While most dealerships are honest and willing to offer the buyer a fair deal, some are only out for money and are willing to use deceptive practices to increase profits. There are many common dealership scams to be aware of. Knowing about just a few of them can help a prospective buyer save money and avoid getting taken. Take the time to learn these common car selling scams and you'll feel more confident when stepping onto a dealer lot.
Trade in Devaluation
Trade-in values are often deceiving because they're not based on market value, but to the value of the car you're buying. Even though the dealership says they are paying $4,500 for that trade-in, they may in actuality be paying nothing for it. When a car salesman knows about the working trade-in number from the beginning of a deal, it's easy enough to raise the price of the car for sale by the amount offered for the trade-in. Raise that $10,000 car to $14,500, and you're paying the value of that trade-in without knowing it.
To avoid this situation problem, choose a car first, negotiate the price for it, and then later inform the dealership of your intention to trade in your old car. Never let them know beforehand, or you could end up suffering from a scheme to get that car for next to nothing with some simple price adjustments.
Guaranteed Trade-in Value
When a car dealership offers a guaranteed trade-in value, that should be a red flag. That's because the dealership doesn't know what sort of vehicle is being traded in and obviously, the money for those trade-ins is coming from somewhere else. Usually, dealerships rely on other incentives to cover that guaranteed trade-in value. Essentially, they're getting trade-ins for free, paid for by an incentive that should have gone to the buyer. Avoid these "special events" wait to trade in your vehicle until a typical day at the dealership so that you can enjoy the benefits of any incentives available.
Loan Coverage Scam
Many dealerships offer to pay off any existing loans, even when there is negative equity. The dealerships swear that they are making the equity disappear, but what they are really doing is wrapping the deficit into the new loan. In the end, this compounds your negative equity problem and makes future vehicles even more expensive. Watch the numbers carefully as you arrange your new financing.
Low Monthly Payment Scam
Many customers focus on payment rather than price, a fact of which dealerships are fully aware. Because of this, many dealerships work to manipulate the structure of the financing to make the payment as affordable as possible. Through extended repayment options, dealerships can offer a reduced monthly payments while protecting themselves with added interest costs and a higher purchase price.
The takeaway here is that you need to be careful how much you pay attention to monthly payments and know the value of the vehicle being considered. Don't wind up paying a premium price for a car just because the payments are low. Consider finding your own financing before going to the dealership. Doing so makes it easier to focus on the actual price of the vehicle, rather than that monthly payment.
As long as you look out for all these common dealership scams, it's easy to avoid paying too much for your next vehicle. With the right approach, it's simple to save money and work a deal that favors you in the end.