Dealer Fraud

Often salespeople will use a code to represent numbers. They do this so they can hide their numbers they are using from someone who does not know this code. For example, A=1, B=2, etc., and J=0. The salesperson will often even show you this when calculating things for you. So if you see “CJJJ” next to your trade-in you are getting $3,000 for it. If you know the code you have the advantage not them.

Dealerships will do everything possible to give you the impression that you must buy your vehicle today or you will lose it. They know their best chance to close the deal is when you are at the dealership that day.

Dealerships will also often say they have a buyer for your trade-in. It is great to think that the dealer already has a buyer for your trade-in, and as a result of this they will pay more for your vehicle. It is just another method to get you to trade-in immediately and purchase a vehicle today.

One way salespeople will get a vehicle into your monthly budget is to “stretch the term.” You tell the salesperson you can afford $200 a month. Basically, they will extend the length of the contract as long as possible to fit it in your $200-a-month budget.

The less you say in front of the salesperson the better. This is true because they will use anything you mention in their favor and against you in order to get you to purchase a vehicle as soon as possible and spend as much as possible.

When looking over your trade-in a salesperson might say, “We would give you more for your vehicle, but it needs X and that will cost $250, and Y will costs $200.” They will find anything that might be wrong in order to decrease the trade-in value of your vehicle.

Another dealer trick used to manipulate you is by saying, “Well, Mr. Smith maybe this vehicle is too expensive for you. Let’s look at a cheaper vehicle.” They do this to bring out your ego so you want to prove that you can afford the better vehicle and that you can afford to purchase it today.

Yet another method salespeople use is to say, “Mrs. Smith, I have another client interested in this vehicle as well, and this is the last one.” This is done to have you make a decision quickly because there are no other vehicles available. As you know there is another vehicle like that one somewhere in the world for you to purchase.

One other line a salesperson might use is, “You see the manufacturer already discounted the price right here on the window sticker so I do not have any room to move.” This is not true and therefore it is essential for you to haggle, otherwise you will pay too much for the vehicle and then pay interest on that higher price.

It seems there are as many sales tactics to sell cars as there are cars. They are all designed to achieve the same purpose and that is to get you to sign on the dotted line. Let’s take a look at some more of the common methods out there today.

Salespeople know by now that people who come in to dealerships are naturally suspicious of salespeople and knowing this they have their own little brand of psychology to deal with and combat it.

One of the favorites is the “I’m a trustworthy salesman” garbage. Yeah right, and I have some beachfront property in Arizona to sell you. If you are a real tough customer and say something like you are going to come back tomorrow, they will say “That’s perfect, I can get you a better deal tomorrow, they are trying to get a higher profit today” like tomorrow is going to be any different?

The next dealer trick is something that anyone who has bought a car has probably seen, getting you set on a particular car and taking you on a demo ride. The walk around is designed to end up with you at the driver’s side of the car. He will have you sit in it and turn it on and then say, “Let’s go for a ride!” This works especially well if you have a family, he will enlist their help as well. Kids always want to go for a ride in a new car! While on the demo ride he will be constantly probing you and asking questions, finding out what you like and logging it in his memory.

Confusion is the next trick that is used. For example if it has been determined that you are a payment buyer the slick salesman will just keep quoting the payments to you and not even pay attention to the price of the car. They will do the same thing if you come in with a trade difference figure in mind. They will keep going to the trade allowance and try to convince you the difference doesn’t matter. The point is never tell them you only car about the payments, or your trade value, or the difference. You want to be able to keep tabs on all factors of the transaction. Also when trading beware of them trying to devalue your trade in your eyes, they will do this by running their hands over minor blemishes and making comments about it.

In this scam, the dealer tells you that your car is a really popular vehicle, and so to sell you the vehicle they have to add “Market Adjustment Fees” of several thousand dollars. This amount is usually indicated on an orange sticker next to manufacturer’s MSRP sticker. A car may be popular, but if it is in stock, it is not worth paying extra for it. Many buyers, especially trade-in buyers, have been scammed before. They focus only on what they get for their old car, and so they don’t see the big picture. They may get an extra few thousand for their car, but they don’t notice that they are charged a much higher Market Adjustment Fee. The dealer sells the car, gets the trade-in, and makes an extra off the buyer. Never pay more than the manufacturer’s MSRP.

