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Scam
#4: The "Forced Warranty" Scam
How the scam
works: An old one that's still in
use. You're in the business office of the "AutoMaul",
ready to sign the papers when the LieNance
manager
says you MUST buy a $2000 extended warranty "because the bank requires
it, or you won't get the loan". Let's analyze the stupidity
factor of this one, shall we? The lender is worried about your ability to
pay back a loan on a $25,000 car, so they want you to add another $2000
to the loan to qualify? Please! Many suckers fall for this and the
credit life scam. Some dealers don't even tell you that you're buying
a warranty. They may lie and say it's a buy down fee "to lower your
APR", like points on a mortgage. Car loans don't work this way.
Just think, if you paid cash for the car or came in with your own financing,
they could not pull this scam on you could they?
It's amazing how many people complain to me that they did not see it on the
paperwork until they got home! I guess during the 20 minute drive from the
car dealer to their house is when they mastered reading. If I live to be
100 I'll still never figure out why they don't look before they sign.
People will spend more time analyzing a $2.00 watermelon in the grocery store
than they do for a $20,000 car! How to avoid
the scam: Have them to put it in writing that the warranty
"is required to be approved for your loan", so you can
show it to your State Attorney to get their opinion of its validity.
Watch how quick they back off. Read our Tips
For Getting A Good Car Loan and avoiding scams. Also read
our Extended Warranty
Scams & Buying Tips. This scam works on people with bad
credit and may also "require" you to buy credit life insurance, or "your
APR will go up". One of our visitors sent us her Ford paperwork with
extended warranty, credit life, and disability for $3385! Do they want
to sell you a car or insurance? If they refuse to remove the extended
warranty, remove yourself from that devilship immediately. (Oops,
I meant to say dealership). Many dealers sell you mechanical breakdown
warranties, which are lame compared to the superior wear and tear warranties
offered online. Also, dealers typically charge $500-$700 for
Gap Insurance, which you can get
online directly from companies like
Gapinsurancequotes.com
for half the price that car dealers sell it for.
So if the dealer tells you the bank requires gap insurance, tell them you will
go get it yourself. Another
way to avoid the scam: DON'T FINANCE AT THE DEALER with bad
credit.
Finance your car online or at a credit union. They won't
force you to buy a warranty. Now you just eliminated
the dealer's excuse to force a warranty down your throat. If you get a
loan from a bank, credit union or online lender, they don't force a warranty or credit life on you, so
why would a dealer? Why does APR matter whether you buy a warranty
or not? It's all cash flow shell games folks, remove their shells, and no more games. |
Don't fall into the gap!
If you owe more on your car than it is worth, if you lease, or if you put
down less than 20%, you should get
Gap Coverage from your
insurance agent. Most people refer to it commonly as gap insurance". Don't
even bother buying it from dealers, they charge $500-$700 when you can get it
online directly from the source for less than 1/2 the car dealers.
If you owe $20,000 on your
car, but it's only worth $16,000, you're upside down. You total
the car, or it's stolen, your insurance company gives you $16,000. You must still come up with $4000 to pay off
the bank, plus your $500 deductible! Gap coverage protects you against
this. The better ones cover up to $500 of your deductible.
Scam
#5: The "Dealer Prep" Scam (Excessive Fee)
About This Fee:
A better definition here is "Excessive Charge", since this is not really a
fraud, nor is it illegal per the literal definition of "scam". Most dealers do
adequately disclose this fee on their paperwork. Many dealers even admit that
its a way for them to recover some of their "losses" when discounting the car off MSRP retail price.
But our position is that it is too excessive, and since it is printed
permanently on their buyers form, what about the case when you pay full price on
the car, now you have to pay up to $500 more in fees? Why don't you get to
charge dealers a shopping around fee for all your labor hours? Car dealers convince you that a team of NASA experts
performed a 3 day 15000 point check of your car. Dealer prep "covers
their cost" of removing plastic from the seats, vacuuming, adding fluids,
and preparing it for sale. Total time: 2 hours max.
