Car Buying Scams To Be Aware Of
Do you feel nervous about buying a new car? If so, you're not alone. Most people feel anxious about buying a new car because they're afraid the salesperson will give them a bad deal. Car scams cost American consumers more than $30 billion annually. The sad thing is that most of these scams can be avoided if you know how to spot them.
It doesn't mean you should distrust all car salespeople. There are good ones out there who are honest and considerate. However, you must learn how to spot the various tricks used by shady salespeople. Even though they might act respectfully and have a smile on their face, they could still be up to no good.
After extensive research into car scams, I've uncovered the most popular scams that are used quite often in the automobile industry. I've outlined them for you below.
Window Stickers That Cause Confusion
The Manufacturer's Suggested Retail Price (MSRP) is the manufacturer's price believes a car is worth. Car dealerships usually put an MSRP sticker on each vehicle they want to sell. If they're honest, they will leave the sticker as-is without adding any other stickers next to it. But if they're dishonest, they'll add an even bigger sticker of their own near the MRSP. This sticker will have an inflated price that goes far beyond the manufacturer's recommended price.
The higher price includes a lot of upgrades and extra features that did not come from the manufacturer. Sometimes these are bonus upgrades for things that don't even matter, such as fabric protection warranties. Look for advertising labels with acronyms like ADP or ADM. They stand for "Additional Dealer Markup" or "Additional Dealer Profit," respectively. If you see these acronyms advertised on any vehicle, run away fast.
Worthless Upgrades and Extra Features
If a dealer doesn't have an inflated listing price on a car, they might use another tactic to scam you. When you go into the salesperson's office to sign the paperwork to purchase the vehicle, they will attempt to sell you add-ons or package deals. These deals might include things like rust-roofing, VIN etching, fabric protection, and paint protection. These features are unnecessary. Don't waste your time and money on them. Decline all add-on offers.
If you're interested in a particular model car in high demand, the car dealership might be willing to hold it for you. The stipulation is that you must pay a "holding" deposit if you want them to hold the car for you and not sell it to someone else. Do not take this deal unless the dealership agrees to refund the deposit after following through with the purchase. A holding deposit could also be made if the dealership is willing to perform a dealer trade for you as well.
Camouflaging Visible Flaws on the Cars
A car dealership could have a lot of scratched and scuffed vehicles. Even if the cars are new, they might have gotten marked up as they were delivered to the car dealership. If that happened, the salespeople might attempt to hide these flaws with stickers and other innovative methods. That is why you should inspect each car for flaws before deciding to purchase one of them.
Cashing in Your Rebate
It is common for car manufacturers to offer cash rebates to consumers who purchase specific model vehicles. Sadly, most consumers don't even know about these rebates because car dealerships don't tell them. Unless the consumers know about the rebates already, the car dealerships will cash-in the rebates themselves.
How is this possible? Simple. Car manufacturers don't usually audit the personal information of each consumer who purchases one of their vehicles. They leave that up to the dealerships. Unfortunately, a dishonest dealership will take advantage of consumers who are unaware of those cash rebates.
If you want to avoid losing out on a rebate, ask your local car dealership to show you all the vehicles that have cash rebate offerings attached to them. Then you can know if the car you want to purchase has a cash rebate before buying it.
When you negotiate with a car salesperson on a particular vehicle's price, make sure they understand the exact vehicle you want to purchase. Sometimes the salesperson might think you're talking about a different year on the model car you want to buy.
For instance, if you are interested in purchasing a 2015 Ford Focus, the salesperson might be thinking about a 2016 Ford Focus. It could be an honest misunderstanding, or it could be deceptive. So, be clear with the salesperson from the beginning about the make, model, and year of the vehicle you want to purchase.
The pressure to Purchase Used Rather Than New
If you're negotiating with a salesperson about a new car, they might try to persuade you to purchase a used car instead. If a particular used car is not selling and the dealership wants it off their lot, the salespeople will create incentives for consumers to purchase it. These could be bonus incentives, such as certified preowned or free oil changes.
