can be harmless, and a good way to get the car loan but the cosigner should understand what their responsibility is for the loan.
A salesperson may tell the cosigner that they are just signing as a reference for the buyer but not say that they are equally responsible for the loan and must pay the debt if the primary customer fails to make the payments.
Dealers will upsell you to another, more expensive car that is outside of your loan price range. Then they will tell you that you need a co-signer to qualify for that amount, but they can get the monthly payments you are looking for.
The fact is, the dealer is driving your purchase price up and having you commit a friends credit score to obtain your car loan. If you stick to your original lower shopping price, you could have qualified for the loan on your own with a co signer.
The Solution for Dealer Financing Scams
The solution is to seek your own financing first and before you head to the car dealer. You can pre-qualify for a car loan even if you have subprime credit. This can be done from the privacy of your home and you won’t have to discuss your private finance history with the car dealer.
Everyone wants to pay the least amount of money now and worry about the details later so he or she can get the car that same day. Agreeing to these little tricks can cost a great deal over the long-term. Many people who have bad credit, started out with a bad car loan. An alternative is to search other methods of financing available to you, so you will be better prepared to spot finance scams from car dealers.
Getting pre-qualified for an auto loan before seeing the dealer is the best way to shop for a car.
The power of the internet makes it possible to use a third-party lender to finance your vehicle. With a lot less effort than you might imagine.
While it is easy to be wary of financing anything via the internet, it is all about knowing how to avoid car scams and car warranty scams. A good quality reputable third-party lender will provide financing options for refinance loans and new car loans with all the information you need in a very straightforward fashion.
They will provide better financing options than the dealership and help you to avoid the pressure of the dealer. You will know in advance just what you are paying for your new car before you sign the papers.
Even if your credit is subprime now. You will be able to shop for a new car with confidence knowing that your auto loan is already approved for the car you choose.
Guidelines to Avoiding Loan Scams and Bad Car Loans
Here are some tips that will help you avoid car dealer tricks and select good financing for your car loan.
Avoid Car Dealer Scams, Seek Those with Experience
Valley Auto Loans has been working with applicants with poor credit find those lenders who offer to finance people with bad credit. Our site can help explain various types of loans and help people gain a better understanding around issues of bankruptcy and bad credit auto loans processes. You will be able to go to any car dealer and shop without worrying about getting financed if you pre-qualify for your auto loan first.
Know Your Credit Score
Before you even go to visit a dealer, you should know at least one of your FICO scores and find out what is in your credit report. A standard car loan with a finance company, bank or credit union can usually be secured with a credit score that is above 640.
By knowing your credit score, you will be better prepared to enter the deal knowing your limitations and abilities. If your score is below this, you will need to apply for a subprime auto loan by a company that is set up to help people raise their credit score.
Determine Your Budget
Next, you should take steps to decide your car budget. Make sure to include the costs of gas along with the full coverage car insurance. You can determine your debt to income (DTI) and your payment to income (PTI) ratios. Then you can decide if they meet the requirements of conventional subprime auto lenders.
Avoid Back End Product Sales
Back end product options are sometimes offered by finance managers at dealerships to boost the sale and increase finance charges. Some of these would be extended warranties or additional warranties, rust proofing, accessories and other things that they convince an uninformed buyer to purchase.
Of this list, car warranty scams are one of the main items dealers try to pull. They make a commission off of selling these warranties you do not need, and that also drives the price of the sale up, so it is like a second commission for them. Among the various back-end product options, gap insurance is often beneficial if you have a 60-72 month loan or have less than 20 percent down currently.
It is important for you to be informed about what your credit score is and that you become familiar with the contents of your credit reports.
Also, you should be checking your income and your expenses to make sure that you can meet the necessary lender requirements before you submit a loan application for approval. Also, keep in mind that if you have had a previous car loan your auto FICA score may be different.
Identifying Other Types of Car Buyer Scams.
When you’re dealing in the world that is highly dependent upon sales and commissions, salespeople will make buyer scams a standard practice. Many look to prey on those who don’t have so many options due to poor credit.
To protect yourself you should know
Exactly what you are looking for in the “dealer make” and “model” of a vehicle
Your budgeted spending amount, what the monthly payments of your auto loan will be and stick to your limit!
Decide beforehand that you will not let the excitement and glamour of the new cars side track you from your main objective of being on guard against dealer tricks.
