When you think you've found the perfect car, your emotions might make it hard to pay attention to the fine print of the dealer's contract. But reading very carefully can help you avoid the following common car dealer financing scams.
Most Manufacturer's Suggested Retail Price (MSRP) stickers already include the cost of preparing a new car for delivery to the buyer. This covers such mundane services as removing the plastic from the car seats, peeling off plastic and cardboard, and adding proper windshield wiper and other fluids. These services take very little time, but dealers sometimes double-charge by adding another $500 or so beyond the MSRP delivery prep charge.
Dealers will commonly try to tack on something called an Additional Dealer Markup (ADM), especially on very popular new models. This is just another way of raising the vehicle’s price—and the dealer’s profit. Don't let a dealer talk you into this bogus charge.
It's very common for a dealer to try to coerce you to pay for services you don't need. Be on the lookout for added costs for:
The dealer might try to convince you to come up with a high down payment. You should be suspicious that the dealer is attempting to sell a car at a higher cost than a lender is willing to finance. You definitely don't want to pay more for the car than it's worth.
Car leases are difficult to get out of, and there are usually penalty charges involved. While the dealer might buy out your leasing agreement or existing loan, those costs and penalties are typically simply rolled into the amount you're financing for your new car. So it's not a good deal for anyone except the dealer.
You can avoid this scam entirely by lining up your own financing ahead of time. Or, wait until your lease runs out or you pay off your existing loan before buying a new car.
Sometimes a dealer might deliberately lie to you about having such a low credit score that you only qualify for a higher interest rate. The best way to avoid this scheme is to know your credit scores before you start car shopping. (To get the lowdown on how credit scores work, see Nolo's article Your Credit Score: What It Is and Why It Matters.)
You take possession of the car after being told that you qualify for a good interest rate on a car loan through the dealership. A couple of weeks later, you get a call from the dealership that your financing didn't go through at the low rate, but you qualify for a higher interest rate. Then you realize that your contract says the deal is "subject to financing."
You can avoid this scam by arranging your own financing through a credit union or bank before you step foot on a dealer lot. And you should never just drive off with a car without having your interest rate and loan details in writing.
After you've taken possession of your car, the dealer calls to say he or she got you a better financing deal with lower monthly payments. In reality, the dealer just rewrote your financing terms to increase the interest rate, but spread the payments over a longer time period, making the monthly payments less. Don't be shy about telling them you're not interested.
Watching out for these scams can save you thousands of dollars over the life of your car loan.