As the consumer, it might not necessarily be a bad thing. But you should never feel pressured to make a quick purchasing decision. If the salesperson tries to tell you their special deal is only available now, then do not purchase the car. A good salesperson will give you time to make the right choice for your own needs.
Must Pay MSRP Price to Get Cash Rebate
Manufacturers issue cash rebates to consumers who purchase their vehicles, regardless of the prices that are negotiated with the salespeople. The only problem is the salespeople will tell consumers that they must pay the MSRP prices to receive the cash rebates. That way, the consumers will end up paying more money to the dealerships.
Don't fall for this trick. If a car has a cash rebate available, you don't need to pay the MSRP price.
Negotiated Equipment Not Included in Purchased Car
When you negotiate with a car salesperson, they might offer you some extra equipment and accessories if you agree to purchase a car. Common equipment incentives include navigational systems (GPS), seat protectors, floor mats, cup holders, and so on. All of this equipment is supposed to be in the car already before you purchase it. Either that or it should be mentioned in the sales agreement that you sign.
Before you sign anything, make sure the equipment is mentioned in the contract or is present in the car. The car salesperson might have made all those promises under the assumption that the equipment was in the car. Sometimes the equipment won't be in the car because the salesperson made an honest mistake or deceptively created a false incentive to get you to purchase the car.
Imagine you're in a situation where you find a car that you want to purchase, but the monthly payments are more than you can afford. The salesperson might give you a special deal to lower the monthly payments and require no down payment. That would certainly seem like a tempting offer, right?
Here is where the scam begins. The lower monthly payments are not for actually purchasing the car. They are for leasing the vehicle. The salesperson will be very selective with their language when making the offer. They'll just say something like, "Hey, how would you like to leave here with this car while making lower payments every month?" But what they won't tell you is that you're not purchasing the car but rather leasing it. And if you don't notice the words "lease agreement" when you sign the contract, then you will be signing up for a lease. That is not what you want.
Past Repairs Not Disclosed
Carfax is an organization that stores information about the service history of vehicles, including accident and repair history. Whenever you purchase a car, you're supposed to receive a history of the repairs made to it. However, if an accident happens at the car dealership, then it does not usually get reported. This applies to new cars too.
The general rule is that if the repair cost is under $1,000, the dealer does not have to report it. You'd be surprised how many accidents occur on the lots of car dealerships. Therefore, it would be wise to inspect any car that you want to purchase and see if it has damage or not. Do this whether the vehicle is new or used because even new vehicles could have damage.
Rebate Lowers Sales Price
When you negotiate for a lower price on a vehicle, the salesperson might agree without telling you about the cash rebates included. So, they will subtract the cash rebate amount from the vehicle's actual sales price. Then it gives you the illusion that you're paying a lower amount for the car.
If you know the vehicle has a rebate attached, ask the salesperson if their price includes or excludes the rebate amount. At that point, they'll have to be honest with you.
Car dealers are obligated to follow FTC rules when selling cars to consumers, such as disclosing all vehicle problems. Individual car owners who sell their cars do not have to follow the same rules, though. That is why some car dealers will pretend to be private sellers to avoid FTC rules and scam consumers. This type of conduct is called curb-stoning.
Some cars are not sellable at dealerships because they have too many problems. So, the dealers will pretend to be private sellers to sell those vehicles. You might find these cars listed on Craigslist or parked on the side of the road with a "For Sale" sign on them. Sometimes, the curbstoners will sell a vehicle with an out-of-state registration to hide the consumer's vehicle history.
To avoid getting scammed by a curbstoner, request a Vehicle History Report before purchasing the vehicle. You should also ask the seller to show you the title registration and their driver's license. Ensure the name and address on the registration matches the name and address on the driver's license.
The biggest scammers will take your money and give you nothing in return. They will do this by setting up a fake escrow company website. For instance, the seller will advertise a car for sale on the internet. It will be an excellent car with a low price and lots of useful features. If you ask them why they're selling the car, they'll have an exciting story to tell. They might say they're a military officer overseas or someone moving to a new location and looking to purchase a new car by getting rid of their old one.
