Avoid These Car Dealership Tricks and Scams

Next to a home, a car might be the second-most expensive purchase you ever make. When I bought my car new more than 6 years ago, I was lucky in that my father had been dealing with the same salesperson and dealership for nearly 15 years (RIP, Pontiac!). But even if you think you can put your trust in the person selling you a car, be aware that you’ll need to be cognizant of the games that other people might play in order to get you to fork out more money.

When it comes time to make a deal, in addition to the salesperson, you’ll be working with the dealership’s general manager and finance department. Very rarely will you find someone who has your best interests at heart – they’re just trying to sell you a car while making the most money on the deal that they can. There’s a fine line between a sales pitch and a scam in these cases (unless you find a good-hearted salesperson). Sales are a cutthroat business, and you should go into negotiations knowing as much as you can in order to not get ripped off.

Know how much you want to spend in total. It helps to know how much you want to spend on a monthly payment, but unscrupulous salespeople will seize that number and twist it so that in the end, while you’re only paying the amount you wanted each month, you could be paying an exorbitant amount of interest.

If the purchase price of a used car is $10,000 and you say you only want to pay $250/month, it would take 40 months at 0% interest (not a likely scenario). At 15% interest, the monthly payment would only be $237, but it will take 60 months to pay off the loan, which will total $14,273 — an extra $4,273 over the purchase price.

Also keep in mind that you’ll likely have sales tax, title and registration fees to pay, too. They can be rolled into your finance payment or paid separately – but they’ll still cost you money in addition to the purchase price of the vehicle.

There are a number of tricks and scams that unscrupulous car dealership salespeople use on unsuspecting buyers who are only there to buy a car, whether new or used.

A Few Common Deceptive Practices

“The Financing Fell Through”

TRICK: If you don’t have fantastic credit (think 700+), you may be ripe for the picking on this one. The finance department will first approve you for a loan at a sweet, low APR. Sure, you’ll sign the paperwork and drive away with your new car. But then days later, that little “subject to loan approval” clause on the sales contract comes back to bite you in the butt. The dealership calls to tell you that no, you didn’t get that great APR, so you’ll have to pony up more money per month to cover the high interest rate you’ll now be charged.

FIX: If you have crappy credit, do your homework first and find outside financing on your own. Chances are, you’ll be able to get a much better interest rate through your bank or credit union. If you do want to finance through the dealer, wait until you’ve gotten approved for the loan to take delivery of the car.

“Your Credit Score is Too Low”

TRICK: You’re at the dealership, and the finance manager pulls your credit score. He tells you it’s 600, when you know for a fact it’s 740. He then advises you that in order to finance the vehicle, your APR would be 12.9% instead of the 0% you thought you qualified for.

FIX: Show up to the dealership with your credit report in tow to refute the “fake” credit score. Then ask for an EVEN BETTER deal. If you’re not comfortable working out a deal with a dealership that’s already displayed its true colors, head to another car dealer.

“We’ll Pay Off Your Lease/Loan”

TRICK: The newspaper advertisement said the car dealer will pay off the remaining balance on your loan or lease agreement – no matter how much you owe. Sounds too good to be true, right? It is. Basically, you’ll be paying for TWO cars. The dealer will pay the balance for you, but you’ll have to repay the dealer. So if you still owe $8,000 on your car or lease, it will just get tacked on to the purchase price of the new vehicle you’ll be leaving the dealership lot with. Instead of financing $20,000 for your new car, you’ll have to finance $28,000. AND you’ll be paying interest on all that, most likely. They might try to spread it out over 5 or 6 years (instead of shorter 3 or 4-year loan terms) to trick you into seeing the monthly payment is “lower.”

FIX: Stay in your current lease or wait until you pay off your loan before heading to the dealer for a new car. Going to check out this “deal” will make them think you’re desperate and in financial trouble – which you may just be. If you can’t pay off the old car, what makes you think you should be buying a new car just yet?

These are only a few of the ways some dealerships try to scam car buyers out of their hard-earned money. And especially in this economy, you don’t want to become a victim. If a “deal” doesn’t sound like it adds up, it probably doesn’t. If you’re unsure, tell the salesperson you need time to think about it, and you’ll get back to them. If they won’t honor the price the next day, it’s time to move on to another dealer.

16 comments to Avoid These Car Dealership Tricks and Scams

  • I think the best advice is don’t get a car loan :). Somehow or another they will find a way to add more than you expected!

    Great post.

  • I’m seconding everyone who said to pay close attention to your retail installment contract. Make sure the price is the price that was agreed on, same with the APR. Then make sure that the “Other” section doesn’t have things you didn’t specifically request. My in-laws ended up with GAP insurance and Road Hazard insurance that they never asked for simply because it was on the retail installment contract and they signed off on it. Good luck!

    PS I agree that getting a pre-approval letter for financing is way better than actually getting financing elsewhere…the dealership has beaten the APR every time for hubby and me.