Negotiate Your Trade-In Price
When you first walk into a dealership and meet a car salesperson for the first time, many times they will start off by asking you “are you trading a car in?” This is the first signal that “you are about to be worked by the sales person.”
If the salesperson knows what car model you are trading in and how much it is worth they will manipulate the deal they offer you for your new car so the dealer makes more money off the trade-in and you lose money.
Many people do not worry about what the dealer offers for their trade in. They are just happy to get rid of their old car but let me explain why this is wrong thinking.
Your old car was expensive even though it is time to get rid of it. The money you paid for your old car was probably associated with interest as well so you may have spent $1350.00 for every $1000.00 or more depending on your overall loan amount paid.
The money you get for your trade in goes directly to pay down the principal of the new car and this, in turn, will directly lower your new car loan payments.
So now we see why your old trade in is so valuable, and it is important that the dealer not cheat you out of your hard-earned equity.
Another scenario could look like this. They claim you will get an incredible APR, but at the same time, they charge you a jacked up MSRP cost, add extras and fees and give you a horrible price for your old car. Their profit remains just as high. This is why it is important to negotiate your trade-in price after the car price is settled on.
You can also see the importance of knowing what your old car is worth before you go to the dealership. Don’t take their word for it.
Push, Pull or Drag It In Scam
Dealers will advertise that they will take your trade-in any condition. This is known as the “push, pull or tow it in” scam. The dealer will offer a minimum amount of money for your car regardless of its condition. This money is usually taken from rebates and buyer incentives you could have gotten even if you did not have a trade-in. So you just gave your trade-in to the dealer for no money at all.
It all looks good on paper, but the reality is that whatever your car was worth, the dealer just took it from you and now he is going to sell your old car for a bigger profit. If you know your vehicle’s resale value, you will know what the dealer can make off of your car when he sells it, and that will help you settle on a fair price for your old car.
Pay Off Your Old Car Loan Scam
Some car dealers will offer to pay off your existing car loan on your trade “no matter how much you still owe.” If the amount that you owe on the payoff is more than the car is worth than you are in a negative equity situation.
Being upside down on a car loan is a bad situation that should be avoided at all cost. Many times this happens from trading in a loan for another car loan and rolling the due payments into the next loan.
Dealers do this to make a sale on a car; buyers do this to try and gain lost depreciation on the car they are now driving.
The problem is that the car will continue to depreciate faster than the payments can catch up. If the car is totaled or badly damaged, you could have car payments without a car.
Car dealers are not going to pay more for a car than it is worth and most of the time will not give you what the cars resale value is because they know they will not be able to make a profit when it resells.
Always Compare Prices at Other Car Dealers
Avoid the Temptation to Buy Without Comparing Other Dealerships
When negotiating in person, don’t let the salesperson push you into doing paperwork and taking a deposit before you shop around at other car dealers. This advice cannot be stressed enough because once you sign, it is considered a contract which is written in stone.
Find your lowest deal before you sign, to avoid the frustration of trying to find a way to get out of a deal.
It is easy for a salesperson to say that no other dealership will match their price. It is up to YOU to find out if that is TRUE! Start looking at the websites that sell those cars in your area; many sites will compare cars and prices.
Have your paperwork ready to show them comparative quotes. If they see you have done your homework on available deals from competitors, they have to negotiate car prices on your terms. This is one of the best ways to avoid car buying scams, fast-talkers, or payments that are higher than they should be.
Don’t Hand Over Your Driver’s License or Social Security Number
There is no real reason a car dealer would need to photocopy your license before a test drive, even if they mention that insurance requires it “in case you pull a fast one on the salesman.”
Other dealers copy your license to run unauthorized credit checks during your test drive. To avoid giving out your original document, hand them the copy of your license instead and make sure to get it back before you leave. Legibly write that the dealer may not run a credit check on you without your permission.
Don’t give personal info such as a driver’s license or social security number until you have signed the buyer’s order and are financing via the dealer. You can double-check whether the dealership ran a credit check on you by getting your report online free on the Valley Auto Loans site as often as you like.
Remember the best way to get financing is to get a pre-approved loan before you shop
Don’t Negotiate Car Prices From Your Payments
Low Monthly Payment Scam
If you let the dealer know what Payments you are looking for on your vehicle financing, the dealer can sell you a car with an inflated price tag. Then they spread out or extend your loan term monthly payments to obtain the small payments you are looking for.
