Consumer Law

Vehicle Financing Scams

When you think you've found the perfect car, your emotions may make it hard to pay attention to the fine print of the dealer's contract. But reading very carefully can help you avoid the following common car dealer financing scams.

Dealer Markup and Prep Costs

Most Manufacturer's Suggested Retail Price (MSRP) stickers already include the cost of preparing a new car for delivery to the buyer. This covers such mundane services as removing the plastic from the car seats, peeling off plastic and cardboard, and adding proper windshield wiper and other fluids. These services take very little time, but dealers sometimes double-charge by adding another $500 beyond the MSRP delivery prep charge.

Dealers will commonly try to tack on something called an Additional Dealer Markup (ADM), especially on very popular new models. Don't let a dealer talk you into this bogus charge!

Unnecessary Additional Services

It's very common for a dealer to try to force you to pay for services you don't need. Be on the lookout for added costs for:

  • Etching the VIN number in your window. This number should already be etched in several other places in your vehicle. If you want the VIN number in your car window, you can do it yourself or ask your local police to do it for free.
  • Extended warranties ("because the bank requires it to approve your loan"). The dealer is almost guaranteed to back down if you ask him or her to put the loan requirement in writing. Extended warranties aren't bad on their own, though.
  • Extra life insurance financed through the dealer

High Down Payments

The dealer may try to convince you to come up with a high down payment. You should be suspicious that the dealer is attempting to sell a car at a higher cost than a lender is willing to finance. You definitely don't want to pay more for the car than it's worth.

"We'll Pay Off Your Prior Lease or Loan"

Car leases are difficult to get out of, and there are usually penalty charges involved. While the dealer may buy out your leasing agreement or existing loan, those costs and penalties are simply rolled into the amount you're financing for your new car. So it's not a good deal for anyone except the dealer.

You can avoid this scam entirely by lining up your own financing ahead of time. Or, wait until your lease runs out or you pay off your existing loan before buying a new car.

"Your Credit Rating Sucks"

Sometimes a dealer may deliberately lie to you about having such a low credit score that you only qualify for a higher interest rate. The obvious way to avoid this scheme is to know your credit scores before you start car-shopping.

"The Financing Fell Through"

You take possession of the car after being told that you qualify for a good interest rate on a car loan through the dealership. A couple of weeks later, you get a call from the dealership that your financing didn't go through at the low rate, but you qualify for a higher interest rate. Then you realize that your contract says the deal is "subject to financing."

You can avoid this scam by arranging your own financing through a credit union or bank before you step foot on a dealer lot. And you should never just drive off with a car without having your interest rate and loan details in writing.

"Lower Monthly Payments"

After you've taken possession of your car, the dealer calls to say he or she got you a better financing deal with lower monthly payments. In reality, the dealer just rewrote your financing terms to increase the interest rate, but spread the payments over a longer time period, making the monthly payments less. Don't be shy about telling them you're not interested.

Watching out for these scams can save your thousands of dollars over the life of your car loan.

Questions for Your Attorney

  • I realize I was scammed, but I already signed the papers and drove off in my new car. Is there any way to get my money back?
  • The car dealer called to say my financing fell through. Should I go back to the dealership to sign new papers?
  • Should an attorney review the car loan documents before I sign them?
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