At the core, dealers aren’t out to rip you off. But as an informed consumer it’s important to be prepared for potential situations where you meet a more aggressive salesperson with a bag of tricks looking to maximize profits.
Car dealer tricks to watch out for
These are a few ploys some car dealers — even the most legit — may try to run on you when it comes time to buy.
1. The credit cozen
A dealer may tell you that you don’t qualify for competitive rates. And while this may be true in some cases, the salesperson will imply your credit is worse than it is, so you think you’ll have to pay a higher interest rate.
How to avoid: Come in with your credit score on hand before you sit down with the dealer so they can’t trick you. Better yet, get preapproved for an auto loan so you don’t have to rely on dealership financing.
2. The single-transaction strategy
Many people view buying a car as one transaction. It’s not, and dealers know this. It’s really three transactions rolled into one: the new car price, the trade-in value and the financing. All three are ways for the dealer to make money — and that means all three are places you can save.
How to avoid: Treat each transaction the same way the dealer does: separately. In fact, you can shop your trade-in at multiple dealers to get the best price. And coming in with common sale prices for the car you’re interested in will help you keep the salesperson honest.
3. The payment ploy
The sales or finance team might throw out a great monthly payment — one that you reasonably could qualify for. But there’s often a catch. In some cases, the dealer may have factored in a large down payment or stretched the term of the auto loan to 72 or 84 months.
How to avoid: Focus on the price of the car rather than the monthly payment. Never answer the question, “How much can you pay each month?” Stick to saying, “I can afford to pay X dollars for the car.” You should also make sure that any price negotiated is the full cost of the vehicle before your trade-in or down payment is applied.
4. The sticker shenanigan
The vehicle price listed on the window is what is known as the manufacturer’s suggested retail price, or MSRP. But that isn’t what is most important. You want to know the invoice price — the amount the dealer paid for it. Working from the invoice up is much easier than trying to cut from the MSRP.
How to avoid: Find out what cars are selling for after considering any consumer and dealer incentives. Some hot cars go for sticker price and above. Be patient and wait: The prices will fall as demand lessens.
5. The holdback hustle
Manufacturers often give cash incentives — sometimes called holdbacks — to dealers to encourage them to move slow-selling models. This typically isn’t mentioned in advertisements.
How to avoid: Search for holdbacks or other factory-to-dealer incentives available for the car you are considering. While it’s not a given that the dealer will apply any of these funds to the car you like, it doesn’t hurt to ask.
6. Spot delivery financing
Some dealers have been known to call customers days or even weeks after they signed a purchase agreement to tell them that the financing fell through. It’s a scam. Spot delivery, also known as spot financing, is designed to get you to sign a loan contract at a higher interest rate.
The dealer can know if you qualify for financing almost instantly. The goal of the later call is to get you to agree to a loan with a higher interest rate because, according to them, they just found out you didn’t qualify for the quoted lower rate.
How to avoid: Never leave the showroom without signed contracts that spell out every detail and with every blank filled in. Confirm that you have been approved for the financing your dealer offers. If you have that, they can’t retreat on the financing.
7. The insurance illusion
Some dealers may try hard to get you to purchase an insurance policy when you’re buying your car. One type, gap insurance, covers the difference between what the car is worth and the amount you still owe on it. It’s usually just an extra expense, but if you do want it, gap insurance is generally cheaper when purchased from your regular car insurance company.
Another favorite, credit life insurance, will pay the balance of your loan if you die before you’ve been able to repay it.
If these policies interest you, you will want to understand what you are purchasing, and that you can decline it and shop around for better prices. The markup on these policies at the dealership can be enormous, in part because the insurance companies that sell the policies to the dealerships offer them huge incentives — everything from cash to first-class trips — to push the policies.
How to avoid: Don’t automatically agree to the insurance policy offered. Some insurers include the benefits of gap insurance in their regular comprehensive automobile coverage, so check there first. As for credit life insurance, you’ll more than likely want to simply avoid it. In most cases, it won’t make sense for you.
8. The rate razzle-dazzle
It certainly sounds tempting — 0 percent interest to finance a new car. However, this deal may not be the best one for your pocketbook. For starters, most financing incentives are for shorter terms, and you need a stellar credit score. And with short-term loans, such as 24 or 36 months, payments on even a moderately priced car can be sky high.
In addition, you may be better off finding your own financing and then taking the dealer rebate if one is offered. Say you’re looking at a $20,000 car and will get $4,000 for your trade-in. You can choose between 0 percent financing or financing at 3.49 percent with a $2,000 rebate. The term of the loan is 36 months. Over the course of the loan, you’ll come out ahead by more than $1,200 if you take the rebate and the 3.49 percent financing.
How to avoid: Use an auto loan calculator to compute the actual dollars over the term of the loan to figure out what deal suits you best.
9. The rollover ruse
It can be tempting to trade for a more expensive car before you have finished paying off the car you’re currently driving. One way that some car buyers do this is by rolling over the remaining payments on their current car into a new car loan or lease.
This is a risky move. You will end up owing more on the second car than it’s worth. In the parlance of the automobile world, you’ll be “upside down” on the vehicle. If it is totaled in an accident or if you decide down the road to trade it in, you will end up writing out a big check to cover the remaining amount of the loan.
How to avoid: You don’t want to roll over an old car loan into a new one. Instead, try to get a good price for it as a trade-in or through a private sale. And if you can’t, stick with it. Unless you desperately need a new car, there is no reason to buy a vehicle before you have paid off your old one.
10. The long term trick
There is nothing illegal or even deceptive about dealers offering loan periods extending out six or seven years. After all, many cars last longer than they used to, and longer loan terms mean your monthly payments are lower. Still, it’s not ideal. You are likely to continually owe more on your car than it’s worth because your car is depreciating faster than you’re paying it off.
How to avoid: If you are considering a long loan period, you probably should scale back to a less expensive car that is better suited to your budget.
11. The balloon bamboozle
Similarly, some dealers will encourage you to purchase a car for unrealistically low monthly payments now but with a much larger balloon payment at the end of the loan period.
In a few cases, this can be a legitimate way to finance a car. For instance, you may have just graduated and can realistically assume that your income will rise by the time the balloon payment comes due. But for most people, a balloon payment just means rolling over the remaining balance into a new loan.
How to avoid: Be wary of these offers and know that your financial situation may change by the time the balloon payment comes due, and you may struggle to pay it.
12. Bait and switch
The bait and switch happens when you go in looking for one car and the dealer manages to get you behind the wheel of a different one. Dealers may use deceptive strategies to get you on the lot, only to tell you the car you want isn’t available and then try to sell you on something else, often at a higher price.
How to avoid: Stick to what you want. If you did your research and know what you are looking for, then there’s no need to second-guess yourself. Wait it out or try another dealer that does have the car you want.
13. Contract cons
Keep an eye out for clauses tucked into the fine print that you might otherwise miss. They might come in the form of changes to the loan term, add-ons that you never agreed to or other services that can lead to significant costs.
A legit lender won’t try to dupe you like this, but it pays to be careful. If you notice any discrepancies, point them out. And if the dealer isn’t willing to fix it, walk away.
How to avoid: Read over the contract carefully. Ask about all charges and make sure the terms are clear to both you and the dealer. Make sure you keep a copy of the contract in case anything comes up later down the line.
The bottom line
Buying a car isn’t supposed to be an experience where you feel tricked and walk away feeling like you overpaid for your vehicle. Knowledge is power, so consider these common dealer maneuvers to ensure you aren’t getting tricked.