Dealer Fraud

There is nothing worse than falling for a car sales scam and letting the dealer to rob your hard earned money.  You can avoid car sales scams if you enter the car dealership prepared. In this blog we will share 5 quick tips with you that you must know to avoid getting taken by a fraudulent car salesman.

• Know your limit. Before entering the dealership know exactly how much you can afford to pay.  The car salesman’s job is to sell you a car and make a profit and they will always try to persuade you to spend more.  If you know your spending limit you will not leave the dealership with buyers regret for laying out more money than you presupposed to.

• Calculate the total cost. Many dealerships will plaster a sign on the vehicle windshield advertising a low monthly payment for it.  This can make you feel like you are getting a good deal but when you add up the total cost you find out you are actually overpaying.  Always calculate the total cost before signing.

• Decline extras. This is a classic bait and switch.  The salesman will give you a great price break on the car up-front only to load up his profits by adding a lot of unnecessary extras such as extended warranties, special paint sealants gap and insurance plans.  If you feel you don’t need any of these extras, simply refuse to pay for them.

• “This deal is only good for today.” This is a common car dealer trick which is used to get you to buy the vehicle immediately.  The dealers’ fear is that if you go home and sleep on your decision you will not come back.

• You can negotiate any price. It is good for you to know that any price may be negotiated at a car dealership.  Don’t get fooled into thinking that the sale terms are final.  Plan your car purchase on weekdays when the agents are not so busy to have a better chance of negotiating the price.

You did everything you were supposed to do. You put your best deal on the table and they accepted it. Now you move to the Finance Office. You think all you need to do is to sign the paperwork and drive home. Not so fast. The Finance office is the biggest profit center in the car dealership. That nice person behind the computer is a fraudulent salesperson. Reviewing the deal and seeing where he can squeeze more profit out of you is his job.

Do not be in a hurry to sign and get out or you will be very sorry. A good finance salesperson will cheat you for $3,000 - $4,000 more dollars and hide it in your contract if you are not watchful enough. First of all, learn to say “no” to anything they try to upsell you on. You must read the contract very carefully and make sure the numbers are exactly what you agreed upon. There are many little scams that occur in the finance office. One of them is the Subject to financing car scam.

Once you sign, you are stuck. Too many people sign the contracts without reading them thoroughly to get home as soon as possible. They get home, looking through the paperwork and find items they didn’t want or loan rates that are higher, or that the length of the loan has been extended etc.. Once you sign the contracts, you are stuck. You already signed a form that stated that you read and understood all the items in the contract. No court is going to hear your case. Take your time and read everything. If you are not good at reading contracts bring someone with you who is competent enough in that field.

The Subject to Financing clause scam. This is a very common tactic finance salespeople use. If you see this on the contract do not sign and above all, do not drive the car home. Another common term is Subject To Loan Approval. Several days after you drive home with your car, you receive a phone call from the salesperson that your loan fell through and you need to come back in and resign through another lender for more money. They may say we have great news, we got you a lower payment, and all they have done is increased the length of your loan. They do this more often with bad credit or subprime buyers who are usually more cooperative. This occurs mainly on weekends when the lenders are closed. Just tell the finance salesperson that you will come back on Monday after we have a confirmed approval.

If they don’t have your loan approved, stand up and tell him that you will come back and sign when you have an approved loan with a payment book. Never sign a contract without knowing your lender, length of loan, interest rate and monthly payment. Once you sign and drive home with your new car you are at their mercy and you will end up paying more.

Dishonest car dealers might fiddle with your financing as a way to jack up their profits. The most popular way of this car scam involves calling back car buyers into the dealership a week or so after purchasing a car. Once you’re back, the car dealer tries to renegotiate the interest rate based on whether you buy extra services, accessories or warranties. They might also try to focus on the amount of the monthly payment to divert attention from the fact that the total amount being financed has gone up. Another variation of this scam involves dealers letting you drive off the lot without finalizing the loan papers, promising that they’ll work it out. But when they call after several days, the terms of the loan have changed or the monthly payments are more than the buyer can afford, which opens the door for the dealer to “refinance” the vehicle and increase his/her profits.

Warning Signs

Dealers who offer to let you take a car home but don’t finalize the loan terms might not have your best interests at heart, especially if you have already agreed to leave your trade-in with them. If you get a call about a problem with a loan several days after signing an agreement, be suspicious. Also, a dealer shouldn’t lower or increase the loan interest rate based on whether you’ll buy extra warranties or dealer services.

How to Protect Yourself?

Before going to a dealership, line up your own financing. Compare the interest rate of the loan you already have with what the dealer offers and go with whichever one is better. When negotiating with car dealers, it is recommended to focus on the total cost of the car, not the monthly payment. Dealers may sometimes monkey around with the total amount being financed if you’re too focused on the monthly payment.

If you are already involved in such a car scam, try to find an experineced dealer fraud attorney to asset your rights.

