|
Scam
#4: The "Forced Warranty" Scam
How the scam
works: This is one of my favorites, an old one that's still in
use. You're in the business office of the "AutoMaul",
ready to sign the papers when the LieNance
manager
says you MUST buy a $2000 extended warranty "because the bank requires
it, or you won't get the loan". Let's analyze the stupidity
factor of this one, shall we? The lender is worried about your ability to
pay back a loan on a $25,000 car, so they want you to add another $2000
to the loan to qualify? Please! Many suckers fall for this and the
credit life scam. Some dealers don't even tell you that you're buying
a warranty. They may lie and say it's a buy down fee "to lower your
APR", like points on a mortgage. Car loans don't work this way.
Just think, if you paid cash for the car or came in with your own financing,
they could not pull this scam on you could they?
It's amazing how many people complain to me that they did not see it on the
paperwork until they got home! I guess during the 20 minute drive from the
car dealer to their house is when they mastered reading. If I live to be
100 I'll still never figure out why they don't look before they sign.
People will spend more time analyzing a $2.00 watermelon in the grocery store
before buying it, than they do for a $20,000 car! How to avoid
the scam: Have them to put it in writing that the warranty
"is required to be approved for your loan", so you can
show it to your State Attorney to get their opinion of its validity.
Watch how quick they back off. Read our Tips
For Getting A Good Car Loan and avoiding scams. Also read
our Extended Warranty
Scams & Buying Tips. This scam works on people with bad
credit and may also "require" you to buy credit life insurance, or "your
APR will go up". One of our visitors sent us her Ford paperwork with
extended warranty, credit life, and disability for $3385! Do they want
to sell you a car or insurance? If they refuse to remove the extended
warranty, remove yourself from that devilship immediately. (Oops,
I meant to say dealership). Also, dealers typically charge $500-$700 for Gap
Coverage, that is why you should ask your insurance agent of loan officer about
Gap Insurance.Another
way to avoid the scam: DON'T FINANCE AT THE DEALER if you have bad
credit. Try to arrange your own financing first then see what the dealer has to
offer. Try to finance
your car online or at a credit union instead, you'll find they won't
force you to buy a warranty. Now you just eliminated
the dealer's excuse to force a warranty down your throat. If you get a
loan from a bank, credit union or online lender, they don't force a warranty or credit life on you, so
why would a dealer? Why does APR matter whether you buy a warranty
or not? It's all cash flow shell games folks, remove their shells, and
there are no more games. |
Don't fall into the gap!
If you owe more on your car than it is worth, or if you lease, or if you put down less than 20%, you should get Gap Insurance. Don't even bother buying it from
dealers, they charge $500-$700, you should ask your insurance agent of loan officer about Gap Insurance. Let's say you owe $20,000 on your car, but it's only worth
$16,000, you're upside down. You total the car or it's stolen, your insurance company gives you $16,000. You must still come up with $4000 to pay off
the bank, plus your $500 deductible! Gap coverage protects you against this. The better ones cover up to $500 of your deductible.
Scam
#5: The "Dealer Prep" Scam
How the scam
works: This common scam is so believable.
Many dealers even admit that its a way for them
to recover some of their "losses" when discounting the car off
MSRP retail price. They convince you that a team of NASA experts
performed a 3 day 15000 point check of your car. Dealer prep "covers
their cost" of removing plastic from the seats, vacuuming, adding fluids,
and preparing it for sale. Total time: 2 hours max.
But most MSRP stickers show these
costs are covered by the car maker. Here's the MSRP sticker from
my Lexus SC300:
See What I mean? It very clearly
states that pre delivery service is included.
The factory pays the dealer for this
pre delivery service. The day my Lexus SC300 arrived, I waited as
it took the dealer 2 hours to peel film and cardboard, install fuses, check
the liquids, perform a 10 mile test drive, and hand me the keys. I got
out of paying it. If a dealer charges a $500 dealer prep, you're paying
them $250/hour for just 2 hours of work! Are you boiling mad yet?
If they charge dealer prep, they are double collecting. How to avoid
the scam: Often it's permanently printed on the buyer's order
to make you think it's mandatory, but many people make the dealer remove it by
adding a credit on the next line. So if you see a $500 dealer prep on the
form, have them add a -$500 credit. If they
won't budge you need to decide how bad you want that car. I have
no problem walking out of a dealer over a useless $500 fee. All you have to do
is go to the next dealer on your list, and tell them "here's the deal.
Drop the dealer prep, and the deal is yours". |
|
Scam
#6: The "Additional Dealer Markup (ADM)" Scam
How the scam
works: These are just wasted bogus charges added by greedy
dealers. It means "Additional Dealer Markup" or "Additional Dealer
Profit", and usually appears on an orange sticker next to manufacturer's
MSRP sticker. I call it Arrogant Dealer
Markup. ADM gives them an artificial buffer to bargain
down the price, or worst case, it gives them more icing on the cake when
they are already selling you a hot car like the Honda Odyssey for MSRP.
