Most auto dealers aren’t out to give you an unfair deal. But as an informed consumer, you’ll want to be prepared for situations where a salesperson uses aggressive tactics to maximize profits. If you know what to watch out for, you can swiftly and firmly avoid maneuvers that could drain your time and money.
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A dealer may tell you that you don’t qualify for competitive rates. And while this may be true in some cases, the salesperson will imply your credit is worse than it is, so you think you’ll have to pay a higher interest rate.
Lightbulb Icon How to avoid:Come in with your credit score on hand before you sit down with the dealer so they can’t trick you. Better yet, get preapproved for an auto loan so you don’t have to rely on dealership financing.
Many people view buying a car as one transaction. It’s not, and dealers know this. It’s really three transactions rolled into one: the new car price, the trade-in value and the financing. All three are ways for the dealer to make money — meaning all three are places you can save.
Lightbulb Icon How to avoid:Treat each transaction the same way the dealer does: separately. In fact, you can shop your trade-in at multiple dealers to get the best price. And coming in with common sale prices for the car you’re interested in will help you keep the salesperson honest.
The sales or finance team might throw out a great monthly payment — one that you reasonably could qualify for. But there’s often a catch. In some cases, the dealer may have factored in a large down payment or stretched the term of the auto loan to 72 or 84 months.
Lightbulb Icon How to avoid:Focus on the price of the car rather than the monthly payment. Never answer the question, “How much can you pay each month?” Stick to saying, “I can afford to pay X dollars for the car.” You should also make sure that any price negotiated is the full cost of the vehicle before your trade-in or down payment is applied.
The vehicle price listed on the window is what is known as the manufacturer’s suggested retail price, or MSRP. But that isn’t what is most important. You want to know the invoice price — the amount the dealer paid for it. Knowing what the dealer paid can help you stay clear on your line-item expenses when buying the vehicle. Ultimately, you will pay an out-the-door (OTD) price, which includes taxes and various fees.
Lightbulb Icon How to avoid:Find out what cars are selling for after considering any consumer and dealer incentives. Some hot cars go for the sticker price and above. Be patient and wait: The prices will fall as demand lessens. And if you are unfamiliar with a specific fee or charge being quoted, don’t be afraid to ask for more information.
Spot delivery, also known as spot financing, allows you to sign a contract and drive your car home before the financing is finalized. While it is often legitimate, it can sometimes used to back you into a loan with higher rates than what you might otherwise qualify for.
Yo-yo loan scams operate by “qualifying” you to borrow at a specific appealing rate. Then, the dealer will notify you at a later (and often inconvenient) date that you’re not qualified to borrow under those terms. Then, surprise! The only way to stay in your new vehicle is to agree to a far more expensive loan.
In the event your financing really does fall through, the dealer should be willing to call off the sale of the vehicle per a clause in your financing agreement known as the owner’s right to cancel.
Lightbulb Icon How to avoid:Know in advance what kind of interest rate you qualify for by prequalifying with other lenders. Confirm that you have been approved for the financing your dealer offers, and only leave the showroom with contracts in hand that include all of your loan specifics.
Some dealers may try hard to get you to purchase insurance coverage when you’re buying your car. One type, gap insurance, covers the difference between what the car is worth and the amount you still owe on it.
It’s usually just an extra expense, but if you do want it, gap insurance is generally cheaper when purchased from your regular car insurance company. Another favorite, credit life insurance, will pay the balance of your loan if you die before you are able to repay it.
If these policies interest you, understand what you are purchasing and know that you can decline it in favor of shopping around for a better price. The markup on insurance coverage offered directly through the dealership can be substantial, and you can possibly score better terms with your auto insurance company.
Lightbulb Icon How to avoidDon’t automatically agree to the insurance offered. Some insurers include the benefits of gap insurance in their regular comprehensive automobile coverage, so check there first. As for credit life insurance, you’ll more than likely want to avoid it. In most cases, it won’t make sense for you.
It certainly sounds tempting — 0 percent interest to finance a new car. However, this deal may not be the best one for your pocketbook. Most financing incentives are for shorter terms, and you need a stellar credit score. And with short-term loans, such as 24 or 36 months, payments on even a moderately priced car can be hefty.
