Financial Tricks Car Dealerships Use

Financial Tricks Car Dealerships Use to Make You Spend More Money

  • Intro

    • There is nothing more exciting than buying a new car, whether it’s pre-owned or new. Even better is buying your first car ever! Your car is a symbol of freedom and independence. Don’t let your excitement cloud your judgment. You must be careful not to fall into the multiple traps when financing and paying for your car. 
    • Not every car salesperson will try to rip you off or squeeze every dollar out of you. Like any industry, there are ethical and unethical salesmen. These tips are to help to protect you and help you spot those unethical salesmen.
  • Packed Payments

    • Out of all the ways Car Dealerships will get money out of you, selling you things you DO NOT NEED is the most common. Be Santa and check that list twice. Be sure to review extended warranties, GAP insurances, and add-on features.
    • Often they will put things into your loan that you didn’t even ask for. Now that might only add $30 a month, but over a 60-month note, that can cost you an additional $1,800.
    • If you see items you didn’t ask for, you need to draw a line through each of them and refuse to sign any contract until those items are removed from all copies.

Financial Tricks Car Dealerships Use

  • Spot Delivery Scam

    • Some Car Dealerships will allow potential buyers to leave with a new car before the financing has finalized. While this sounds nice, it could end up coming back to hurt you.
    • The dealers in this situation will call you a few days later, telling you the buyer the loan has fallen through and your only options are to return the car and have it repossessed.
    • When you bring back the car, the dealership will try to get you to keep it and tell you they have a different loan with a higher interest rate or a larger down payment.
    • Spot Delivery Scams are most common for those with bad credit scores since those with bad credit scores might have no other option than to take the loan offered to them.
    • If you want to avoid these types of scams, before you even go out to look at cars, get pre-approved for a car loan through a third-party company or refuse to take the car off the lot until the loan is finalized.
  • Interest Rate Mark Up

    • When you apply for financing at a dealership, they will often shop around your application to see what rates you qualify for. 
    • Let’s say the lowest you qualify for is a 4% interest rate. The dealership might come back with an interest rate of 2% to 4% higher. That extra percentage might be split with the finance company they use. Everything left over after the split is pure profits for the car dealership.
    • They won’t tell you the difference, and while the difference won’t impact your monthly payments, that extra interest rate will end up costing you.
    • The following example shows how that higher interest rate might hurt you.
      • Let’s say you finance a Dodge Charger for $25,000 on a 60-month loan you qualify for at 4% interest rate. The payments would be $460 per month. However, if the dealership marks up your interest rate just 2.5% to 6.5%, the monthly payment jumps up to $489. Now that might not seem like much but you end up paying an additional $1,724 more for that car.
    • The best way to avoid this is to get pre-approved by a third-party financing company with no relation to the dealership you are buying the car from.
  • Know Your Credit Score

    • Many people don’t know their credit score before going out and buying a car. If you plan to get your auto loan through the dealership, you will have to be extra careful. 
    • Dealerships don’t have to reveal your credit score. They can tell you that you won’t qualify for competitive financing rates.
    • To get the most accurate rating for your credit score is to go to myfico.com. Fico is the most commonly used credit score company used by lenders. If you want to learn more about your credit score and how to increase it click HERE.
  • Rushing You

    • If you are cautious of the purchase you are about to make, a salesperson might try to push you into a sale by telling you that the deal they offered you is only for today, or they might say to you someone else is interested in the car.
    • Don’t fall into this trap. Be willing to walk away; more than likely, you can get that same deal a week later or maybe even find a better deal somewhere else. There is no denying walking away can be challenging, but it can also be the most rewarding.
  • Misleading Prices

    • It is amazing how just changing a few words can make something negative come off as positive. Like anything in life, how you word things and view things can make all the difference. No one knows this better than a salesman.
    • You might walk onto the lot and see a great car selling for 30K, but that is above and beyond what you can afford and what you should be buying. But the dealership will come to you and tell you they can make your monthly payments $350 a month. All of a sudden, that car that was out of your budget just become affordable. However, what the dealership might not tell you is that all they had to do was add another year to your note. 
    • That extra year they added on ends up making them extra profit that can come from interest if you do financing from them or they add extras and upgrades you didn’t notice, making them even more money.
  • Conclusion

    • Buying a car can be stressful, but there are some tips you can follow to make the process easier. Here’s what we recommend for anyone looking to buy a new or used vehicle: 1) Know your credit score and use it as leverage during negotiations with dealerships 2) Make sure financing is finalized before leaving the parking lot 3)Be aware of interest rate mark-ups on loans offered by automakers 4)Never rush through an offer without reading all details 5) Stay away from any dealer that is misleading about how much money they’re saving you 6). And finally, never underestimate the importance of getting advice when shopping. No one knows more than someone who has been there themselves! What tips do you have when it comes to buying a car?