In 2001 when Honda Odysseys were in such hot demand, car buyers were
paying $2000 over MSRP, thanks
to these bogus ADM fees, and not even getting the color they wanted. Honda dealers also had the audacity to charge
people dealer prep, ad fees, and throw in overpriced extras like $350 Window
Etching, and $300 Scotch Guard. If you bought a new Odyssey or PT
Cruiser in 2000 or 2001, you really had the screws put to you. If ADM is $2000 and you talk them down $800,
you still paid MSRP plus $1200 for the car! One reader bought a Honda
Civic and the dealer tacked on a $1995 ADM! Luckily she got them
to drop it. But what if she had no idea what was going on?
"Trade in buyers", who only care about what they are getting for their
trade in, fall for this one a lot, because they don't concentrate on the
entire deal. The dealer gave them an extra $1000 for their car, an
now they are so euphoric they don't see the $2000 ADM. The dealer just
sold them a new car for MSRP, got their $1000 back, and made another $1000
off the buyer. Oh, baby, can you feel it sting? How to avoid
the scam: If you see this toxic waste, have them nix it.
You must realize that when you sell the car later, the market value is
based only on a depreciated value from MSRP, not MSRP + ADM. A future
buyer of your car could care less that you paid $2000 over MSRP, because
vehicle depreciation pricing only accounts for the MSRP. |
|
Scam #7: "We'll Payoff Your Loan OR Lease No Matter How Much You Still Owe!"
How the scam works:
These are common ads on the radio and newspaper all the time. They rely on
your brain to trick you, as if the obligations of your current lease or loan
just magically vanish. You can't just dump a lease, it's a contract.
By breaking the contract, penalties are stiff, in the thousands. They
do get you out of your current lease, but these payoff penalties must be
paid to your leasing company to end the contract. They are not doing anything
at all for you, they just want your trade in so they can give you far below
market value for it, while selling you a new car at a high profit. Then they
resell your trade in for a high price. Here’s how the scam works: If you are upside
down on your car loan and you still owe $10,000 for it, the dealer pays off your
loan, then you owe that $10,000 to the dealer. This gets financed along with the
$15,000 car you are buying, now you are financing 2 cars for $25,000! Did
you know that?
Your
payments are spread out over 60 or 72 months so you don’t notice what just
happened. The more months they add to the loan, the lower the payments so you
don’t notice. In fact, it's possible that the payments could be less than your
current loan, so you think you're saving money when you just got shafted! Their ad made you think that trading in a car relieves you of your
obligation to that car. It does not! This gets many, many, many
people into trouble. You are actually taking on double your current debt, when
you thought you were dropping one debt for another and buying a new car. They lied to you in their ad.
Sure they did get you out of the lease or loan, but
you are not really out of it. They dipped you out of it and then dipped
you right back into it under their umbrella of debt. Very clever trick,
but now you're onto them. Next time you hear those ads, you'll know what
they're up to. Here's how ads would be
worded if they were truthful:
"We'll Get You Out Of Your
Current Lease,
then we'll roll what you
still owe plus penalties into your new purchase,
so you can payoff 2 cars!"
How to avoid the scam:
If you are in a lease now, it's best to stay in it until the end. Ride it
out baby, you slaughtered the cow, now you have to eat it. If you are upside
down on a loan, now is not the time to trade in the car. You need to wait
until the car is worth more than what you still owe on it. Try selling it
privately. By mixing a trade-in with a new car purchase, you will lose the
maximum amount of money possible. Don't ever think you walked away ahead
on a trade in. No one ever has. No one ever will. |
|
Scam
#8: The "Forced Credit Life Insurance" Scam
How the scam
works: This is another really old scam that is still in active
rotation. This works similar to the "Extended Warranty" scam.
The LieNance
manager says you MUST
buy Credit Life insurance due to your poor credit history. In some
states this may be a felony, but people with bad credit who are low on
self esteem, fear they'll be rejected by the dealer and fall for it.
Even if your credit is good, they often slip credit life onto your papers,
so stay sharp! They do this by "packing your payment", which can
add about $20 a month to your monthly payment. For example, they
quote you a monthly car payment of $350 and you are comfortable with the
$350 payment, yet you don't know it should have been $320, because you
don't know what makes up your payment. Not a good position to be
in. Often they can also charge $500-$700 for
Gapinsurancequotes.com, which you can get
online for as low as $299.