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!

There are a lot of great dealerships scattered abound the countryside, but you have to be on the look out for the ones that are trying to scam your pocketbook.

What you should be on the lookout for are the dealers that make their money from the manufacturer, when they buy the vehicle-and not when they sell it. Often, a large car dealership can purchase vehicles on fairly standard pre-determined prices. They can then offer rebates, incentives, and discounts the dealer can pass on to the consumer.

An independent dealer may not have the luxury of being able to pass on the ’sweet’ deals to is or her client. And, you can bet the sales pressure to get you in a car seat will be a lot less polished.

HERE ARE SOME CAR DEALER TRICKS USED TO GET YOUR SIGNATURE ON THE CONTRACT

1. Burn up the Buyer’s Time
The average consumer only has about three hours a week of free time to look for a car. The job of the car salesperson is to make you do less comparative shopping. That will induce you to buy when on their car lot.

2. Feed on the Buyer’s Emotions
Don’t allow yourself to get sucked in! Leave the emotions associated with car buying at home. A car salesperson can be like a shark. They smell “blood” when they know you’re hot to buy a car.

3. Place the Buyer in a Comfort Zone
Don’t forget, he or she might have the smile of a saint, but they’re out to make a sale! You’re the only person that can watch out for you.

4. Pile Options on the Buyer
Be aware of vehicle options you didn’t ask for, or don’t need. This is a smooth way of jacking up the price and making you think you’re getting a bargain.

5. Play-down the trade-in Value
Make sure you know the market value of your trade-in, and then make sure the price of the vehicle you have in mind isn’t jacked up to compensate for the amount your car is worth. Otherwise, it’s just like giving your trade-in away for free.

While you shouldn’t think this will be the experience every time you buy a car, it just makes common sense to keep your eyes pealed for anyone who might be out to take advantage of you.

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.

There are several ways they get you here. The first is to tell you they are giving you a great price on your trade in and then on the contract it is much lower. This happens a lot when you owe money on you trade in and have equity in it. They will put in the contract the pay off which is added to your loan amount but somehow forget to credit you with the additional equity you are using for a down payment. Check your contract carefully and make sure they give you the equity you were promised.

Another common scam is to not pay off your trade in right away. You are still responsible for the payments until the car is paid off. If the dealer takes months to pay it off, the lender will come after you for the back payments. This could hurt your credit. Make sure you have it in writing that they will pay off your trade in no more then 10 days. Call your lender the following week to verify it was paid.

Down payment is the amount paid by the customer that covers a significant part of the actual cost. This amount is deducted from the actual cost and loan is taken to pay the remaining cost. Interest rates on such loans are greatly influenced by the down payment. This situation is true even for cars. However, one needs to be wise while making a decision on how much down payment to be made while purchasing a car.

While buying a car, a customer is expected to shell down at least 20 percent of the vehicle cost towards down payment. This strategy is quite beneficial as it ensures that the buyer is not “upside down”, meaning that the buyer is not owing more than the actual value of the car. Being upside down is not financially beneficial as the buyer would end up paying an amount that is higher than the car worth. Also, the car would have a negative equity or fetch less value when one wants to trade in his old car to a new vehicle. When a customer makes a 20 percent down payment, he would be the one dictating financial terms. In these situations, buying or trade-in of an old car would always be at the discretion of the buyer.

While taking a car on lease, an entirely different strategy works out. “Cap cost reduction” is the term used when down payment is made while leasing out a car. With the intention of lowering monthly payments, many times people make a down payment of at least $3,000. In times of an accident, this down payment is taken as the coverage for the car damage and is not refunded. There is no chance of getting this money even if the customer has a collision and gap insurance. Hence, it is not advisable to put money on the car that is being leased out. Since, leasing does not require any down payment, the amount that was intended for such purpose could be saved in a bank account. Customer would be in a favorable situation if he is ready to make higher payments and roll the drive-off costs into monthly lease payments.