Whatever the story may be, the seller will want you to send money to a particular "escrow" company to make it a secure transaction. They'll tell you that they'll sign over the vehicle title once you pay the escrow. Unfortunately, the seller will take your money from the fake escrow and not sign anything over to you. That is how the scam works.
Be wary of sellers who want you to send payments through MoneyGram or Western Union. And if they suggest an escrow company, please research it before sending any money there. Escrow.com is one reliable escrow company.
Title washing is when the car dealer hides the vehicle history from you, especially if the vehicle has been salvaged after experiencing past hurricane or flood damage. When the seller washes the title, they transfer it to a new state where the salvage status is not recognized.
The good news is that washing the title does not eliminate the vehicle history information on Autocheck and CarFax. You can use either one of these services to check the vehicle's history, including all its title transfers and reported accidents. Then you will know whether the title has been washed or not.
Dialing Back the Odometer
Before digital odometers existed, there were mechanical odometers in vehicles. It was easy for shady car dealerships to dial back the mechanical odometers to make it look like cars had fewer miles driven on them. But when digital odometers came along, they were supposed to be more difficult to dial back because computer software controls them.
This theory has been proven wrong because shady car sellers and dealers can easily obtain cheap software that lets them recalibrate digital odometers. The software is supposed to be used to fix faulty odometers, but it is also used for illegal purposes. In fact, it is estimated that 10% of all used cars sold in the United States have probably experienced illicit tampering with odometer.
If you obtain a free odometer check from CarFax, you can compare the reported odometer mileage on the vehicle's maintenance history to its current mileage. Then you can determine whether it has been tampered with or not.
Fake Certified Preowned Vehicles
Franchised car dealerships are the only ones that can sell certified preowned vehicles. These are vehicles that go through a multi-point inspection process that is approved by their manufacturer. The inspection ensures the vehicles are in good working order. That way, the dealerships can offer extended warranties to the consumers, which gives them more confidence to purchase these vehicles.
Some independent used car dealerships might put "certified" labels on their vehicles to make you think they're certified vehicles. But since they're not affiliated with the car manufacturers, they cannot sell real certified used cars. The certification label is illegitimate. So, if you want a certified used car, then go to a franchised dealership only.
Low Price Quote
When a car salesperson at a dealership gives you a price quote, they might give you a low price to capture your interest. This often happens if you call them on the phone or visit their website online. But when you get down to the dealership, the salesperson won't stick to their quote. They will give you an excuse for why the price quote increased. For instance, they could say their manager didn't approve the price or that someone else made a better offer.
To avoid having the dealership waste your time, request them to email you a sales agreement or purchase order, which states the price quote. Ask them to sign the agreement too. Then you will have a signed written contract to ensure they stick to the price quote.
Outdated Price Values
Car dealerships like to use outdated pricing guides as the basis for their car listing prices. These guides will usually give inflated values on vehicles without factoring in the local market conditions or their recent depreciation.
If you see a car advertisement that states something like "below the blue book value," that doesn't mean it is below the actual market value. Pricing guides will not tell you the true market value, but rather the ball-park value. If you want to know the true market value, you must shop around at different dealerships and compare their prices on similar cars.
Car dealerships don't just use tricks on consumers. They use tricks on individual car sellers as well. For example, some car dealers might purposely point out all the scratches, flaws, and potential mechanical problems with your vehicle because they want to make a low offer to purchase it. If you agree on the price, they will turn around and sell the car for a lot more money.
Do not let any car dealer rip you off. Look up what your car is worth. A few scratches and scuffs should not reduce the value that much. As long as the car functions normally, then you should expect a fair market price for your vehicle.
No Obligation Auctions
eBay Motors is a car auction website where individual sellers attempt to sell their vehicles to the highest bidders. But there are also car dealers who list their vehicles for sale on eBay Motors as well. They will start it off at a low price with no reserve, which means there is no minimum bid amount that must be reached.