How to avoid
the scam: Just like the warranty
scam, tell them to put it in writing that Credit Life "is required
in order to be approved for your loan", you want to send a copy of it to
the State Attorney. Watch how quick they back off. This scam
can be avoided by reading our Tips
For Getting A Good Car Loan and avoiding scams. Another
way to avoid the scam: DON'T FINANCE AT THE DEALER if you have bad
credit. Try to arrange your own financing first then see what the dealer has to
offer.
Finance online or at a credit union instead. They don't force a warranty
or credit life on you. Remove one of their shells, and there will be fewer
cash flow shell games. |
|
Scam
#9: The "Leasing Is Better Than Buying" Scam
How the scam
works: The salesperson is trying to get you away from
buying, where you know the selling price is lower than MSRP. They are
trying to get you into a lease, where you can't figure out that they charged
you MSRP for the car and stole your trade in because they are not required
to disclose a trade in on the lease form. They tell you that leasing
is cheaper than buying. They are supposed to compare apples with
apples. Most people lease for 36 months, or borrow
for 60 months. But dealers compare the 36 month lease payment
to a 24 month loan payment (no one borrows for 24 months). Gee, go figure, monthly payments
for buying the car come out to be much higher than lease payments, as
they have you concentrating only on monthly payments. For example,
they'll scare you by saying if you buy this car, your monthly payment will
be $600, but if you lease your payment will only be $499. They don't tell
you that they packed the payment with hidden extended warranty and credit life
insurance. They don't tell you about the $500 dealer acquisition fee, or
the $300 disposition fee when you turn in the car at lease end. These fees
are on every single lease contract. Maybe your payment should have been
$349. You must ask them what is the total cost of the lease including all the
monthly payments, the up front fees, dealer acquisition fee, and the end
of lease disposition fee, which they conveniently leave out of the equation.
Long term leasing costs more no matter what they tell you, thanks to fees. With leasing,
every 3 years you pay 50% depreciation in car value, so after
3 leases in 9 years, you have paid 150% depreciation. But buy the
car instead, and drive it for the same 9 years, you still have not used
up 90% depreciation. Now tell me which is cheaper? Over the
long term, leasing costs more than buying, end of story.
How to avoid
the scam: Just leave. You
can sit there with your HP calculator and poke holes through their story all
day long, but why waste your time? Just leave and go to another dealer.
You must be able to figure
out lease payments on your own, and lookup
ALG residual values, or don't bother leasing. |
|
 Scam
#10: Hide The
Monroney (MSRP) Sticker Scam
How the scam
works: This is another new entry to our Top 10 list
for 2001. Sometimes the buyer will ask the car dealer where the Mulroney
Sticker is. This is the large white MSRP sticker that is required by law
to be placed on every new car sold in America. The sticker is placed
on the passenger window at the factory by the manufacturer and should
not be removed except by you the buyer. It is a felony to
sell a car without the Monroney Sticker. Sometimes dealers will place it
in the glove box for you. But very few people foolishly do not check the
Monroney sticker and verify that the car has all the options the buyer thinks
they are getting. You should also verify that the VIN# on your dashboard matched
the VIN# on the Monroney sticker so they cannot claim you are getting one car,
when in reality you are getting another. This
usually happens when the car you want is not at the dealer you are shopping
at, so they "locate it for you" from another dealer. There are so many
complications that arise out of this scenario, that we recommend consumers
avoid it. Often times the dealers lie to the consumer and say they
found the exact car with the options they wanted and are having
the car delivered. When the buyer shows up for the car, the Monroney
sticker is either missing, or the dealer makes up excuses for why it's not on
the car. Had the consumer seen the Monroney sticker, they would have known
that their options are not on the car and walked away.
How to avoid
the scam: Never ever buy a new car without the Monroney
Sticker. If they don't have it, don't buy it. Never let a dealer
"locate the car for you". Always go to the dealer who has it and buy it
from them. Visit the web sites of your local and regional dealers and
check their stock to find it yourself. Why are people so stupid that they
don't verify all their options are on the car until they get it home?
We'll never know. Maybe in the euphoria of the moment their common sense
turns off. |
Competition is what gets you the best price
If you walk into a dealer with "The Folder" and once they see your lower price quotes from these honest online sites, you've stopped them dead in
their tracks. The deal will proceed on your terms, not theirs. Too many people walk into a dealership without knowing how much they can buy that car
for at InvoiceDealers,
Yahoo!Autos,
Edmunds.com,
MyRide.com and
CarsDirect. If you don't have a consensus quote from all of these sites, and if you don't know in advance what you
should be paying, you'll pay thousands too much. I'm not just talking about looking up dealer cost and MSRP. You need real purchase quotes. Then when the car
dealer quotes you a price you can say "Why should I pay your price when sites like InvoiceDealers,
Yahoo!Autos,
Edmunds.com,
MyRide.com and
CarsDirect
are willing to sell me this same Toyota for $2500 less?" Then you show them all the quotes in "The Folder", that we'll talk more about in chapters 2 & 3 of the
new car buying section of this site. Commissioned salespeople who thought they are about to get top dollar from you fear "The Folder", because
they know you did your homework. They rely on dumb consumers who don't research.
|
Bonus
Scams: A Few Extra Goodies
Bone Us
Scam#1: "Your Credit Is No Good, So You Have To Pay
More For The Car".
