Deep down, dealerships aren’t out to rip you off. But as a savvy consumer, it’s important to be prepared for potential situations where you’ll encounter a more aggressive seller with a bag of tricks looking to maximize profits.
Car dealership tricks to watch
These are a few tricks that some car dealerships – even the most legitimate ones – may try to force you into buying.
1. The credit cozen
A dealer may tell you that you are not eligible for competitive rates. And while that may be true in some cases, the salesperson will imply that your credit is worse than it is, so you think you’ll have to pay a higher interest rate.
How to avoid: Come with your credit score in hand before you sit down with the dealership so they can’t cheat you. Better yet, get pre-approved for a car loan so you don’t have to depend on dealer financing.
2. The single trade strategy
Many people consider buying a car as a single transaction. It’s not, and dealers know it. It’s actually three transactions rolled into one: the price of the new car, the trade-in value, and the financing. All three are ways for the dealer to make money – and that means all three are places where you can save.
How to avoid: Treat each transaction the same as the dealer: separately. In fact, you can buy your trade-in from multiple dealerships to get the best price. And coming up with common selling prices for the car you’re interested in will help keep the seller honest.
3. The payment scheme
The sales or finance team can give you an excellent monthly payment, which you could reasonably claim. But there is often a catch. In some cases, the dealer may have factored in a large down payment or extended the term of the car loan to 72 or 84 months.
How to avoid: Focus on the price of the car rather than the monthly payment. Never answer the question “How much can you afford each month?” Just say, “I can afford to pay X dollars for the car.” You must also ensure that any negotiated price is the full cost of the vehicle before your trade-in or deposit is applied.
4. The Sticker Scheme
The price of the vehicle shown on the window is what is known as the Manufacturer’s Suggested Retail Price, or MSRP. But this is not the most important. You want to know the invoice price – how much the dealership paid for it. It’s much easier to work from the invoice than trying to lower the MSRP.
How to avoid: Find out how much cars sell for after factoring in consumer and dealer incentives. Some hot cars go for sticker price and above. Be patient and wait: prices will drop as demand decreases.
5. Restraint Agitation
Manufacturers often give cash incentives — sometimes called holdbacks — to dealers to encourage them to move slow-selling models. This is usually not mentioned in advertisements.
How to avoid: Look for holdbacks or other factory-to-dealer incentives available for the car you’re considering. While it’s not certain that the dealership will apply any of these funds to the car you like, it doesn’t hurt to ask.
6. On-Time Delivery Financing
Some dealerships have been known to call customers days or even weeks after signing a purchase agreement to tell them that financing has failed. It’s a scam. Cash delivery, also known as cash financing, is designed to get you to sign a loan agreement at a higher interest rate.
The dealer can find out if you qualify for financing almost instantly. The purpose of the subsequent call is to get you to accept a loan with a higher interest rate because, according to them, they have just found out that you did not qualify for the lower rate listed.
How to avoid: Never leave the showroom without signed contracts that spell out every detail and every blank filled in. Confirm that you have been approved for financing offered by your dealership. If you have that, they can’t back down on funding.
7. The Illusion of Insurance
Some dealerships may work to get you to purchase an insurance policy when you buy your car. One type, gap insurance, covers the difference between the value of the car and the amount you still owe on it. This is usually just an added expense, but if desired, gap insurance is usually cheaper when purchased from your regular car insurance company.
Another favorite, credit life insurance, will pay off your loan balance if you die before you can pay it off.
If these policies appeal to you, you’ll want to understand what you’re buying, and that you can refuse it and shop around for better prices. The markup on these policies at the dealership can be huge, in part because the insurance companies that sell the policies to dealerships offer them huge incentives — from cash to first-class travel — to push the policies.
How to avoid: Do not automatically accept the insurance policy offered. Some insurers include gap insurance benefits in their regular comprehensive auto coverage, so check first. When it comes to credit life insurance, you probably just want to avoid it. In most cases, this won’t make sense to you.
8. The Dazzling Rate
It certainly sounds tempting – 0% interest to finance a new car. However, this offer may not be the best for your wallet. To start, most financial incentives are short-term and you need a great credit score. And with short-term loans, such as 24 or 36 months, payments for even a moderately priced car can be very high.
Also, you might be better off finding your own financing and then taking advantage of the dealer discount if there is one. Suppose you are considering a $20,000 car and you will get $4,000 for your trade-in. You can choose between 0% financing or 3.49% financing with a $2,000 discount. The term of the loan is 36 months. Over the course of the loan, you will earn more than $1,200 if you take advantage of the 3.49% discount and financing.
How to avoid: Use an auto loan calculator to calculate the actual dollars over the term of the loan to determine which deal is right for you.
9. The Reversal Trick
It can be tempting to trade in for a more expensive car before you’ve finished paying off the car you’re currently driving. Some car buyers achieve this in part by transferring the remaining payments on their current car into a new car loan or lease.
It’s a risky move. You will end up owing more on the second car than it is worth. In automotive jargon, you will be “upside down” on the vehicle. If it gets totaled in an accident or you later decide to trade it in, you’ll end up writing a big check to cover the remaining loan amount.
How to avoid: You don’t want to turn an old car loan into a new one. Instead, try to get a good price for it in exchange or through a private sale. And if you can’t, hold on. Unless you desperately need a new car, there’s no reason to buy a vehicle until you’ve paid off the old one.
10. The Long-Term Trick
There is nothing illegal or even misleading about dealerships offering loan terms of six or seven years. After all, many cars last longer than they used to, and longer loan terms mean your monthly payments are lower. However, this is not ideal. It’s likely that you continually owe more on your car than it’s worth because your car depreciates faster than you pay it off.
How to avoid: If you’re considering a long loan period, you should probably go back to a cheaper car that’s better suited to your budget.
11. The balloon scramble
Similarly, some dealerships will encourage you to buy a car for unrealistic monthly payments but with a much larger lump sum payment at the end of the loan term.
In a few cases, this can be a legitimate way to finance a car. For example, you may have just graduated and can reasonably assume that your income will increase by the time the lump sum payment is due. But for most people, a lump sum payment simply means carrying over the remaining balance to a new loan.
How to avoid: Beware of these offers and be aware that your financial situation may change by the time the lump sum payment is due, and you may find it difficult to pay it.
12. Bait and Switch
Bait and switch happens when you go looking for a car and the dealership manages to put you behind the wheel of another. Dealerships can use deceptive strategies to get you on the lot, only to tell you the car you want isn’t available, then try to sell you something else, often at a higher price.
How to avoid: Stick to what you want. If you’ve done your research and know what you’re looking for, then there’s no need to second guess yourself. Wait or try another dealership that has the car you want.
13. Disadvantages of the contract
Keep an eye out for clauses inserted into the fine print that you might otherwise miss. They can be in the form of changes to the term of the loan, additions that you never agreed to, or other services that could incur significant costs.
A legitimate lender won’t try to trick you like that, but it pays to be careful. If you notice any discrepancies, report them. And if the dealership isn’t willing to fix it, walk away.
How to avoid: Read the contract carefully. Find out about all charges and make sure the terms are clear to you and the dealer. Be sure to keep a copy of the contract in case something happens later.
The bottom line
Buying a car is not meant to be an experience where you feel cheated and walk away feeling like you paid too much for your vehicle. Knowledge is power, so consider these common dealer maneuvers to make sure you don’t get tricked.