In our previous blogs we have already presented some tricky questions that may lead to dealer fraud. Below are three more questions and the most preferable ways of answering them in order to avoid becoming a dealer fraud victim.

1. “What were you hoping to get for your trade?”

This may be an honest question, but why tell the price first? If you say you want $10,000 and the car is really worth $12,000, you’ll give the dealer a $2,000 present. It’s essential to have a realistic idea of what your trade-in is worth and let the dealer throw out the first number. Don’t get confused in case he/she offers a ridiculously low price; this may be a dealer tactic to make you think the car is worth less than it is.

So you’re better give an answer like: “Let’s see what you come up with. Make me an offer.”

2. “Can you hold on a few minutes while I check the computer/talk to my manager/make a few calls/do whatever?”

Some dealers will try to prolong the negotiating process as long as possible in the hopes of wearing you down or confusing you with even more numbers. Set a fair time limit for negotiations and when half an hour is left, tell the dealer you need to leave and will be back tomorrow. This will likely speed things up greatly. Just ask the sales rep what his hours are tomorrow, and then go home, get a good night’s sleep, and return to the dealership well rested and well fed. You’ll be in a much better mental state to negotiate.

Give an answer like: “I have to leave in X minutes. I’ll come back tomorrow and we can conclude the deal in case we can’t finish up by then.”

3. “What can I do to get you to buy this car today?”

The answer that the sales rep hopes to hear is: “Get the monthly payment under $X,” “Get the down payment under $Y,” or “Give me $Z for my trade”. Then they will focus on it and close the deal: “See, I got the payment under $X, let’s sign the papers.”

Try to give an answer like: “Give me a fair price and a fair offer for my trade, and I’ll buy this car today.”

Car dealers usually ask key questions for diverting your attention and maximizing their profit. Knowing these questions and refusing to take the bait will help you stay in control of the negotiations and get the best deal. Below are some of these tricky questions and the best ways of answering them and thus avoiding various dealer tricks.

1. “What kind of monthly payment are you looking for?”

In some cases, this question doesn’t presuppose any upcoming vehicle scam. If you’re looking to buy a $50,000 car on a budget of $300 per month with a $1,000 down payment and no trade-in, the dealer will know right away that you’re wasting his time. In any case, it much better to negotiate based on the cash price of the car and not the monthly payment.

Before negotiating on any car, do a little math: Start with the sticker price of the car, add in 15% for taxes and finance charges, subtract your down payment, and divide by 36, 48 and 60 to get a rough idea of monthly payments. Also don’t forget that your vehicle insurance premiums may go up as well. Can you really afford this car? If you can’t, you might want to respond by asking what a lease payment would be like. (Leases offer lower payments, but may also have mileage limits and require you to give up the car at the end of the term.)

So the most proper answer in this case is: “Let’s negotiate a cash price, and then we can figure out what the monthly payments will be.”

2. “Are you going to trade in your old car?”

Many people rely on the cost of their trade-in to offset the price of the new car - but negotiating with a trade-in just complicates matters and gives the unscrupulous dealer yet another set of numbers to manipulate. Remember, the value of your old car isn’t going to change in the time it takes you to hammer out a deal. If you intend to use your trade-in as a down payment, you should have an idea of what it’s worth. Still, it’s important to take one thing at a time - and the first thing is to negotiate the price of the new car.

Your answer to this question should be something like: “I haven’t decided yet. Let’s figure out the price of the new car first.”

Leasing a car may not be in your best interest; however, auto dealers don’t want you to know that. They often employ tricky maneuvers to tempt you to lease rather than purchase. It’s essential to educate yourself on all the ins and outs of leasing so that you can evaluate and make your own decision without “assistance” from the dealer. Below we discuss most frequent scams used by auto dealers. Any one of these could cost you a lot of money. Imagine how bad it could be if a dishonest dealer combined more than one of these leasing scams!

1. The dealer offers to take your current car as a trade in, pay off your loan balance on that vehicle (no matter how much is still owed) and lease you a better car than the one you have for lower payments.

So what will happen in this case? The dealer will pay off your old loan as stated. However, he will make the assumption that you owe more on your current car than what it’s worth for a trade in, the dealer will credit the value of the trade in against the price of the new car then add on the rest of the loan balance you owed to the price of the new vehicle.

2. The dealer will convince you that lease payments are considerably lower than the payments for purchasing a car.

While it may seem like what the dealer is saying is true about the payments, they aren’t telling you the whole story. Leasing a vehicle is only beneficial to those who drive less than 15,000 miles a year and live close to the dealer. If you don’t meet these two criteria, then probably leasing is not in your best interest. Additionally, dealers will normally increase the lease term from two or three years out to five, in order to lower the monthly payment even more. Leasing for five years as opposed to two or three exposes you to potential expensive repair costs that aren’t covered after the two year warranty expires. And all that for a car that you don’t even own. And of course none of these important details will be disclosed to you by the dealer. It’s in the fine print.