Usually, the final bid price on an eBay Motors listing will be less than what the vehicle is worth. If the dealer does not like the final bid price, they are not obligated to follow through with the deal. Even though most eBay auctions are supposed to be legally binding contracts, this rule does not apply to car sales. Sellers have the right to back out without any legal commitment to follow through.
Hiding Engine Issues
When car engines have issues, they can be temporarily hidden if the regular oil is replaced with diesel oil. Individual sellers and dealers will do this a lot. Your best bet is to have a particular mechanic inspect a vehicle before you purchase it.
Lying About the Condition
Some car dealers are flat out liars. They'll attempt to sell a car with problems but claim it only has a few scuffs and scrapes. If you see a vehicle sold in "as-is" condition, then be very cautious. The laws surrounding this sales tactic are different in each state.
At the very least, inspect the Carfax vehicle history report and request a 30-day warranty on the vehicle. If you can have an independent mechanic inspect the vehicle, that would be even better.
Most states allow used car dealers to list vehicles for sale if they have open recalls on them. The only exception is if the recall concerns a critical safety issue. Otherwise, it is up to consumers to research the vehicles and see if they have recalls listed for them. On average, 33% of used cars have open recalls on them.
You might see a late model vehicle with a "Factory Warranty" label on it. But what you have to understand is that factory warranties can be voided very quickly. If the vehicle is abused, modified, or suffers an accident, for example, then they can void the warranty. Before you commit to the purchase, please write down the vehicle's VIN and give it to the local dealership that sold the car initially. They can tell you whether the car still has a valid factory warranty or not.
The individual seller will list their vehicle for sale at an unbelievably low price. They will ask you to leave a hefty deposit to secure the deal and remove the listing from the market. After you make the deposit, the seller takes your money and never contacts you again.
Whenever you deal with a private seller, ask to see their title registration and driver's license. Then you can verify their ownership.
An individual seller or independent dealer could sell you a stolen car without your knowledge. They'll simply steal the VIN of another vehicle with the same make and model. That way, it will look like the same vehicle when you search the VIN.
These scammers will put a fake VIN sticker over the real VIN on the outside of the vehicle. It is not difficult to do. When you research the VIN, check the registration information and title information carefully. The address on both of them must match the seller's address.
Lease Agreement Number Alterations
Lease agreements can be confusing because there is a lot of complicated terminology and math to understand. Some car dealers might take advantage of your lack of understanding by modifying the lease numbers and figures. Then you'll end up paying more money than you originally wanted to pay.
Read over your lease carefully before signing it. Learn all of the leasing terminology and what they mean.
Price Increases on Leased Vehicles
When you enter into a lease-to-own agreement on a car, the purchase price is the capitalized cost. Make sure you negotiate with the car dealer before agreeing to the cost. Otherwise, you could be forced to pay the full MSRP after the lease has expired.
Money Factor Lies
The money factor is another complicated leasing term. It refers to the interest rate (or financing charge) on the lease. It is not the same as the annual percentage rate (APR). If you want to find out the APR, you must multiply the money factor by 2400. For instance, if you see a 2.0% interest rate on a lease agreement, it means the money factor is .002. The true interest rate is 4.8% (.002 * 2400).
Of course, most people do not understand this calculation. They assume the advertised interest rate is the APR, even though it is the money factor. That is how car dealerships get consumers to pay more money in interest unknowingly.
Hidden Lease Add-ons to Increase Costs
It is essential to read your lease agreement carefully. Car dealers like to put add-ons in lease agreements to increase your costs. These add-ons might include extended warranties that you don't even need because the manufacturer's warranty already covers the vehicle. But dealers don't expect consumers to know that, so they'll add those extra fees to the agreement's capitalized cost. Unless you notice the higher monthly payments, you'll end up paying more money than necessary.
First Payment Double Charging
Lease agreements typically require a down payment to cover the first month's payment and other fees and expenses. However, the down payment does not always cover the first monthly payment. If the lease agreement does not specify that your down payment covers the first payment, then you could end up getting charged twice for the first month. Read the contract carefully to make sure this does not happen.