  • Good read. Very informative. This can help a lot of people who are having a hard time with their personal finances.

  • These are good tips and thought exercises in negotiation.

    And once this is done, make sure you spend no more than 1/10th your annual gross income on a money sink of a car!

    • Nicole

      @Sam: The problem is that 1/10th of your income isn’t going to get most people a reliable car — including me.

  • forgive me for the above, apparently I never copied my half ass proof read version and gave you guys my quarter assed. PS, Alana… GAP insurance is something I’d recommend to anyone. Lease or Buy it’s a good thing to have. The only time it doesn’t make sense is when you put a substantial amount of money down on the car, say 30% of the principal car balance. For a few hundred dollars however, it could save you a ton of heart ache. I’ve seen many people burned for not having GAP on a financed car.

  • If you’re financing you car, make sure you go over the contract before signing. Sometimes they slip in last minute charges or “accidentally” increase the interest rate by a point or two.

  • Lee

    Who told you these scams!? I’ve sold cars for 6 years with 4 different dealerships and would like to interject here.

    To the first point, the financing fell through isn’t a scam. It’s really what happens. To avoid it, don’t take immediate delivery during off work hours. Inevitably what happens is many people want the best deal possible. They think a tactic is to go to a dealership at the end of a week, at the end of a day. The banks aren’t open but you take delivery of a car anyway. Now the next day the banks open up and the approval they thought they could get doesn’t come through. 9 times out of 10, this only happens to people with poor credit. And generally a dealership can beat your local banks. Instead of getting your own financing, get an approval and then bring it to the dealership. That gives the business manager something to negotiate with on your behalf. Dealers make a profit in the business office, sometimes they can beat your rate by cutting their own profit.

    The second point, buying out a lease. What you said isn’t a scam, it’s a tactic but where the dealer benefits here is usually happens. Lets use this is the example. Say you’re leasing a car that you owe 5k in payments for. The dealer has two options, they can try to absorb the difference in discount (happens most) or they can buy the car (also pretty common). If the car is worth 15k and they can buy it for 12k from the leasing company you may get the benefit there. The dealer is “forgiving” what you owe if the car is nice enough because now they’re making a deal on what they’re selling and stealing a nice used car from the bank. All they did was take you out of the equation and bought a car to sell in the future.

    As far as lying about credit score, if you fell for that you’re a putz. As far as I know it’s illegal and have never seen it done but I would assume it’s tried in the cities again where many people have sub par credit. I know the dealer doesn’t have to give you a copy of the credit score but I know ALL of them will show you so it makes me think by law they have to.

    • Interesting feedback!

      I love the old, ‘let me check with the manager and see what I can do.” 🙂

      • Nicole

        @Sam: Yeah they usually get all uncomfortable with me when they realize I know what I’m talking about when it comes to the finances and the cars themselves.

      • Nic they get uncomfortable because most car sales people don’t know. The best sales people are uniformed as far as financing goes and thats the structure of the dealership. It’s the business managers job to know that, the salesperson just needs to know the car and how to make you realize you love it.

        The problem with car buying is people go in knowing just enough to be dangerous to themselves. I see people on a daily basis walk away from a great deal because their ego got ahead of them.

        I saw, “lemme go back to the manager to see what I can do”. This isn’t a scam either. This is a salesperson begging the sales manager just to make a deal. Unless it’s a used car, most sales people are working for you and against the dealer. Used cars do get a little complicated and you should know the market when buying one but a new car is the easiest thing in the world to get a good deal on.

        Reading the paperwork is always good advice but again but if you miss something thats not a scam, thats you not doing your due diligence.

        Free advice, go to Edmunds.com… build your car, print out the TMI price and ask the dealer to beat it by $500. If you get it you got a great deal. Get your bank approvals together, if the dealer beats it you got a great deal there too. Gap insurance IS important, don’t let it fool you that because it’s an add on it must be bad. For the few hundred dollars it costs it’s worth it 9 out of 10 times. If it makes you feel better, ask the dealer to give you 10% off it’s sale price. Again, if you get it, great deal!

        The nicer you are to your salesperson the better off you are though. We’re treated like scum all day long and the more you use that as a negotiating tool the more we’re going to make sure you pay by doing less work on your behalf behind the scenes. 😉

  • Great tips Nicole! I made a note to include this the next time I do a round-up.

    That’s a good idea to bring a copy of your credit report with you, I hadn’t heard that one before. I also suggest to people to get pre-approved financing letters from outside lenders and bring those with you as well.

  • Alana

    Don’t forget all the extra fees dealers try to wrap into your monthly payment ON TOP of the interest. When I bought my Dodge 3 years ago (as a finance – NOT a lease) they slapped on gap insurance and then had the nerve to argue with me about it whenI questioned it. If I’m buying the car and not leasing it, gap insurance is unnecessary. All costs would be assumed by ME. I got them to take it out of the equation, but it was an aggravating process. Needless to say, I’ll never go back there again.

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