One of the things that most customers do not notice is that salesperson at the dealership continues negotiating till the contract is signed. Remember that even if you have clarified all the terms and shaken hands on the deal, the final contract presented to you for signing may be different from what you have agreed. Look thoroughly and you may find out that the terms in the contract are different than those you agreed upon during the long period of negotiations.

Many customers are often mistaken by thinking that the Finance and Insurance (F&I) Department of the dealerships deals with the paperwork only. This is not true. First the person in the Finance and Insurance (F&I) Department will persuade you to agree with monthly payment higher than what your credit status requires and then will try to sell you some extras. This could be done during a friendly talk and you will not even notice how these extras are added to the final contract you are signing.

Be careful not to purchase worthless products such as undercoating, paint sealant, extended warranties, credit and disability insurance and other add-ons.

During the car negotiations of the car deal customers get to know a number of terms, such as purchase price, options, down payment, trade-in credit, monthly payment, interest rate, loan term, and balloon payment. All these elements of a car deal lead to confusion or fraud. It is difficult for the customer to focus on all of the terms mentioned by the car dealer. If the customer focuses on one of the terms he will probably miss all the others and car dealers know this.

Distraction is an art that many car salesmen study diligently. For example, many people have become a victim of dealer fraud by focusing on just monthly payments. You will be able to avoid car scam and to get the best deal if you separately handle your financing and trade car. This simplifies the negotiation and leaves you able to focus only on the best purchase price for the vehicle.

There are several important things you should do before you enter a dealership and start shopping for a new car. One of the most important things to do is determine your budget. Come up with a maximum monthly payment allowance, and a maximum down payment that you will not go over. When you know exactly how much you can afford to pay for a vehicle you will look only at vehicles that are in your budget. Think ahead! You may be financing for 3-4 years and you probably don’t want not be able to pay other bills because of your car payments.

Also consider your trade-in. If you still owe money on your old vehicle then you should contact your bank and get your pay off. Also find out what the fair market value is for your trade-in vehicle. Remember that the dealership will never pay the fair market value for your vehicle. Make sure you are not upside down on your car loan.

If you can’t afford a new vehicle, then you should consider a good used one.

A lot of people get confused or excited when they see a car dealer advertise a $99 a month payment. Sometimes the dollar amount changes, dealers will use a $47 a month payment or some other low number. In fact if a car dealer advertises in this manner they should avoid doing business with them. The reason car dealers use this advertising method is because so many people are fixated on what their monthly payment ends up being and they never understand how that number was generated.

You must understand how a car dealer arrives at your monthly payment to determine whether your $385 monthly payment is a good price or a bad price. Many people don’t understand that two people can have the same $385 payment for the exact same car and one person got a good deal, the other a bad deal!

Your monthly payment is a combination of the following: an interest payment for your loan, a fraction of your actual loan (if your loan is 48 months you pay 1/48 of the loan each month) along with any other fees or taxes you might have rolled into the deal. These are the separate elements that make up your monthly payment. So you must have negotiated a good purchase price for your car or your monthly payments will never be a good deal. This is true whether you are buying or leasing your next car. No figure has a bigger impact on your car deal than the car’s purchase price - common sense when you think about it.

Now you must take the vehicle’s purchase price and subtract any down payment or trade-in allowance. So if you are buying a $25,000 car and you put $5,000 down or give the dealer a trade-in worth $5,000 your financing figure becomes $20,000. Now we take that $20,000 and add any additional fees you might have rolled into the deal to create the final amount of money you will be financing.

When you go to financing you need to determine how much interest you are paying on the money you are financing, in our example let’s use $20,000. The length of your loan determines the number of monthly payments you will make. A common rule of thumb is the longer the loan and the large amount of money you finance, the higher your finance rate will be. So do not be afraid to ask if your financing gets better if you shorten your loan term.

For instance, let’s say two people are financing the exact same car for the exact same amount of money, $20,000. One person got a rate of 7.9% financing for 60 months. This person will have a monthly car payment of $404.57. The other person got a rate of 4.9% for 48 months. This second person’s monthly payment will be $459.68. Now remember, they both are financing the exact same amount of money, so who has a better deal? You see, the first person is paying $404.57 per month for 60 months for a total of $24,274.20. The second person is paying $459.68 for 48 months for a total of $22,064.64. The person with the higher monthly payment ends up paying $2,209.56 less for the exact same car!

Car dealers advertise $99 a month payments because they know that any potential customer who walks in the door off that ad is fixated on their monthly payment. This allows the dealer to jack up the financing rate, spread the payments out (some dealers now push 72 month loans). By hiking your rate several points and stretching the payments out an extra year or two the car dealer and the bank will make additional thousands of dollars on every customer! Don’t let this dealer fraud happen to you! Buy smart, don’t be fooled into judging a car deal by the monthly payment, it’s the easiest way to get scammed by a car dealer!