Stay focused on the selling price of the car and not the payments. If you have done your homework and used a car payment calculator to determine what your payments will be with your trade in and down payment, then you will know approximately what your payments will be for your budgeted price. You will also know if the dealer is trying to rip you off.
Test Drive, Questions Only Please
The things you say during a test drive can be used against you so try to keep it limited to just your questions without replying to theirs. Car salespeople want to glean as much information from you as possible to see if you can afford your car’s monthly payment or if you will go higher.
They want to see what you liked about the car or if they want your trade-in so they can play off of that information for the sale.
They want to know what payment you are happy with, instead of outright offering you the selling price. Tell them you only negotiate based on price, not monthly payments.
Certified Used Car Scam
Many used car dealers offer certified used cars, stating they have been inspected and certified to be in factory fresh working order. However, the only truly certified used cars are found at franchised factory dealerships.
This certification process is not cheap, and most truly certified cars will sell for about $1,000 over the same model of car that is not certified. This gives used car dealers who cannot certify cars a huge price advantage over the certified car package. It is easy for a used car dealer to advertise a car and say it is certified when it is not.
Be Prepared For Dealer Tricks
Salvage Title Scam
If a wrecked car is damaged as a result of a natural disaster such as a flooding, hail or hurricane, it is assigned a salvage title by the insurance company. Many of these cars look new and in good condition on the surface but could have severely damaged electrical or mechanical systems preventing it from being sold as a car of the same value as others cars of the same make and model.
Even though regulations exist to prevent a title from being altered from its salvage status, these laws vary from state to state, and shrewd dealers have found ways to wash a title.
Used cars are almost always sold “as is” and this means that the unsuspecting buyer gets stuck with a car that could have complicated mechanical problems after the sale. This can be prevented by a simple vehicle history report from a leading vehicle reporting agency such as CarFax or AutoCheck. You can get a free report online for most cars.
This can happen when a salesperson quotes you a price during price negotiations, but then when the finance manager does the paperwork, you notice a different price on the contract. Then the finance manager explains fees and other prices you did not know that he included in the car price.
This is a scam, and the car selling price should be listed as a line item without other fees added to the cash price on that line. At this point have them redo the contract correctly or walk out but do not sign until it is correct.
Dealer Options Scam
If you are trying to qualify for financing with poor credit, the dealer may try to tell you that you will need to purchase certain options to qualify for a lower auto financing rate or a better selling price.
Be assured that this is incorrect and a scam. They may try to adjust their story after you question it but this is probably a good time to walk out to prevent other bad business practices from that dealer.
Credit Card Trap
One more pitfall to avoid is the credit card trap. While there are times that emergencies happen, and it is necessary to make use of a credit card to use for the down payment on a car, it is important to keep in mind that you are still paying interest on that charge.
However, if you have a decent credit card, the APR is sometimes lower than what the dealership is going to offer you for a no down payment car loan.
Your Deposits and Down Payment
I most cases, a deposit is not needed and is another dealer scam to get your money. If a salesperson tells you that you will need to leave a deposit to hold a car for you at that price they are probably trying to get you to commit to that car and prevent you from comparing that price with other dealers.
If you give them a deposit, you will probably lose that money or fight to get it back. If you truly have an honest salesperson, they will still acknowledge that price when you return.
It is not a good idea to pay cash for a deposit since you will never get your money back if a deal turns sour, but you can dispute a credit card charge. When handling such a large transaction, it may be wiser to get a separate credit card to pay for your car deposit.
One exception would be if you asked a dealer to do a dealer to dealer trade to bring in the car model you are looking for. Then the dealer will need a down payment to know you are committed to the deal before he puts up the expense to swap cars.
Dealer Paperwork Scams
Dealer Window Sticker Scam
Many dealers will display a sticker on the window next to the MSRP window sticker that looks official and has a list of added features with a larger price. These features are added by the dealership and are put there to increase the price of the vehicle.
These options may not even be installed on the car yet, but the dealer is trying to make a larger profit from that vehicle. One example would be fabric protection. You can request this same car without the added options or tell the sales person you will no pay for any extra options.
Dealer Addendum Label Car Scams
As you are checking, the car dealers inventory you may notice a list of dealer installed items with extra costs listed. This is known as the dealer’s addendum list and usually include things like paint sealant, rustproofing, fabric protection and more.
