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.