It’s generally accepted that obtaining financing for your car purchase in advance is a good idea. If you’ve got the money in hand when you walk into the dealership, that’s one less advantage the dealer has when negotiating the price of your car. It also allows you to really take the time to do your homework and research the terms of any loan you sign, while financing at the dealership is often done in a whirlwind fashion.
In fact, dealerships have a lot of ways to pressure you into signing non-optimal deals and even to scam you. There are a number of common scams out there, and if you’re not careful, you could fall victim to any one of them. Read about three common auto financing scams, how lenders pull them off, and how you can avoid them to get the best deal on your new car.
Don’t Get Scammed
“Spot Delivery” Auto Financing Scams
This is surprisingly common among auto financing scams. Someone purchases a car and takes it home, thinking everything’s okay, signed and sealed. Then, suddenly a couple days later, they get a call from the dealer: “We’re so sorry, but your financing fell through. We need you to come back in and sign a new deal or we’ll have to repossess or report the car stolen.”
This comes out of a clause in some financing terms that makes the purchase contingent or conditional based on finalization of the loan. They usually target people with low credit scores for this scam, which results in you having to sign a new contract at a much higher interest rate. If this happens to you, consider seeking financing from a third-party source and then just pay the dealer for the car. Avoid this scam by asking for written proof of the approved loan before you drive off the lot.
The Trade-in Payoff Scam
When a dealer offers to pay off your trade-in, no matter what you owe, this is actually a hidden way of saying, “we’ll just roll over what you still owe into your new loan.” You’re then not only paying on your new car, but still paying off your old one, too, and usually at a higher interest rate! They might lower your payment by stretching out the term as far out as 72 months, but in the end, you’re way deeper in debt and may be underwater on your vehicle for some time as a result.
The best way to avoid this scam is to be aware of your sales contract. Know exactly what you’re paying, and why. Don’t be afraid to have a lawyer or financial advisor look it over before you sign.
The Lower Payment Scam
This is a basic and shockingly common scam. The dealer calls and asks you to come in and sign a new contract to significantly lower your monthly payments. What they’re actually doing is raising your interest rate and stretching out your payment term. You pay more in the long run and they make more money. Avoid this one by simply turning it down.
If you’re looking to buy a new car, the best bet to avoid scams is to use every tool at your disposal to research your vehicle, get the best quotes and secure financing ahead of time. Check out the various car loan resources we have to offer, and contact us to get started today!