How to Tell If You’re Getting Ripped Off at a Car Dealership

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How to Tell If You’re Getting Ripped Off at a Car Dealership


The internet has made car shopping easier, allowing consumers to compare prices, review a car’s features and buy online without ever stepping into an auto dealer’s showroom.

But there are still tricks car dealers use to rip people off, whether in the showroom or online. Here are some to be aware of:

You know your budget better than anyone. When shopping for a car, most people have an amount in mind that they can pay each month to finance it. If you give this number to a salesperson, they can figure out how to get to that number while making the most profit they can.

Once they know the monthly payment you can afford, they can combine the trade-in value of your old vehicle with the price of the new car and financing terms to hit your payment figure. The financing terms or new car price could rise to meet your monthly payment.

A common tactic is to raise the loan terms by a year. Instead of paying the car off in 48 months, it will take 60 months. The monthly payment will drop but you’ll pay more over the long term.

To avoid all of this, don’t tell the salesperson how much of a car payment you can afford each month. Negotiate the price before you discuss your trade-in. Get pre-approved for a car loan from your bank.

If you negotiate a fair price for the car and leave the dealership with little profit on the sales price, the dealer may try to make money through financing and other revenue streams.

With in-house financing the dealer will typically shop your loan application to several lenders to see what interest rates you qualify for. If the best interest rate they can find for you is 4 percent, they may come back with a rate 2-4 points higher and keep the extra interest as profit. The extra interest may be split with the finance company.

You won’t be told of the difference, which won’t affect you monthly payment by much anyway but adds up over the length of the loan.

Here’s an example: You finance $25,000 on a 60-month loan that you qualify for at 4 percent interest. The payments would be $460 per month. Increase the rate to 6.5 percent and the monthly payment only goes up $29 to $489. But over the life of the loan, it adds up to $1,724 more, which is pure profit for the car dealer.

This is another way dealers try to make money through financing. Some allow potential buyers to leave with a new car before the financing has been finalized. The dealer calls a few days later, telling them the loan has fallen through and the car needs to be returned or it will be repossessed.

When returned, the dealership’s finance officer has a different loan at a higher interest rate or larger down payment.

This scam is most commonly used against people with bad credit scores because they may not have other options for paying for the car.

To avoid this, don’t take delivery of a vehicle until you’ve been fully approved for a loan by the dealer or your bank.

Like many things you buy new, an extended warranty isn’t worth the cost. New cars come with manufacturer warranties for the first one to three years, when problems are most likely to arise.

Extended warranties only take effect after the basic warranty, also called the factory warranty, expires. They’re backed by a third-party underwriter for coverage you may never need. And even if you do, the money you save on the repairs probably won’t cover the cost of the warranty, according to Consumer Reports.

It found the median savings on repairs covered by extended warranties was $837, which can cost $1,200 to $1,500. Car dealers can earn commissions of 50 percent or more on them.

Instead, put the money you’d spend on an extended warranty in an emergency fund for car maintenance. If you never use it, then put it toward the down payment of your next car purchase.

You’ve probably heard that rustproofing, undercoating and paint sealers sold by auto dealers are wasted extras you shouldn’t buy. These and other “dealer-installed options” are offered after the sales price has been negotiated.

Don’t buy them. They’re pure profit for the dealer and of little value to you. Fabric protection and VIN etching where the vehicle identification number are scratched into the windshield are other unnecessary options.

Some dealer options are added automatically and you’ll only notice them on the sales invoice at closing. If you see items you didn’t ask for, draw a line through them and refuse to sign anything until the items are removed from all copies.

If you’re hesitant about buying, a salesperson may try to push you into a sale by telling you that the deal they offered is only good for that day or another buyer is interested in the same car.

Don’t be rushed into an emotional decision. Be prepared to walk away. There are plenty of other car dealers to shop at.

About Author

Aaron Crowe

Aaron Crowe

Aaron Crowe is a journalist who specializes in personal finance. He has written for AOL Real Estate, HSH.com, US News & World Report, Wisebread, LearnVest, AOL Daily Finance, AARP, Wells Fargo, Allstate, the USC Marshall School of Business, and Credit.com, as well as other insurance, credit and investment websites. Check out his website at AaronCrowe.net.



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