I've been there when picking up my new cars and know how long it
really takes. Tons of our visitors report back that they convinced their dealer
to drop this fee.
But most MSRP stickers show these
costs are covered by the car maker, so why does the dealer still charge you? Here's the MSRP
sticker from my Lexus:
See What I mean? It very clearly
states that pre delivery service is included.
The factory pays the dealer for this
pre delivery service. The day my Lexus SC300 arrived, I waited as
it took the dealer 2 hours to peel film and cardboard, install fuses, check
the liquids, perform a 10 mile test drive, and hand me the keys. I got
out of paying it. If a dealer charges a $500 dealer prep, you're paying
them $250/hour for just 2 hours of work! Do YOU get paid $250 per hour? Are you boiling mad yet?
If they charge dealer prep, they may be double collecting. How to avoid
the fee: Often it's permanently printed on the buyer's order
to make you think it's mandatory, but many people make the dealer remove it by
adding a credit on the next line. So if you see a $500 dealer prep on the
form, have them add a -$500 credit. If they
won't budge you need to decide how bad you want that car. I have
no problem walking out of a dealer over a $500 fee. Go to the next dealer on your list, and tell them "Here's the deal.
Drop the dealer prep, and the deal is yours". Remember, Dealer Prep
is not illegal, either you agree with it, or you don't. |
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Scam
#6: The "Additional Dealer Markup (ADM)" Scam
How the scam
works: These are bogus charges added by greedy
dealers. It means "Additional Dealer Markup" or "Additional Dealer
Profit", and usually appears on an orange sticker next to manufacturer's MSRP sticker. I call it Arrogant Dealer
Markup. ADM gives them an artificial buffer to bargain down the
price, or worst case, it gives them more icing on the cake when they are already
selling you a hot car.
In 2001 when Honda Odysseys were in such hot demand, car buyers were
paying $2000 over MSRP, thanks
to bogus ADM fees. Honda dealers also had the audacity to charge
people dealer prep, ad fees, and throw in overpriced extras like $350 Window
Etching, and $300 Scotch Guard. The
VINetcher Do-It-Yourself VIN Etching Kit
is only $19.95! If you bought a new Odyssey or PT
Cruiser in 2000 or 2001, you really had the screws put to you. If ADM is $2000 and you talk them down $800,
you still paid $1200 too much! One reader bought a Honda
Civic and the dealer tacked on a $1995 ADM! Luckily she got them
to drop it. "Trade in buyers", who only care about what they are getting for their
trade in, fall for this one a lot, because they don't concentrate on the
entire deal. The dealer gave them an extra $1000 for their car, an
now they are so euphoric they don't see the $2000 ADM. The dealer just
sold them a new car for MSRP, got their $1000 back, and made another $1000 off
the buyer. In April 2002, our local Mercedes dealer had an ADM sticker of
$20,000 on the 500 SL Convertible, when there was an 8 month back log. How to avoid
the scam: If you see this toxic waste, have them nix it.
You must realize that when you sell the car later, the market value is
based only on a depreciated value from MSRP, not MSRP + ADM. A future
buyer of your car could care less that you paid $2000 over MSRP, because
vehicle depreciation pricing only accounts for the MSRP. |
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Scam #7: "We'll Payoff Your Loan OR Lease No Matter How Much You Still Owe!"
How the scam works:
These are common ads on the radio and newspaper all the time. They rely on
your brain to trick you, as if the obligations of your current lease or loan
just magically vanish. You can't just dump a lease, it's a contract.
By breaking the contract, penalties are stiff, in the thousands. They
do get you out of your current lease, but these payoff penalties must be
paid to your leasing company to end the contract. They are not doing anything
at all for you, they just want your trade in so they can give you far below
market value for it, while selling you a new car at a high profit. Then they
resell your trade in for a high price. Here’s how the scam works: If you are upside
down on your car loan and you still owe $10,000 for it, the dealer pays off your
loan, then you owe that $10,000 to the dealer. This gets financed along with the
$15,000 car you are buying, now you are financing 2 cars for $25,000! Did
you know that?