This is also a frequently used dealer scam to drive up the selling price of the car. One would almost think that profit padding is a required step in the auto industries sales process.
As you negotiate the price of this car, you need to ignore the prices on this list, and if the sales person refuses to remove this cost, it is time to move to the next car. Also, note that if a dealer is using this type of sticker, they will be using a lot of other dealer tricks to increase the price as well.
Arbitration or Conflict Resolution Agreement Scam
During the paperwork, the finance manager may ask you to sign a “Conflict Resolution or a Dispute Resolution” agreement. Be cautious because he is asking you to waive your ability to take the dealership to court if a problem occurs.
Don’t Pay for Extra Dealer Fees
When buying a new car, there are always some extras that may be included in the car you selected, such as floor mats, a full tank of gas and other little things. Some the dealer offers for free but be sure it is in writing, or you could get charged on the paperwork.
The biggest abused extra is the extended warranty. Be cautious about buying expensive warranty coverage, since this can offset a great car deal. You will have no chance to go over the terms of warranty service contract for what you are buying so many people find out later that it was a big mistake.
A new car will come with a three to five-year-manufacture warranty as standard equipment. Someone in the dealership, and it will not be your salesperson, will want to sell you an extended warranty. Some extended warranties can be good if the vehicle is used and not completely covered, but you do not have to buy it from the dealership nor do you need a warranty for a car that already has one.
Many dealers will fill your new car with a full tank of gas. You thought the dealer was just generous, but it is paid for by the manufacturer along with a dealer prep credit. The manufacturer pays the dealer credit to prep the car for display by removing the shipping covers, cleaning and inspecting the car before you see it. If you see this charge on the invoice, tell the dealer “no thanks I am sure you would not want to get money twice for the same service.”
Ask about the car buyer rebates before you negotiate the car price.
Rebates and purchasing incentives are offered by most car manufacturers and are for the buying customer. Many dealers will use your rebate in the price negotiating without telling you and then have you sign the rebate over to them during the paperwork process.
You can avoid this by asking several local dealers about the rebates before you talk about car prices on any car. Also, note that the rebate price does not have to be used with the MSRP price. It is sent to you from the factory or added to the car deal, regardless of the selling price the dealer gives you.
It is extremely important to ask for a list of fees associated with buying a car and if any rebates are offered form the factory. The car dealer will use your rebate to adjust the car price without telling you and make you think he is offering you a discounted price. Rebates should be used after you have settled on a price. They are yours to use the way you want and not for the sales person to negotiate with.
Last Minute Business Office Scams
As stated before, dealers will not always try to negotiate you into certain extras. In some cases, they may just put completely useless fees into your paperwork hoping that you will not look at it before you sign.
Question every line item that you do not recognize.
If their calculations on monthly payments differ from yours in the slightest, redo the calculations until they match. Do not allow your dealership to charge you for any state fees for your tags and title; you can do this directly with the state. Calculate the sales tax as well; many dealers will hide fees inside of this line item.
Lastly, check to see that you get the version of the car that you pay for. If you are paying for an expensive model, some dealers will try to slip in a lower priced model hoping that you will simply accept it because the two models look the same.
If you thought that the car lot tour was high pressure, you have not seen anything yet. After you have chosen your vehicle is where the real high-pressure sales tactics begin. You will often be introduced to the “finance manager” or some other individual to whom your salesperson is supposedly beholden. All of a sudden, everything becomes a decision for the back office.
Do not be fooled by your salesperson having to ask about every detail at the negotiating table. It is a tactic to wear down your patience and make you sign a contract with high-profit extras such as warranties that bring you no real added value. Consumers should never purchase an extended warranty, knowing little about it. In some cases, the salesperson will simply add more line items to your contract and charge you for absolutely nothing. For more information about buying a new car, see our New Car Buyers Guide.
The first scam that you will run into at the closing table will be the excessive fees. Dealers will charge fees that supposedly is the same for everyone but bring you absolutely no value. Remember that the car you take home is the same car no matter if you get scammed for $1,000 after you commit to it or not. No fee is going to add one iota of performance to the vehicle that you have just purchased.
Your car dealer may attempt to hide these excessive fees by calling them something relevant. These nicknames can vary from “advertising fees” to “dealer prep fees” to various kinds of “paperwork fees.” Keep in mind that you are responsible for none of the costs that a car dealership incurs in filing your papers or in advertising to you on television. You can say as much to your vehicle dealer. If that person attempts to engage you emotionally, remember that you are talking to a million-dollar business. There is plenty of profit margin on the vehicle that you purchased – you do not have to give charity away at the closing table to make yourself feel better.
