Jul 22 2008
Car Dealer Scam Costs Consumers Billion$
Buying a new or used car? Don’t get cheated by "Phony Financing"
It’s the auto industry’s dirty little secret. It happens to millions of car buyers every year, even with the most sophisticated, savvy consumers. And you don’t even realize you’ve been cheated.
Phony Financing
The secret? Auto dealers commonly bump up the interest rate you pay to finance your car, truck, or SUV. Over the life of the loan, the extra hidden interest you pay costs you hundreds or even thousands of dollars in added financing costs. These are costs you should not have to pay.
For example, if your credit is good, you may qualify for a loan with a 4% interest rate. But the dealership charges you 8%. Or 12%. Or sometimes 21% or more.
The dealer gets a hidden "kickback" or fee from the lender based on the amount of interest you pay. The more you pay in interest, the more profit the dealer makes. Typically, the dealer and lender split the extra interest you pay 60-40, with the dealer pocketing the lion’s share.
The dealership finance manager may seem friendly and tell you, "Don’t worry. I’ll get you the best possible rate." But instead, he will charge you the highest rate he can. He may even mislead you into thinking your credit is worse than it really is.
This scam affects almost everyone who finances through a car dealer. But studies show that the added costs are likely to be even higher if you are African American or Latino.
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