Your
payments are spread out over 60 or 72 months so you don’t notice what just
happened. The more months they add to the loan, the lower the payments so you
don’t notice. In fact, it's possible that the payments could be less than your
current loan, so you think you're saving money when you just got shafted! Their ad made you think that trading in a car relieves you of your
obligation to that car. It does not! This gets many, many, many
people into trouble. You are actually taking on double your current debt, when
you thought you were dropping one debt for another and buying a new car. They lied to you in their ad.
Sure they did get you out of the lease or loan, but
you are not really out of it. They dipped you out of it and then dipped
you right back into it under their umbrella of debt. Very clever trick,
but now you're onto them. Next time you hear those ads, you'll know what
they're up to. Here's how ads would be
worded if they were truthful:
"We'll Get You Out Of Your
Current Lease, then we'll roll what you
still owe plus penalties into your new purchase,
so you can payoff 2 cars!" How to avoid the scam:
If you are in a lease now, it's best to stay in it until the end. Ride it
out baby, you slaughtered the cow, now you have to eat it. If you are upside
down on a loan, now is not the time to trade in the car. You need to wait
until the car is worth more than what you still owe on it. Try selling it
privately. By mixing a trade-in with a new car purchase, you will lose the
maximum amount of money possible. Don't ever think you walked away ahead
on a trade in. No one ever has. No one ever will. |
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 Scam #8:
The Previously Wrecked Used Car, Sold "As Is" Scam.
How the scam works:
The dealer tries to sell you a car that has previously been wrecked, only they
tell you it's in great shape, or lie about the wreck, or in some cases, they
were honestly unaware the car was wrecked. The car has the federally required
Buyers Guide sticker with the words "As Is, No Warranty" on it, which means you
are buying this car and assuming all risks, and cannot return the car, because
you agreed to all accept any damages that accompany your "As Is, No Warranty".
Even
"Certified Used Cars" can be previous wrecks, as we were surprised to find once
after running the VIN on a certified used Lexus. We get emails all the
time from people who believe the dealer when they are told the car was never
wrecked, then they find out a few weeks later when they bring it in for service
that it was wrecked. When they confront the dealer, they are reminded that
they signed an "AS IS" paper, and have no recourse, because they can't prove
anything. The As Is paper is the best alibi the dealer has to fall back on.
You however, have nothing to fall back on.
How to avoid the scam: Never ever buy
a used car from a dealer "AS IS" with no warranty. Always try to get at
least a 30 day warranty. If the car really is the cream puff they make it
out to be, let them back that up with a 3 month warranty. You should always
run an AutoCheck report on any used car before you buy, no exceptions. That's how we found
that a Lexus dealer's Certified Used Lexus had been in a wreck. Always have a
mechanic put the car on a lift BEFORE you buy. They can tell you in 30
seconds if the car was wrecked. Many people fail to perform these
crucial 2 steps. If you don't do these steps, then DO
NOT buy that car. |
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Scam #9: The "Your Bank Bounces Checks" Scam
How the scam works:
The dealer sees that you brought a bank draft from your credit union, or one of
the finer online car finance sites such as Capital One Auto Finance or Up2Drive.
Not wanting to miss out on the extra gravy provided by selling you on the car
dealer's financing, they refuse to take your bank draft, lying to you that your
"bank bounces checks." They will say "we no longer take checks from them, their
checks always bounce". But gee, the dealer is willing to provide you
financing, though at higher APR.
Some
salespeople stop at nothing. If your bank really bounce checks,
we'd hear about it via federal investigations, like the morons from Worldcom, Adelphia,
and Global Crossing. I get daily emails from
people who financed with
Capital One Auto Finance and Up2Drive
with no problem. My friend financed 2 used cars with
Capital One Auto Finance.
Another financed his house through E-LOAN. Besides, E-LOAN wires the money
directly to the dealer's bank account, so it's impossible to "bounce a check".
There's nothing wrong with dealer financing if they can beat your best APR.
