We Lowered Your Payments! Come Back & Re-sign!
How the Scam Works
A few days after you drive your new car home, somebody from the dealership calls you and says something to the effect of "I've got great news for you! We were able to get you a better loan that has a lower APR and smaller monthly payment! Just stop by when you have a couple of minutes and resign the papers for the lower payment."
If you don't know any better you head down to re-sign the paperwork. At this point there should be a huge red flag to alert you that something isn't right. Without telling you the loan term changed from 48 months to 60 or 72 months. What they did in reality was increase the APR on you not lower it like they said they would. They outright lied to you.
They have to do something to hide what they did so they spread the financing over many more months so that the monthly payment will be lower. It's like a magician using a sleight of hand trick. You are getting ripped off but you think you are saving money. If you aren't informed about this scam it is easy to think that you are actually getting a lower APR.
If you know about the way lenders work, this won't pass the common sense test. Normally, increasing the number of months in a loan will increase the APR, not lower it. The reason for the increase is that a longer loan has more risk for the lender. If you look at their rate card, you will see this practice. When the dealer tries to convince you that they are giving you a good deal, you can point out these facts to them. Almost all of the time you will find out that they are lying about the "reduced APR."
How to Avoid the "Re-sign Scam"
The simplest way to avoid this scam is to avoid the sales side of the dealership once your deal is complete and you have taken your car home. If you even speak to them just say "No thanks, my payment is just fine." Of course they will try to pressure you so tell them to email you a copy of the new paperwork so that you can review it in advance. The best way to avoid this scam is to not answer their calls and don't call them back. If you want to really get a lower rate on your loan, read our chapter on Auto Refinance. You can also send extra principle each month and it will have the same effect of reducing your total interest.