Dealer Fraud

These are common ads on the radio and newspaper all the time. They rely on your brain to trick you, as if the obligations of your current lease or loan just magically vanish. You can’t just dump a lease, it’s a contract. By breaking the contract, penalties are stiff, in the thousands. They do get you out of your current lease, but these payoff penalties must be paid to your leasing company to end the contract. The dealer is not doing any favors at all for you, they just want your trade in so they can give you far below market value for it, while selling you a new car at a high profit. Then they resell your trade in for a high price, while you are stuck paying off the debt load of 2 cars. With this scam, if you are upside down on your car loan and you still owe $10,000 for it, the dealer pays off your loan, then you owe that $10,000 to the dealer. This gets financed along with the $15,000 car you are buying, now you are financing 2 cars for $25,000! Did you know that? Your payments are spread out over 60 or 72 months so you don’t notice what just happened. The more months they add to the loan, the lower the payments so you don’t notice. In fact, it’s possible that the payments could be less than your current loan, so you think you’re saving money when you just got shafted! Their ad made you think that trading in a car relieves you of your obligation to that car. It does not! This gets many, many, many people deeper into financial trouble. You are actually taking on double your current debt, when you thought you were dropping one debt for another and buying a new car. They misled you in their ad. Sure the dealer did get you out of the lease or loan, but you are not really out of it. They dipped you out of it and then dipped you right back into it under their umbrella of debt. Very clever  dealer trick, but now you’re onto them. Next time you hear those ads, you’ll know what they’re up to.

The dealer convinces you that lots of work must go into checking the new car you are purchasing. A fee is applied to your total price in the high hundreds for a simple few hours of work to prepare your car for sale. The work carried out usually includes a valet service inside and out, removing all plastic covering from the manufacturer, fluid is added for oil, water etc.. Fuses are installed and checked and a quick test drive to make sure everything is running well. This should no cost anything as it is already paid for by the manufacturer to the dealer but there is no law saying the car dealer can’t charge you such a fee.

How to Avoid this Dealer Scam: Simply tell the dealer to drop the fee or you will go to the next dealer closer to you and ask for the same deal without this fee.

You go to a dealership and find the perfect new car but the problem is you are still paying off for the vehicle you already have, the dealer says no problem we will just work out how much money you still have outstanding on your current loan and add that amount to the new car purchase. At this point the dealer is supposed to payoff your current loan for you, the car scam is when you find out the dealer didn’t pay the loan off at all and you still owe the finance on the previous vehicle and now owe more than you were willing to pay for the new vehicle. You have no contract and no proof this was what was agreed with the dealer if you need to take them to court and are left with two car loans which will probably affect your credit especially if you now miss payments.

How to Avoid this Scam: The best way to avoid this car scam is to pay the current loan off yourself. If this is not possible then you must get a contract signed by the dealer stating the fact that the dealer will pay the outstanding loan off within 10 days, this way if you do need to go to court you will have proof of the dealers intentions. If the dealer is unwilling to make a contract then they are likely to be pulling this scam.

Sell your car yourself. You will get more money from your car if you sell it yourself. If you insist on trading in your old car, then you need to check Kelley Blue Book, NADA guides and Edmunds online to find out what its worth before going to the dealer. You should really clean it up too. If the car dealer offers you as much as what you could sell your old car yourself for, then its undoubtedly because they added more to the price of your new car. This is one of the most common auto frauds. To avoid this scam, do not mention anything about trading in your old car until after you have gotten a firm out-the-door price on the new car.

You just bought a new car and have had it a week, you get a courtesy call from your dealer and they mention that they have just got a better deal for you on your finance loan that you took out. You go back to the car dealer sign some new paperwork showing lower monthly payments and later on you notice that the payments have been extended by a long period of time.

What has happened here is the dealer has extended the monthly payments by many more months making it look like the repayments have dropped and by increasing the months it increases the APR interest rates.

How to avoid this scam: If you get a call like this just simply tell them you are happy with you current loan and don’t wish to change.

The sales person emphasizes all the attributes of the new(er) car and all the negative aspects of the old(er) car while working the deal. All the usual factors are in play: mileage, age, options, equipment, plus the usual personal factors that are customer-specific. The idea is to get the customer so wrapped up in the idea of getting the new car, and how much it will improve their life, the envy of others, family harmony, their peer reputation, etc., that they lose track of the numbers in the deal. This is called putting the customer in the ether. The deeper the ether, the higher the gross profit on the deal. The objective at this stage is to get the customer firmly committed to the deal. That is why getting the customer to say “yes” is so important at this stage of the sales process. Part of that “yes” psychology is getting the customer to sign their name to a worksheet or other form of early commitment. Something, almost anything, has to be signed by the customer before the Turnover takes place. Committed to the deal, the customer will be less suspicious, more trusting, and easier to deceive when he/she is “t.o.’ed” to “F & I”.

This also means that some sort of payment amount must be agreed to before the Turnover. It often starts with the sales person presenting three numbers written on the worksheet. It often looks something like this:

700/-0- down 600/1k down 500/5k down

The numbers don’t necessarily have anything to do with reality. What the sales person often says when presenting the numbers is something like “with no down payment, your monthly payment is going to be about $700. If you put $1,000 down, I can get your payment down to $600. But if you really want to pay less each month, then I have to have $5,000 down on the financing.” The psychological motive is, obviously, to “scare up” as much down payment money as possible by putting a huge monthly payment right in the customer’s face.

Notice that the sales person may have said nothing at all about how long the loan will be for. The customer doesn’t know if they are talking about a 3 year loan, a 4 year loan, or a 5 year loan. The absence of that information gives the F & I department more flexibility to determine what they interest rate and price will end up being, and just how much of the “soft add-on’s” they can pack into the deal’s numbers. Of course, this high monthly payment shock is where the customer often has their first stroke. Soft add-on’s are things like credit life insurance, disability insurance, Gap insurance, rust-proofing, fabric protection, paint protection, etc. The idea is that the sales person creates the room in the monthly payment for these things to be packed into the deal by the F & I department after the Turnover.

Of course, the sales person often has no real intention of ending up with a $700 monthly payment, but they know that if they start out with a “500 - 400 - 300″ set of numbers, there will be less chance of landing the customer on a higher number in the first place. By presenting the “700 - 600 - 500″ numbers, the sales person has already conditioned the customer to expect that the monthly payment is going to be much higher than they thought. Having accepted that as the reality of the situation (after all, the sales person deals with these numbers every day so they must be right), the Dealer now has more room (and leverage) to actually end up with a higher number.

Once a payment number has been agreed to (usually with the customer initialing or signing the worksheet number that they go along with), the customer is ready for the Turnover.

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