If not, you should use your financing. Unless you qualify for a
manufacturer's 2.9% financing, your online banks will beat the local banks used
by dealers most of the time, and online lenders often beat your credit union
rates too. Regardless of their reasoning, if they refuse to take your
online financing, you can just refuse to buy the dealer's financing... and the
car too!
How to avoid the scam:
Ask the lie-nance manager what bank they use for car loans. When they tell
you, say that you refuse to do a loan with them, you heard they bounce checks.
Then point out to the finance manager that you're onto their scam, online
banks have been in business for years and are in the business of writing loans
and not bouncing checks. Then get up to leave. There is no reason for you to
pay a higher APR, when you are already approved at a lower APR.
You should also file a complaint with your state
Attorney General's Office,
because we need to make this scam illegal for dealers who force you into
higher APR financing. I get emails on this scam daily, and if the state attorneys
do not know this is going on, they can't help us consumers. The federal
government should wrap this into the Truth In Lending Act. Here's our link
to all 50
Attorney General's Offices. |
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Scam
#10: The Forced Credit Application Scam
How the scam works:
You decide not to finance your new car, or you bring your own bank draft from a
major car finance company. You're in the finance office with your bank draft or
money order, and paying in full. The LieNance manager tells you that you
must still sign a credit application. They usually will tell you one of the
following Jedi Mind Tricks:
1) "State
law requires you to fill out a credit application."
2) "Everyone that buys a car through this dealer fills out a credit
application."
3) "It's company policy."
Somebody
find me a state statute that requires a cash buyer to fill out a car loan credit
application. Won't happen. If you are paying in full, there cannot
possibly be any legitimate reason for the dealer to make you fill out a credit
application, which drags down your credit score about 5 points each time someone
other than you runs your credit report. If your FICO score was 680 and
they run your credit report, they just caused you to drop from a prime borrower
to a sub-prime borrower. Why do they do it? Who knows, maybe they
think they can convince you to finance through them.
How to avoid the scam:
You are in control of the deal, not them. You can just get up and walk out.
They have to stay there and mop up the mess they created. Anytime a dealer
tries to force you into financing that you don't want, without any regard to the
damage they are doing to your credit history, you should leave immediately,
because they don't deserve your money. |
Don't forget used car scams too!
In our chapter
How
to buy used cars and avoid scams
we tell you about buying used cars and scams to
avoid. In a nutshell, here are our top used car buying tips. By
doing just these 4 things, you can eliminate most issues associated with buying
used cars.
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Our Top 4 ways to prevent
used car scams
1) Have a mechanic put the car up on a lift
for inspection and to check for accident damage.
2) Run
a Vehicle History Report
to see if it was totaled, salvaged, rebuilt, flooded, failed
inspection, odometer rolled back.
3) Never sign an "As Is" paper at a used
car dealer, get at least a 30 day warranty included.
4) Have your own financing and loan
approvals ready BEFORE you go shopping, not after. |
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Bonus
Scam: "We lowered your payments!"
Bone-Us
Scam: Ok, here's one more for the road, we got a couple of
complaints about this starting in November 2002, and it could be a good
candidate for next year's Top 10 List. I call it the "We lowered your
payments" scam:
About a week after you drive home with your
new car, the car dealer calls you up and says "Great news! we were actually able
to get you into a better loan with a lower monthly payment and less APR! Just
stop by when you get a minute, and resign the papers to get your lower payment."
You go down to the dealer to re-sign the paperwork, and this is where a huge red
flag should shoot up for you: You notice that they changed your loan from 48
months to 60 months, or even 72 months. What they did in reality was
increase the APR on you, then to mask their crime, they spread out the loan over
more months, which drives down the monthly payment, and yes there are people out there who believe the dealer and think they are actually paying less.
This does not even pass the common sense test either. With most banks, if
you increase the number of months in the loan, the APR goes UP, not down!
So who are these losers trying to kid? Make sure you point that out to
them.