In addition, you may be better off finding your own financing and then getting the dealer rebate if one is offered. Say you’re looking at a $20,000 car and will get $4,000 for your trade-in. You can choose between 0 percent financing or 3.49 percent with a $2,000 rebate. The term of the loan is 36 months. At the loan’s end, you’ll come out ahead by more than $1,200 if you take the rebate and the 3.49 percent financing.
However, in today’s rate environment, even those with excellent credit typically see rates of 5 percent or higher.
Lightbulb Icon How to avoid:Run the numbers yourself to figure out which deal suits you best. In some cases, a lower APR may save you more over the course of your loan than even a generous cash-back offer at signing.
It can be tempting to trade for a more expensive car before you have finished paying off the car you’re currently driving. Some car buyers do this by rolling over the remaining payments on their current car into a new car loan or lease.
This is a risky move. You could owe more on your new loan than the vehicle is worth. In the lingo of automobile loans, you’ll be “upside down” on the vehicle. Then, if it is totaled in an accident or you decide to trade it in, you will write a big check to cover the remaining loan amount.
Lightbulb Icon How to avoid:You don’t want to roll over an old car loan into a new one. Instead, try to get a good price for it as a trade-in or through a private sale. And if you can’t, stick with it. Unless you desperately need a new car, there is no reason to buy a vehicle before you have paid off your old one.
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There is nothing illegal or even deceptive about dealers offering loan periods extending out six or seven years. Many cars are on the road for a decade or more, and longer loan terms mean your monthly payments are lower. Still, it’s not ideal. You are likely to continually owe more on your car than it’s worth because it depreciates faster than you’re paying it off.
Lightbulb Icon How to avoid:If you are considering a long loan period, you probably should scale back to a less expensive car that is better suited to your budget.
Similarly, some dealers will encourage you to purchase a car for unrealistically low monthly payments now but with a much larger “balloon payment” at the end of the loan term. Though payments early on can be manageable, many borrowers struggle to come up with a lump sum payment at the end of their loan period.
A balloon loan can be a legitimate way to finance a car. For instance, you may have just graduated and can realistically assume that your income will rise by the time the balloon payment comes due. But for most people, a balloon payment just means rolling over the remaining balance into a new loan.
Lightbulb Icon How to avoidBe wary of these offers and know that your financial situation may change by the time the balloon payment comes due.
The bait and switch happens when you go in looking for one car and the dealer manages to get you behind the wheel of a different one. Dealers may use deceptive strategies to get you on the lot, only to tell you the car you want isn’t available and then try to sell you on something else, often at a higher price.
Lightbulb Icon How to avoid:Stick to what you want. If you did your research and know what you are looking for, then there’s no need to second-guess yourself. Wait it out or try another dealer that does have the car you want.
Keep an eye out for clauses tucked into the fine print that you might otherwise miss. There might be changes to the loan term, add-ons that you never agreed to or other services that could lead to significant costs.
A legit lender won’t try to dupe you like this, but it pays to be careful. If you notice any discrepancies, point them out. And if the dealer isn’t willing to fix it, walk away.
Lightbulb Icon How to avoid:Read over the contract carefully. Ask about all charges and make sure the terms are clear to both you and the dealer. Make sure you keep a copy of the contract in case anything comes up later down the line.
Buying a car can be stressful, but don’t let the fine print of a contract make you sweat. Take your time to read everything over and ensure you understand. Knowing what to watch out for and understanding what kind of auto loan rate you’ll qualify for can help you remain in control of the situation.
If you feel pressured or uncomfortable at any point during the transaction, remember you hold the power as a consumer. Walking away from a sketchy contract is likely to save you from a headache down the road.
“ several dealers to ask for their best ‘drive away’ price in a ‘buyer’s purchase order’ for new cars or a ‘bookout sheet’ for used cars. If they say you need to come in, tell them you will—if they give you a great price in writing. Even if you think you’ve found ‘the one,’ you can save money by comparing the price for similar vehicles offered by other dealers. If a dealership doesn’t respond, take your business elsewhere.”—Sonia Steinway, President, Outside Financial. Here’s what you need to know about buying a car online.
