While you're searching for great deals during the spring car-buying season, be on the lookout for aggressive sales tactics that could wind up costing you a lot more money.
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Most car salespeople aren't predatory sharks. They are, however, out to maximize their profit. And they've got a litany of tricks up their sleeve to squeeze more money out of your wallet.
"The days of the plaid-jacketed guy who's going to rip you off are gone for the most part," says Jon Linkov, Consumer Reports' managing editor for autos. But there are plenty of dealers who are willing to take advantage of consumers with low credit scores or a lack of financial savvy.
Beware of dealers trying to sell you extra features like rust-proofing, fabric protection or windshield etching of the vehicle identification number. You don't really need them. You can buy a VIN etching kit for $20 at any auto parts store and easily do it yourself.
And Consumer Reports advises against plunking down extra money for an extended service contract. "You don't want to get suckered into that," says Linkov. "Buy a reliable car and take the money they want to charge you for an extended service contract and put that in the bank. If the car's out of warranty, use that money to pay for repairs," he advises. A reliable car isn't likely to incur costly repair bills anyway.
The easiest way for dealers to pad an invoice is by bumping up the interest rate on your loan by suggesting you didn't qualify for a better rate. The solution is easy: Know your credit score before you go car shopping.
Some dealers will say you have to fill out a credit application—including your Social Security number—to comply with the post-9/11 law to combat money laundering and terrorism. They want to run your credit report so they can try to lure you into dealer financing. Don't give up that information. If you show up pre-approved for a loan from your bank or credit union, you can use it as leverage with the dealer.
Four out of five car buyers finance their vehicle through the dealership, and odds are they're paying too much, says Mukesh Chatter, chief executive of MoneyAisle.com, an online auction site for auto loans. "A mark-up of 2% to 4% is standard in the auto industry," he says, 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 at sites like MoneyAisle.com or bankrate.com.
At MoneyAisle.com, consumers can watch as up to 150 banks and credit unions bid on their loan in less than a minute. It's then their choice whether to follow through with the winning bidder. The auction is free for consumers. Chatter says the average consumer saves $1,243 a year refinancing through his site.
Another dealer tactic that could wind up costing you more money is negotiating the monthly payment rather than the price of the car. If you tip your hand about what kind of payment you can afford, the dealer could steer you toward a long-term loan with a very high interest rate, and a $299 monthly payment. "That's how you end up with a $40,000 Nissan Versa," quips Linkov.
Edmunds.com, eBay Motors and other car-buying sites also warn consumers to be careful when they are buying a car over the phone or Internet. Some unscrupulous sellers will ask buyers to send a check to an escrow account while a long-distance sale is completed. It turns out there is no car, and now they've got the buyer's money. Any time an escrow account is used to facilitate a deal, the buyer should establish it, not the seller, says Philip Reed, senior consumer advice editor at Edmunds.com.The most important advice is to read all the documents before you sign anything. And whatever you do, don't drive away in your new car until you understand every detail of the purchase contract. Sometimes dealers will hand over the keys to the buyer and then call a few days later saying, "your credit application didn't go through." It's a ploy to force the buyer into a higher-priced loan that's more profitable for the dealer.
"You should always be prepared to walk," says Linkov. "Don't become emotionally invested in it. If you feel pressured, that's when you want to step away."
Car Dealer Scams To Watch Out For
Alarms, extra cleaning, "prepping," rust-proofing, fabric protection and paint sealant are all common add-ons that dealers sometimes sneak onto the invoice without the buyer's knowledge. Most of these things you don't need. Make sure you read all the documents before you sign.
The Unwanted Warranty
Nothing is free, not even those floor mats the dealer throws in to seal the deal. He might tell you the warranty is included, as if it were free. But the cost is rolled into your monthly payment. If you don't want the warranty, make him take it off the invoice. Of course, if you do want an extended warranty, this is an easy way to pay for it.
Bait And Switch
This one's as old as the hills. You see a great price advertised on TV, then show up at the dealership only to find out the advertised special isn't available. Don't be talked into paying more, or getting a car with lesser value. Walk away.
The Credit Con
Some dealers will imply that your credit rating is worse than it is to trick you into paying a higher interest rate. The solution is easy: Know your credit score before you enter the store.
Don't allow negotiations to focus on the size of your monthly payment, and don't tip your hand about what kind of payment you can afford. Instead, negotiate the price of the car before you talk about financing. Otherwise, you might find yourself in a long-term loan at an uncompetitive rate.
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