How to
avoid the scam: If they call you later, just say "No thanks, I like
my payment just the way it is." Then hang up on them. If you really
want a lower rate, go refinance, or start sending in extra principle, it has the
same effect. But changing an existing deal, is always a dangerous
proposition, and you can bet you will not come out ahead. |
Get The Credit
You Deserve
Going to a dealer without
knowing what's on your credit report is about the most stupid thing a human
being can do. Before entering a dealer you must get a copy
of your credit report. Many people are scared because they don't
know what's on their credit report or how it will affect their chances
for car financing. You also want to make sure that they list your
latest salary increase. Dealers know that almost everyone has a bad mark
on their report, and they make good use of it when they find it.
You get an erroneous notice from a credit card or bank saying "we never
got your check". You call them up, find out it's their mistake, no
problem. But many people are shocked to find out this error made
it onto their credit report! This is why you must get your credit report
BEFORE
the dealer does.
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Great Online
Sites To Get Your Credit Report:
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Experian Online Credit Reports A great place to get your
credit report instantly online. You get a thorough credit report
in 30 seconds from one of the big 3 credit bureaus. They are strict about
security so if you type one bit of data incorrectly or have moved in recently,
you won't be able to get your report instantly. Instead they'll mail
it to you about a week later. We send all our friends and family there,
because it's so easy to use. Equifax Online Credit Reports Equifax is one of the big 3 credit
bureaus in the U.S. Most creditors who run your credit profile use
Equifax, as they are the most thorough. Usually when you apply for
mortgages and car loans, many lenders get your credit report from 2 of the
big 3 credit bureaus, and you can be pretty sure Equifax is one of them.
By using the same credit reporting agency as the bank, you'll be in sync
with what they see. Inferior credit bureaus may not have all the
information that the Equifax report has, and this could lead to you getting
rejected on your loan.
TrueCredit
lists your credit report online instantly. You can also have a merged
report from all 3 credit bureaus mailed to your house in a few days. If you have
never seen your credit history before, you should get the 3 in 1 merged report
with FREE Score. The score is
a numerical depiction of your creditworthiness, they explain the factors
that influence your credit standing, and what items on your report are
keeping you from getting approved. Until 2000 legislation, you were
not allowed to see your score. |
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A Look Back: Top 10 Scams from 2001
1) The "VIN# Window Etching"
Scam
2) The Financing Fell Through Scam (Spot Delivery Scam)
3) The Straw Purchase Scam
4) The "Forced Warranty" Scam
5) The "Dealer Prep" Scam
6) "Additional Dealer Markup (ADM)" Scam
7) "We'll Payoff Your Loan No Matter How Much You Still Owe!!!"
8) The "Forced Credit Life Insurance" Scam
9) The "Leasing Is Better Than Buying" Scam
10) Hide The Monroney (MSRP) Sticker Scam
Click here to see the details from the 2001 Top 10 Car Dealer Scams.
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Another Look Back: Top 10 Scams from
2000
1) The "Window Etching" Scam
2) The "Forced Warranty" Scam
3) The "Forced Credit Life Insurance" Scam
4) The "Dealer Prep" Scam
5) The "Additional Dealer Markup (ADM)" Scam
6) The "Leasing Is Better Than Buying" Scam
7) "We'll Payoff Your Loan OR Lease No Matter How Much You Still Owe!!!"
8) The "Bait & Switch APR" Scam a.k.a. "Spot Delivery Scam"
9) The "Disappearing Rebate" Scam
10) The Deposit Check Scam
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Top 10 Car
Dealer Scams Of 2002 and 2003©
We've been
reporting car dealer scams since 1996. We are proud (or should I say dismayed)
to present our 6th annual list of the "Top 10 Car Dealer Scams"
that you are likely to encounter, based on our research from over 9000 visitors daily. We analyze many problem car
sales and leases faxed to us by scammed consumers, and we collect all the complaints we receive each
year and compile this list of currently running scams at some car
dealers. These scams are real, and they happen to people every day. Many car
dealers are honest, but this Top 10 list deals with the dishonest car dealers.
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friend (Click Here).