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Auto loans and beyond: 5 common car dealer scams

[May 2, 2011.]

 

The Center for Public Integrity (CPI) published a new report, which exposes some of the many scams that certain car dealers use when selling to innocent consumers.


Here are five of the worst:


1. Cheap auto loans that become expensive As reported in last week's Rebuild.org auto loans news blog, dealers creamed off $25.8 billion in 2009 by inflating the rates customers are charged for their auto loans and keeping the proceeds for themselves or splitting them with lenders, according to the Center for Responsible Lending. On April 7, Forbes reported that 80 percent of car buyers finance their purchases using dealers, and quoted one industry expert, who said: "A mark-up of 2 percent to 4 percent is standard in the auto industry, and can be even higher for those with less than perfect credit. If you already got rooked on your car loan, you can refinance online."


2. Auto loans that yo-yo Yo-yo auto loans are an industry favorite. The dealer takes your old vehicle in part-exchange, and you drive home in your new car having signed all the paperwork. A week or two later (in one case, reported by the CPI, it was two months) the salesperson calls you, and says that the finance has fallen through. You're then offered a new deal at a higher rate, although the salesperson may disguise this by talking about monthly payments instead of the overall cost of the loan. Last year, MSN Autos cautioned against falling for this practice, suggesting: "Line up your own financing before going to a dealership."


3. Auto loans that go on and on


Meanwhile, Forbes warns against telling your dealer how much you can afford in monthly payments. Many salespeople will take this as a personal challenge to sell you the most expensive vehicle on the longest loan possible. Sure you drive away in a better car than you'd expected, but will that still feel as good when you're still paying for it many years later?


4. Auto loans with bogus "fees"


People with poor credit typically have to pay higher rates on their auto loans. But alarm bells should ring if a one-off fee is added to the purchase price, supposedly as a result of a low credit score. MSN Autos says: "If the price of a car suddenly goes up by thousands of dollars while you're sitting in the finance office and the salesperson says it's because you have bad credit, something is up."


5. Other ways some dealers try to stiff you


Many dealers lure you onto their lots with low sticker prices only to try to inflate those once they think you're hooked. Be wary of extras such as extended service contracts/warranties, fabric protection, anti-rust treatments and so on. Some of them are of questionable efficacy, while others could be bought much more cheaply elsewhere. For example, check out how much your dealer wants to charge you for etching your vehicle identification number (VIN) onto your windscreen, and compare that with the cost (roughly $20) of a do-it-yourself kit you can buy in any parts store.


Cheap auto loans that stay cheap


Of course, there are plenty of honest dealers out there. The trouble is, you can't tell them from the crooks just by looking at them. You can, however, protect yourself by obtaining competitive quotes for auto loans before you venture anywhere near your local lot.

 

About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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