Dealer Scams To Avoid

No Interest Loans – Sure, if you can pay the vehicle off in 12 months or less.  Your payment will be sky-high even without the interest.  In addition, the credit qualifications are so stringent the majority of customers won’t qualify.  This is the typical “bait and switch” routine.  Get you in the door with the promise of zero interest, and then sell you on a loan with a high interest rate because you “don’t qualify” for the advertised special.

Interest Reserve – Dealers often get their customers approved for a loan at a much lower interest rate than the rate they tell the customer.  This is called the “buy rate”.  The Dealer then contracts the customer at a higher interest rate,  and the lender then pays the Dealer the difference between the contracted interest rate and the buy rate.  This is called the “reserve.”  The dealer makes extra money for the entire life of your loan. 

Extended Warranties – Dealers sell extended warranties every day but what most customers don’t know is that the actual cost of the warranty is usually much, much lower than the amount the Dealer tells the customer.  The Dealer then “pockets” the difference between the sales price of the warranty and the actual cost to the Dealer.  Many unscrupulous dealers make more than $1,000 dollars on each and every extended warranty they sell which comes directly out of the customer’s pocket.  In addition, many of these extended warranties are included in the financing so the cost to the customer is compounded by added interest.

Trade-In Vehicles – Many dealers will low-ball your trade-in, offering you far below what it is actually worth.  They claim they have to put a lot of money into the vehicle before it can be resold.  The dealer then turns around and sells the vehicle for retail book or wholesales the vehicle at auction, and the customer is out the equity in his/her trade-in vehicle.  Always book your vehicle or have it appraised before you go shopping for a new car.

Down Payment Requirements – Many customers are told they need a large down payment to qualify for a financed vehicle.  In many cases, the down payment required by the lender is actually less than amount the dealer tells the customer.  The reason behind this larger down payment is in many cases, the price of the vehicle the customer is purchasing is too high for the lender’s guidelines.  In other words, the dealer is selling the vehicle for more than its book value.  Lenders won’t finance a vehicle for more than it’s book value so the dealer tells the customer they need a bigger down payment.  The customer ends up paying more for the vehicle than it is worth.

For advice on your present or future car purchases feel free to email us, even if your not one of our customers. We are always glad to help where we can. questions@nocostautoloan.com