You talk to "Bob" at the dealership
to verify an advertised $295 per month payment on an Explorer. He
says come in tomorrow and he'll sign the deal with you.
You arrive and Bob is "out sick". But 2 other
salespeople are there to "help" you. They tell you that your credit wasn't
good enough for the advertised $295 per month deal on the Explorer, but
they can put you in a $450/mo Explorer! Gee, isn't that funny? Your
credit was "not good enough" for a $295/mo SUV, but it's good enough for
$450/mo SUV!
How to
avoid the scam: They try to make you think they have the upper
hand, but it's you who has the upper hand. You can just get up and
leave, they cannot. They work there and
have to come back tomorrow. Joooo! Bone Us
Scam#2: Reported By One Of Our Visitors: Your Trade
In Needs A New Engine!
You clean up your 3 year old Explorer
and go to the dealer to buy a new Explorer. After 90% of the papers are signed,
"Bob" has you go outside and speak to the head of service because there
is a problem with your "old" truck. They make you listen to a vague
noise and tell you the truck needs a new engine. Only way they'll
do the deal is if you came up with $2500 more for a new engine.
How to
avoid the scam: Tell Bob that if after three years the Explorer
needs a new engine, why on earth would you get another one! Rip up the papers and leave, before they have a chance to stop you.
Take the truck to mechanic to have the engine
checked. Our visitor only needed $10 worth of oil, it was low, hence the
minor clicking noise. SUV runs fine with no new engine. |
Get The Credit
You Deserve
Going to a dealer without
knowing what's on your credit report is about the most stupid thing a human
being can do. Before entering a dealer you must get a copy
of your credit report. Many people are scared because they don't
know what's on their credit report or how it will affect their chances
for car financing. You also want to make sure that they list your
latest salary increase. Dealers know that almost everyone has a bad mark
on their report, and they make good use of it when they find it.
You get an erroneous notice from a credit card or bank saying "we never
got your check". You call them up, find out it's their mistake, no
problem. But many people are shocked to find out this error made
it onto their credit report! This is why you must get your credit report
BEFORE
the dealer does.
|
Great Online
Sites To Get Your Credit Report:
|
|
Experian Online Credit Reports A great place to get your
credit report instantly online. You get a thorough credit report
in 30 seconds from one of the big 3 credit bureaus. They are strict about
security so if you type one bit of data incorrectly or have moved in recently,
you won't be able to get your report instantly. Instead they'll mail
it to you about a week later. We send all our friends and family there,
because it's so easy to use.
Equifax
Online Credit Reports Equifax is one of the big 3 credit
bureaus in the U.S. Most creditors who run your credit profile use
Equifax, as they are the most thorough. Usually when you apply for
mortgages and car loans, many lenders get your credit report from 2 of the
big 3 credit bureaus, and you can be pretty sure Equifax is one of them.
By using the same credit reporting agency as the bank, you'll be in sync
with what they see. Inferior credit bureaus may not have all the
information that the Equifax report has, and this could lead to you getting
rejected on your loan.
TrueCredit
lists your credit report online instantly. You can also have a merged
report from all 3 credit bureaus mailed to your house in a few days.
If you have never seen your credit history before, you should get the 3
in 1 merged report with FREE Score. The score is
a numerical depiction of your creditworthiness, they explain the factors
that influence your credit standing, and what items on your report are
keeping you from getting approved. Until 2000 legislation, you were
not allowed to see your score. |
|
A Look Back: Here's the Top 10 Scams from 2000
1) The "Window Etching" Scam
2) The "Forced Warranty" Scam
3) The "Forced Credit Life Insurance" Scam
4) The "Dealer Prep" Scam
5) The "Additional Dealer Markup (ADM)" Scam
6) The "Leasing Is Better Than Buying" Scam
7) "We'll Payoff Your Loan OR Lease No Matter How Much You Still Owe!!!"
8) The "Bait & Switch APR" Scam a.k.a. "Spot Delivery Scam"
9) The "Disappearing Rebate" Scam
10) The Deposit Check Scam
|
How To Use CarBuyingTips.com Start
Here First:
Jump Right
In By Reading Any Of the Guides Below
You'll save $2000-$4000 off MSRP
after reading these guides:
Click Here To
Go Back To The Top |