You should not be afraid to walk away at any point if your dealer insists that you have to pay these excessive fees. You can look here for a glossary of dealer fees that you may be charged so that you can decide whether you can live with them or not.
The Incomplete Delivery or Yo-Yo Car Scam
At most car dealerships, after you finish the paperwork and send in your loan information, you can drive your new car home. However, many times the loan has not been approved, especially if the sale takes place after business hours or on the weekend. The dealer can call you up several days later and tell you that your financing has fallen through, and you need to come in and make a new application for a different loan.
This delivery scam could and most likely will include a larger down payment and higher monthly payments with a different lender.
If you traded in your used car, then the dealer will most likely tell you that it is impossible to get that car back, thus pressuring you into excepting the most expensive loan and paying the higher financing.
The dealer is betting that because you have had possession of the car for a couple of days that you are more inclined to pay the extra money to keep from losing the car. Even if you give the car back, you will be vulnerable to potential legal problems associated with your use of the vehicle.
It is imperative that you complete all financing before you take the car home. even if you have to come back another day to pick up the new car.
Financing Versus Predatory Lending
Many dealers cater to funding for those with poor credit, bankruptcy, or other problems. Most dealerships see these as high-risk and offer to finance only after raising the price on the automobile.
The advertisements for these dealers are often so tempting that those with relatively decent credit will consider using the loan they offer. When you check the fine print, you will see these are just more car dealer scams designed to take more of your money for the car.
This is one of the worst mistakes you can make when deciding to purchase a new vehicle. Predatory lending is not illegal when it comes to companies that charge 100-150% interest. It is obvious that this type of no down payment car loan is a car sales scam designed to take advantage of those who cannot afford a down payment and need a car.
Auto Loan Broker Service will save you time and money.
When working with a third-party for financing, there are often several options if you have a limited budget for a down payment. It pays to explore all alternatives before making a choice. Simply taking a dealer loan because you are in a rush to get your new car, and your life back to normal is a sure setup for financial problems. It is that sense of desperation that can cost thousands of dollars and trick you into car buying scams like this, so take a step back and check every option.
Using a loan broker service like Valley Auto Loans will save you the time to check other lenders to find the lowest rate. We send your loan request to many good lenders who specialize in those with poor credit.
We will help you get the best rate for your situation without running a credit report over and over. It’s fast and easy and will get you the results you need. You can even apply before you go to the dealer lot to find out how much you will be approved for.
What if I Get Cheated?
If you get cheated, you definitely will not be the first. More often than you may think, salespeople and other dealership employees break the law. Here are some examples of this illegal activity:
Adjusting the figures so you receive eventually nothing for your trade-in.
Trying to sell a used or titled car as if it were a new car.
Running unauthorized credit checks during test drives.
Using a VIN or model number on paperwork that does not match the car sold.
Being forced to purchase extended warranties or credit life insurance to get approved financing.
Failing to show deposits, trade-ins, cap costs and any other fees on a lease.
Falsifying information about earlier accidents the vehicle has been involved in.
Reporting a car stolen, weeks after the purchase, when the buyer refuses to make larger payments.
If, for any reason, you feel that you have gotten scammed, try to handle it with the dealer first. Not all dealers are out to scam you. Checking with them first could save you both tons of trouble, especially if the problem is the result of a simple mistake.
Most dealers should be happy to correct any mistakes made by them. If not, to avoid getting cheated, file a complaint with the Consumer Affairs Division.
Who Can Help?
The Better Business Bureau (BBB) will try to take care of the issue and will help to warn other consumers.
The Attorney General in your state; all you have to do is file a complaint on their website.
Your local news; consumer reports that appear on newscasts have been very effective at handling issues of this nature because no dealer wants to have their reputation questioned and/or ruined on television.
If your situation is especially complicated, you should hire an attorney
We hope you feel more confident about going shopping for your new car. We also suggest you read our “New Car Buyers Guide.” This helpful resource helps you choose the correct price you should offer the dealer for a car being sold on a car dealer lot.
We also have a Used Car Buyers Guide as well. We have compiled a 20 point review that you should use as a car buying tool. You can find the 20 point review on our vehicle search page.