Down Payment and Trade-in Theft
Car dealers will attempt to take your down payment and trade-in without your knowledge. They might do something like remove the words "capitalized cost reduction" from the contract. Most people don't even know what that leasing terminology means anyway. That is why you need to familiarize yourself with this terminology to ensure that nothing important is missing from the contract.
Longer Lease Duration
If you complain about the monthly payments on the lease being too high, the dealer will increase the lease duration to give you a lower monthly payment. But don't expect them to tell you that. They might "agree" to lower the monthly payment, but without telling you about the length extension. If you don't read over the lease agreement carefully, you'll miss the extension information.
Early Termination Fee Deception
Car dealers won't usually talk about early termination fees on a lease agreement unless you bring up the topic. If you don't read the fine print of the lease agreement initially, you could end up paying thousands of dollars in penalty fees for terminating your lease prematurely.
Bogus Wear and Tear Claims
Every leasing company expects their leased vehicle to be returned in the same condition it was in before you drove it out of the lot. That is why your lease agreement will have a provision for excessive wear and tear charges. If you end up damaging the leased vehicle in any way, the dealer could charge you extra money for the damage. It doesn't even matter if it is a minor scuff or scratch. The definition of "excessive wear and tear" is really up to the dealer.
Before you pay this money, take the vehicle to a few independent body shops and have them give you a written estimate on the total value of the damage. If the value does not match the amount of the wear and tear charges, you should not have to pay the money. Contact the attorney general of your state for further assistance or talk to a lawyer.
Early Pay Off Promise on Your Lease
Car dealers want you to keep spending money. To get you to lease or purchase another vehicle, they might offer to eliminate the remaining amount of money owed on your lease. That way, you can get out of that lease and start a new lease or sales agreement.
In some cases, the dealer will transfer the remaining amount owed on the first lease over to the new lease. If you don't make those payments on time, you will be charged penalties for late payments. So, don't expect any dealer to pay the remaining balance on your lease.
If the manufacturer offers an incentive to pay off your lease balance, it is a different story. You can trust such an offer from a manufacturer.
Buy vs. Lease Comparison Lies
When a dealer makes a comparison between leasing and buying a car, do not listen to them. They will attempt to convince you to lease the vehicle because you'll end up paying more money in the end. It is best to make the comparisons on your own. Sometimes leasing is a better deal, but sometimes it's not. You need to find out for yourself.
Total of Monthly Payments Deception
In a lease agreement, the total of your monthly payments listed won't factor in the security deposit, down payment, and acquisition costs. It is only the total costs of the payments without these extra fees added. If you don't research these fees beforehand, you could end up paying an additional $5,000 on top of your total monthly payments.
Balloon Loan Deception
Do not confuse a balloon loan with a lease. Some car dealers will try to convince you to take a balloon loan because it will lower your monthly payments. The only problem is you'll owe a huge balloon payment once the term expires. For this reason, it is better to sign an actual lease agreement with no balloon payment requirement.
Higher Acquisition Fee
Acquisition fees are supposed to cover all the administrative costs. They are around $350 to $1,000 on average. A shady car dealer might attempt to inflate the acquisition fee without your knowledge so that they can keep the difference. If you want to avoid this trick, shop around at different dealers to determine how much their acquisition fees cost. If they cost less, then you'll know the other dealer was deceptive.
Spot Delivery Scam
A spot delivery scam (yo-yo financing) is when a car dealer tells a buyer with bad credit that their car loan has been approved, even though it has been denied. The buyer will take the car home and think everything worked out fine. After a couple of days or weeks, the dealer will call the buyer and tell them something went wrong with their financing. The dealer will give the buyer the option to select a different lender, which will end up having a higher interest rate on their car loans. Since you already signed the purchase agreement, you have no choice but to pay back the car's balance with a new loan.
For this reason, arrange for financing before you sign a purchase agreement. You're under no obligation to use the dealer's financing institution. Go to your bank and request a pre-approval letter from them. Then you won't have to depend on the dealer to arrange the financing for you.
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