Dealer Fraud

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!

Do not be in a hurry to sign and get out or you will be very sorry. A good finance salesperson will nail you for $3,000 - $4,000 more dollars and hide it in your contract if you do not keep your guard up. First of all, learn to say NO to anything they try to upsell you on. You must read the contract very carefully to make sure the numbers are exactly what you agreed upon. There are many little scams that occur in the finance office but the one I hear from readers the most is the Subject to financing scam.

Once you sign you are stuck. Too many people in their haste to get home, sign the contracts without reading them thoroughly. They get home and start looking through the paperwork and find items they didn’t want or loan rates that are higher, 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 that can. Never take the Finance salespersons word for anything!

The Subject to Financing clause scam. This is a very common dealer 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. What usually happens here is 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 sub prime buyers who are usually more cooperative. This occurs quite often on weekends when the lenders are closed. Just tell the finance salesperson you will come back 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, interest rate, length of loan 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.

Be careful not to get screwed by a car dealership, this is something that happens more than you think it does. You must make yourself aware of the common dealer traps and tricks they use. The dealer sometimes will scam you into paying more than necessary. These types of scams happen everyday at some car lots.

Dealers like you to think they are acting in your best interest, but they are more concerned with their bottom line than with how much extra they can get out of you. You need to be careful of several non needed extras. Your dealer might recommend a windshield etching to deter thieves from steeling your car. You do not need to pay their price, when you can get it for only $25 are so online.

Do not take them up on any loan guarantee offer, there will be big penalties to pay to the dealer if you can not pay your loan, also your credit score will suffer.

Also they love to get you into the scam of affordable payment, does not matter how much the car’s cost is and how many fees they add, so long as you can make a certain monthly payment, this is just a way to confuse you on what you are actually paying over the entire loan. They love to add these fees into what they call dealer prep cost, oh you can pay an extra $1,800, you already have agreed to $28,000. It is important that this charge be negotiated and that you know what the price is before you sign anything.

Only you decide whether a extended warranty is for you or not. Also be careful about the APR game, they call you the next day and say that you were not approved, but they have another lender that will approve you, but they don’t tell you the rate has just gone up. It is a good idea to have your financing in place ahead of time.

Here are some tricks dealers and leasing companies may try and play on unsuspecting vehicle buyers. Watch out for mileage limitations that get lowered when it comes time to sign the contract. Read each and every page carefully because unscrupulous car dealers have been known to “fan” the paperwork, exposing only the places they want you to sign! This essentially does not easily allow you to scrutinize what you are actually signing. Also, some car buyers have ended up leasing when they they thought they were buying! Sales managers and sales reps know how to create confusion when it is time to sign the contract.

Always note every option because you may get charged for optional equipment on the car that is not actually included in the final price you thought you negotiated. To be sure try and compare the description of the car in the lease agreement to the window sticker description of the car you think you are buying.

Never pay upfront for the full cost of optional equipment just to get a certain lease price. Options should always be added to the selling price and made part of the lease payments.

Always look beyond the monthly payment when considering leasing. The “gross capitalized cost” is a fancy term for the auto’s “purchase price“. This is always negotiable no matter what the dealer tells you and always ask for any possible rebates or dealer incentives available at the time of the purchase.

The “capitalized cost reduction” is really the “down payment“. Put down as little as possible on the front end of a lease.

The “money factor” or “lease rate” is the “interest paid”. To determine the real interest rate multiply the money factor by 2400 which converts your approximate annual percentage rate. For example, .00310 x 2400 is 7.4% interest annually. Make sure you include the taxes into your monthly payment to make sure you can afford the payments.

It is also wise to add in the capitalized-cost reduction, acquisition fees, all the monthly payments and any disposition charges due when you return the vehicle at the end of the lease to figure out exactly what you will really end up spending for the auto over the life of the lease!

If possible it may be wise to lease a vehicle from a car dealer and/or automaker instead of a private leasing company because when it is time to turn your vehicle in, the dealer may give you more of a “break” on how much of the “wear and tear” deposit you get back, especially if you buy or lease another vehicle from the same dealer.

There are up to 30 or more ways for car dealers to potentially deceive car buyers! U.S. federal regulators try to curb widespread deception but salespeople for dealers may withhold information, make false or misleading claims about leasing obligations and even possibly engage in illegal “bait and switch” sales tactics concerning the exact models of cars being offered on an advertised deal, as well as confuse you about leasing terms of the sales contract.

Despite attempts at regulation, dealers may still be free to encode lease terms in confusing language and withhold key financing terms. Worst of all, dealers may not even be required to provide certain pertinent information until you are ready to sign a contract! Beware of “subvented” leases which are equivalent to the industry’s “blue plate specials”. Automakers, dealers and some leasing companies may offer low price leases on certain vehicles, yet only a few of the cars may be fully loaded with options at the advertised cut- rate or discounted terms! Remember, possibly 8 out of 10 salespeople may not even disclose terms of the lease beyond the monthly payment. Regardless, always tell the salesperson you will not be ready to buy until you can compare the terms with the dealer’s competitors.

Now it really gets interesting. Now the salesman starts on you. First they’ll take the payment approach to selling you. That means they’ll avoid the price and keep the sales conversation focused on how much monthly payment you can afford.
It used to be people bought cars based on price, but then we all started living on budgets and car dealers quickly learned that fact. Then they learned that if they could get you to stretch your budget “just a little more”, then they could pump up the price and that meant more profit for them.
Expect the salesman to start with a monthly payment that is two or three times what you told him you could afford. They don’t expect it, but figure the shock will get you used to the idea of having to pay more than you thought you would when you walked onto the lot (never mind reality). They usually figure that as your monthly payment goes up, the loan length goes down, but watch out for the guy who does it both ways.
Part of all of this is “the ether.” “Putting the customer in the ether” means getting the customer excited (or distracted) so they do not realize what is happening to them in the deal. That’s when the real profit can be made.

Tip: The first step to buying a car is making your budget. Know how much monthly payment you can really afford before you ever go car shopping. And then, aim to spend at least 10% less than your budgeted amount. That way you still have some “room” left over. Never go above the number … no matter what. The more you stick to you number, the better off you will be! Don’t buy more of a vehicle than you can afford. If you do, the next time you go shopping you can be sure you’ll hear the salesperson say you’ve got negative equity (whether you really do or not).
And when you make your deal, before you sign the contract, make sure that everything (absolutely everything) has been written down on the contract. Remember: oral promises aren’t worth the paper they are written on.
Also before you sign the contract, make sure there’s nothing in it about “arbitration” or a “jury waiver” either. If you see anything like that, just take that ink pen and scratch it out on every single copy! An honest car dealer is not afraid of a jury made up of ordinary people. So if you see an arbitration clause or jury waiver in the contract, you know what kind of car dealer you are dealing with … don’t sign the contract at all! You don’t have to give up your legal rights just to buy a motor vehicle.

Acar dealer might say, “We can get you into this car for only $389 a month.” Probably true, but how? In some cases, the car dealer may have factored in a large down payment, or may have stretched the term of the loan out to 60 or 72 months.

Focus on the price of the car rather than the monthly payment. “Never answer the question, ‘How much can you pay each month, Stick to saying, ‘I can afford to pay X-dollars for the car.’”

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