Many car dealerships love to take a sweet slice of the auto financing pie. However, you can prevent the practice by shopping for auto financing before you step into a showroom for the first time.
Most car buyers do not spend the time to research auto financing options. They believe auto financing lies at the doorstep of the finance manager at the car dealership where the car of their dreams sits ready for purchase. It is a major error in the car buying process when auto dealers arrange financing for the purchase of an automobile.
They do not finance the purchase of cars from their lots themselves.
This means car dealers get a slice of the auto financing pie if you do not make arrangements for financing before you sign a sales contract. It is the start of an avalanche of potential scams that some auto dealerships pull on unsuspecting customers.
Let’s look at five auto financing scams that can leave you with nothing but lint in your pockets.
Poor Credit Score
If a car dealer banks on one thing, it is many of its customers do not know their credit score. If you try to get financing through an auto dealership, you are setting yourself up to get ripped off.
After a car dealership conducts a credit check, the business does not have to tell you where you stand on the credit scale between 300 and 800. All a representative from the business has to do is explain that you are not eligible for a loan with an affordable interest rate.
The result is a car loan package that costs car buyers much more than they should have to pay. You can avoid this scam by obtaining a free copy of your credit report, which includes your credit score.
Packing Unwanted Accessories into Payments
As one of the most common auto financing scams, packing payments is the practice of adding products and/or services into the amount of monthly payments. An increase in monthly payments of just $20 over the course of a five-year loan can cost you more than $1,200. Packing payments is one reason why some auto dealerships focus on closing a deal based on the amount of monthly payments instead of focusing on the price of the vehicle.
With financing set for the purchase of a vehicle, the car dealer gives you the green light to take the automobile home. A couple of days later, the business contacts you to explain why the financing failed to go through, which means you have to bring the car back to the dealership.
Once you arrive at the car dealer, the finance manager applies pressure for you to sign a loan that triggers a much higher interest rate and/or putting down a larger down payment. Although an auto financing deal can fall through, no dealership allows a customer to take home a car until financing becomes officially recorded.
Spinning the Interest Rate Wheel
Another reason to secure financing for the purchase of a car before you agree to sign on the dotted line is some car selling businesses stick customers with a car loan that comes with the highest interest rate. With profit margin on the line, an auto financing manager might get approval from several banks to lend you money to buy a motor vehicle.
This scam is all about trying to get the highest interest rate on a car loan. Not only does the bank increase its profit margin, but the auto dealership makes more money because of securing a bank loan as the middleman in the auto financing relationship.
Incentives Taint the Loan Process
Few auto financing managers draw up unfavorable auto loan packages because they are simply bad people. What motivates them is the allure of gifts and prizes for achieving a bank loan quota. Prizes can include a free vacation package or a shopping spree at a popular local store.
If an unethical auto financing manager can get you to sign for a loan that is not in your best financial interest, the auto financing manager will not think twice about getting your signature. You can avoid this scam by getting approval for an auto loan before you agree to a sales price on the purchase of a vehicle.
The Bottom Line
The simple solution to avoiding an auto financing scam is to line up financing before you enter a car dealership for the first time. If you got caught in the vice-like grip of an auto financing scam, contacting a consumer protection lawyer might help you resolve the legal issue.