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How to avoid car loan packing

By Naomi Mannino ·
Friday, May 11, 2012
Posted: 4 pm ET

Buying a car and taking out a car loan at a dealership can be a tricky business for the consumer, but car salesmen defend their tactics by saying its their job to satisfy consumers and make a profit for themselves and for the dealer. They can’t earn anything if they are selling every car at the manufacturer's invoice price, right?

According to a recent report by the Center for Responsible Lending titled, "Under the Hood: Auto Loan Interest Rate Hikes Inflate Consumer Costs and Loan Losses," consumers generally think they are getting the best deal they can. But  interest rate markups, purchasing loan add-ons (called "loan packing"), yo-yo sales and rolling in negative equity all can inflate a deal's total cost in a way consumers don’t generally understand will cost them more money.

Carroll Lachnit, features editor for, says she experienced loan packing firsthand when shopping for a new car recently. She researched the invoice price and True Market Value (an tool that allows you to see what people are currently paying for the same make and model in your region), sold her own trade-in, and shopped her own financing so she was informed about every aspect of her deal. Upon signing her final papers, the Finance & Insurance, or F & I, manager worked his magic on her with a litany of extras to add on to her loan. When he mentioned a three-year wheel and tire warranty for the run-flat tires she’d heard bad things about, she decided to add it on.

"They definitely got an extra $2,000 out of me, but I don’t feel like I got sold because I had done the research. I feel like I got a lot of peace of mind out of it," says Lachnit.

Lachnit's take-away:

  • Watch out for unnecessary  pre-loaded "front-end" extras such as rust-proofing, clear coat and mudflaps that simply inflate the price of the car, but add no extra value to the car. To save money, you can simply ask for (and wait for, if necessary) delivery of a vehicle that has none of these extras.
  • Research purchasing  "back-end" add-ons such as a custom accessory, a warranty or gap insurance elsewhere so you know the actual prices, generally marked way up when sold from the dealer and packed into your loan.
  • Remember that any time something is added to your loan, you are paying interest to buy it. You can likely purchase it cheaper elsewhere for cash.

The sales representative will say you are protecting your investment, so be informed whether loan add-ons are necessary or not.

Have you ever experienced car loan packing or bought more car than you planned?

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1 Comment
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