The well-informed buyer is the wisest, while customers who haven’t done any research frequently get confused by the seemingly endless stream of complex information that comes with buying a car. Car dealers often work around a method which bounces profit potential from one transaction to another. If a customer is set on getting a good deal on their trade-in, a car dealer may then choose to concentrate on inflating monthly payments or the down-payment.

Car dealers are also not legally obliged to offer you the lowest interest rate you qualify for. Once a rep has run your details on the credit check they’ll know your income, housing status and if or when you were late paying your rent or mortgage. Some new and used car dealerships obtain this information when the customer is taking a test drive, and the car dealer is already adding up just what price they think you’ll pay.

And if you sign up for a higher rate than the car dealership pays back for the car, you’ve just gifted them some more. Often this difference lies in fractions of percents on your rate. Find out which rate you qualify for first.

Royce says a confused or inattentive buyer can also lead to “slamming.” In this case, a car dealer may take charge and hurry them through every step: the test drive, into the office, the write-up, a quick negotiation, sign the papers and drive home. And then, a few days later, enter the infamous “buyer’s remorse.” Royce says that, unfortunately, this is more common than you might think.

But you, the smart buyer, have negotiated all these obstacles and just when you think you’re winning in negotiations, you’re introduced to a secondary sales rep that you are told is the car dealership manager. Surprise, he’s just another sales buddy brought in when closure on the deal appeared to be slipping. Often the sales team will split commission in this scenario. And they both know that additional options are a car dealer’s bread-and-butter, though the practice of “back-ending” a deal, or adding additional charges to option lists without the customer’s knowledge, is illegal in many states.

Make sure you ask for the drive away price, which is the final cost to you including all fees, taxes and options. However, there are other ways to get the best deals on a new car. For example, call the car manufacturer directly and ask about cash back programs because local dealers may be unaware of them. Or if you are in college or are a recent graduate within the past few years, you may qualify for a manufacturers rebate up to $500. In addition, ask the manufacturer for a factory-to-consumer direct incentive. Tell the automaker the type of car you want and they may offer you a cash rebate or low financing. However, check around concerning financing because you may be able to find a lower interest rate from another source entirely, like from a credit union. Or better yet, ask your local car dealer about a customer loyalty rebate which can be worth a few hundred dollars if you already own or lease a car from a particular dealer you are seeking to buy a new car from. Also, if you plan on having future repairs or general services performed at the dealership, let the dealer know this upfront. It may warrant a few hundred dollar rebate since dealers make much of their profits on parts and repair services.

In addition, dealership salespeople may have a secret code you may want to break! The code tries to hide the real value of the car you are trading in and/or the profit the dealer is making on your particular car deal. The code is not standardized throughout the industry, so you may have to put your thinking cap on. Here is how it may work. Look for handwritten notes at the top of the paperwork you are asked to fill out. If you see alphabet letters scribbled on your trade-in appraisal, like for example, FJJJ, this may mean the dealer thinks your car is worth $6000. The F stands for the 6th letter in the alphabet and the Js stand for zeros, which equals $6000. The idea here is if you see notations like this, you may safely assume the dealer thinks your trade-in is worth something different from what is being offered to you. Be subtle, but this is your cue to try and get more for your trade-in. Always get your trade-in appraisal in writing. This keeps the dealer from offering you much less for it when your new car arrives if the new car you want is not on the lot when you make your final deal with the dealer.

Furthermore, consider ordering your new car direct from the factory instead going to a dealership car lot. This way you can possibly avoid costly options that too many dealership cars come loaded with. A dealership may likely accept a small profit from a factory order because it is a quick and easy sale, plus the dealer then does not have to pay the automaker for storing the new car on the dealers lot!

However, the flip side to this is if the dealer thinks you may opt to order from the factory, he may be willing to significantly cut the price of the cars on the lot more so than usual. Also, any rebates and incentives you get deducted from the price of a new car, always make sure they do not expire before you take delivery!