Common Car Dealer Scams To Watch Out For

February 12, 2023

Getting a new car can be an exciting and significant milestone in your life; what you don't want to do is get locked into a deal where the terms will have you living in fear of a bank account sitting in the negative. From on-the-spot financing, rejected applications, higher and lower annual percentage rates, the murky waters of signing a car deal with a shady business could have you full of spite and regret.

Doing your research will come in handy, but here's a list of standard scams to steer clear of.

Refinancing

This one can be one of the more sinister scams in the car buying industry. If a shady car salesmencontacts you after you've purchased the car with an 'even better' financing package, don't fall for it! For example, if you're paying $450 a month, the salesman might present you with a deal of having that payment be $405. He'll tell you all it requires is coming back in, signing more papers and you'll be good to go. While this sounds like the deal you've been waiting for, what he isn't telling you is that the terms of loan get extended, and the APR (annual percentage rate) goes up in the deal, which adds to the total cost of the vehicle over the financing period. Usually, it's best for you as the buyer to do your research before making a purchase, find a financing package you are comfortable with and stick with it!

The next scam could mean you're getting a vehicle that has had a rocky past.

No Warranty Wrecked-Car

This next scam is a cause for concern; the dealer attempts to sell you a car that could potentially have been through hell and back. They'll tell you it's in great shape or minimize the actual damage caused by the wreck; some will even go as far as pretending they have no clue the car was ever damaged! The most pertinent question to ask yourself is why you would even get an 'as-is, no warranty car' from a dealer. You're better off scoping used car ads online or checking out a junkyard. If you're skeptical about the vehicle you're looking at, there are ways to check where the car is from and what accidents it has been in. Always watch out for 'as-is, no warranty' stickers in the Buyers Guide.

Up next is a scam that isn't as hidden as others.

Trade-In Loan Payoff

Has a dealer ever offered to pay off your lease or existing loan? Don't believe them. Shady dealers can try to show customers the light at the end of the tunnel by offering to pay off loans and leases on older vehicles so a customer can get suckered into a new car. You're still paying off your loans along with penalties for breaking the contract, not to mention you'll end up doubling your payments. It has been reported that dealers will try to squeeze in extended financing terms that will have you still paying for longer than you expected. Why risk being affecting your credit score and being in a financial bind for years to come?

In the next slide, we have a scam that goes by many different names.

Dealer Prep Fees

This one comes under an umbrella of terms with the same meaning: a scam. 'Vehicle Prep Fee,' 'Excessive Prep Fee,' and 'Make Ready Fee' are just some of the different names that this cash grab goes by within the car sales industry. The fee is a set amount that the dealership charges to cover the cost of making the vehicle ready for sale. The charges can be an excessive amount, running from $400 to upwards of a few thousand dollars. Some dealers have picked up on profiting from the scam and apply the fee to used cars as well. How can you avoid paying a prep fee? Just refuse to pay it, especially if it's not in your purchase agreement, or even have the dealer cross it out or have them discount the car further.

Up next, we have a common scam that dealers make it seem like its apart of the deal.

Forced Third-Party Warranty

There two common warranty scams within the car sales industry. One is when a dealer sneaks a warranty into your terms that raises your monthly fees, and another is when the dealer forces a warranty on you by claiming its 'from the bank' or saying its required to finance. Both of these are illegal, so take it on yourself to ask further questions, call them out on their bluff, or tell them you'd like to run the terms by your lawyer. Warranty scams are a sure fire way of tricking customers into purchasing service contracts, which means more fees and more time you'll be locked into terms you were unaware of. Just because your terms say a warranty included, doesn't mean it's always free.

The next scam is the pot calling the kettle black.

"Online Lenders Are A Scam"

Online pre-approvals are a thing these days, and you can get blank checks from online lenders, which should also involve a plethora of research. Once you've looked at what kind of vehicle you're on the market for, you could walk into a dealership with the online approval. Much to your dismay, the salesman may meet your online approval with some coercive cynicism about your loan's legitimacy and claims that your pre-approval is not acceptable and that online lenders are not to be trusted. The salesmen will most likely counteract with a loan package of his own at a higher APR. It's better to walk out on the deal and shop around for other dealers.

Up next we have a scam that could affect those around you as well.

Co-signer

Getting a car involves a lot more than just saving up; sometimes we have to resort to getting a loan. Obtaining financing isn't always a successful endeavor for everyone. Dealers will suggest getting a co-signer for approval as an 'easy' solution, but what they fail to mention is your co-signer is the only one who ends up with the loan, and your inactions could affect their good credit along with causing strain on your relationship with the cosigner. What dealers leave out is that the buyer is removed from the deal, and the cosigner is the sole buyer. They are left with the responsibility of repayment, and you won't be building up any credit history at all since you're not part of the transaction.

The next slide is a scam that involves trading in your old vehicle.

Trade-In Value

This one is for when you're bringing a car to trade in for a particular value to go towards a new vehicle. It's almost always better to sell privately as opposed to trading in with a dealer. Some dealers will claim your car is not worth much and if you're not a seasoned car person you could get suckered into the sham. If you know how to play your cards right when it comes to negotiation, you could get the proper value for your car. It's better to do some research on specific techniques dealers have under their belt if you are opting to go down the trade-in route. You can estimate your trade-in amount online or even increase the value by doing minor changes and repairs.

The next slide has to do with one of the most common tricks of the trade.

"Crappy Credit"

This one affects those people who aren't even sure where their credit score is at. Finance managers could take advantage of that and tell you your credit score is lower than it is, coaxing you into paying much higher interest rate when you probably don't need to. Unsuspecting shoppers should keep in mind that the way interest rates work for car loans is the higher your credit score, the lower the interest rate you'll be expected to pay. Finance managers can get you to pay a higher APR just based on the lower credit score on your record. Even people with great credit are at risk for these types of situations, as shady car dealerships spare no one.

In the final scam, It's important to have terms of your car loan locked in place before signing on the dotted line.

Lost Financing

On-the-spot financing is tricky and puts you at risk for shady business practices. You could be subject to a phone call from your dealer a few weeks later saying your application has been rejected. This tactic allows the dealer to issue a higher APR because you 'missed out on the original rate' due to an application that 'did not go through.'

It's no excuse for applicants to be unaware of their score before heading to the dealership, there are free services available for you to figure out what that number is. Typically, if you score below 680 and you're offered a lower rate, you could be getting sucked into the lost financing scam.

It's important to do your research as a buyer on deceptive sales tactics that are rampant within the car sales industry. Not only will it save you money, but you'll be better prepared, and will be able to sift through shady dealerships to get to ones that have integrity and trustworthy customer service.

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