2 / 13“Dealers like to move money around to confuse car buyers about how much they are really getting in the deal. If you mention you want to trade in a car up front, you are opening the door to a shell game. The salesperson will focus on what you want to get for your trade and may artificially inflate the ‘trade allowance’ to get you to say yes. This leaves no room to negotiate on the price of the new car. Furthermore, the salesperson may ask to appraise your trade, taking your keys and literally holding your car hostage until you agree to a deal.”—LeeAnn Shattuck, The Car Chick
3 / 13“Salespeople spend their days selling. Chances are you won’t be as good at getting them to give you a great deal as they are at getting you to buy. So focus on what you can do: Force dealers to compete against each other by sending you their best offers.” —Sonia Steinway, President, Outside Financial. Watch out for the 16 red flags you’re about to fall for a terrible car deal.
4 / 13“If you received a mailer with a ‘scratch off to win’ game on it—avoid it at all costs! These dealers prey on the desperate, offering lower payments but dragging the terms out. This ensures the value of the car will always be less than you know.” —Travis Johnson, author of The Comprehensive Car Buying Guide
5 / 13“If you say ‘I’m thinking about leasing,’ it is the same as telling the dealer that you are a monthly payment buyer. The salesperson will focus on the lease terms to get you to the monthly payment you want instead of negotiating the price of the car. Negotiate the price of the car first, then negotiate the lease terms.” —LeeAnn Shattuck, The Car Chick. These are the things car dealers won’t tell you about leasing.
6 / 13“If possible, wait until the end of summer. Fortune calls Labor Day weekend ‘Black Friday for car shopping.‘ With the holidays coming up, dealerships need to make room for new vehicles and lower prices on older models accordingly. You can also expect more competitive financing offers like zero percent interest for qualified buyers. Such deals will trickle through the following months, so keep looking out for discounts through October to December. Just don’t get talked into buying the latest model for more.” —Andrea Woroch, consumer and money-saving expert.
7 / 13“Most dealers need to meet monthly sales quotas, so they may be willing to give you a better deal if you shop at the end of the month. You’ll also get more personalized attention if you shop on weekdays when there aren’t as many other shoppers in the store. And no matter when you go, make sure you’re well-fed and well-rested to avoid making impulsive decisions.” —Sonia Steinway, President, Outside Financial. When buying a car, look for these red flags in your vehicle history report.
8 / 13“The most common trick dealers employ to attempt to charge a higher selling price is to negotiate based on payment rather than price. First, the payment is the primary budgetary concern for most buyers, so it is normally easy to shift the buyer’s focus to it. Raising the monthly payment by only $20 typically raises the purchase price by about $1,000. Also, inflating the assumed interest rate in calculating the payments at the beginning of negotiation allows wiggle room to either maximize the purchase price or sell warranties or accessories. None of these practices is necessarily a bad thing, but they open the door for potential abuse if the buyer is unaware.” —Rob Drury, Executive Director, Association of Christian Financial Advisors
9 / 13“Shop around at a variety of dealerships, whether it is the same brand or a totally different one. This will allow you to look at different cars and check out their different rebates/offers. You can also have your car appraised at different dealerships to see who offers you the most for your trade-in.” —Natasha Rachel Smith, personal finance expert, TopCashback.com
11 / 13“Coverage like a Vehicle Service Contract (VSC) or GAP Waiver can protect your car and your pocketbook. Buy your protection products outside the dealership for the highest quality, maximum flexibility, and lowest pricing. And don’t waste money on products like fabric protection or VIN etching—a can of stain repellent and a $30 DIY etching kit work just as well, and don’t cost hundreds of dollars.” —Sonia Steinway, President, Outside Financial. By the way, here are some ways you’re completely wasting money on your car.
12 / 13“Dealers purchase these from the manufacturer and then jack up the price when selling to you. Anything over $300 is just straight cash in their pockets. Negotiate their price or buy directly from the manufacturer.” —Travis Johnson, author of The Comprehensive Car Buying Guide
13 / 13“If you’re buying a car from an online marketplace, like Craigslist or 5miles, make sure to meet the seller in a public place and bring along a friend or family member to always be safe.” —Valerie Coleman, National Sales Director, mobile marketplace 5miles. Don’t miss these other car-buying secrets a car dealer won’t tell you.
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