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You’ve needed a car for a long time for work, and after researching several auto lenders, you finally have the money you need to make a purchase. Your budget isn’t large – you’re not going to be buying a brand new car. Why pay full price for something that loses half of its value as soon as it leaves the lot?
Instead, you’re looking for a used car. However, buyer beware – you face some dangers, thanks to these used car scams.
How to Spot a Used Car Scam
Table of Contents
1. Fake Protection Plans
One of the benefits of buying a brand new car is that it comes with certain warranties. Scammers selling used cars know this, and they’ll offer you a protection plan, usually through a reputable company you’ve heard of. This makes you feel safe; you’re more likely to throw cash down if you feel you can get it back right away. However, when you call the company up, you’ll find that they don’t offer protection plans on cars not purchased through them. If someone is offering you a protection plan, always call the company it goes through before buying.
2. A Sudden Change In Terms
Imagine once you’ve agreed upon a lender you try to make the deal, the loaner changes a bunch of the key terms. That’s a big red flag, don’t you think? The same thing can happen when you’re buying a used car. Scammers will say whatever it takes to get you interested, but when the time comes to put it in writing, they’ll put in extra effort to avoid following through on their promises. If you’re dealing with someone and they suddenly start switching terms, you should walk away before you lose your money.
3. Cash Advance
If the seller wants to have the cash before you have the car, it’s a scam 90% of the time. This usually takes the form of a money wire or a prepaid card. The seller knows that once you’ve transferred the money, it’ll be impossible for you to get it back. Do not hand over any money until you have the car in hand, and when you do so, it’s best if you do it in a way that the money is traceable and can be returned to you if the car doesn’t work properly.
4. Too Good To Be True
The old cliché is true: if something sounds too good to be true, it usually is. When someone is selling a car, they expect to get market value. If they’re selling it well below market value, that means they need to move it quickly. You should ask yourself: why would someone need to sell their car as quickly as possible? Whatever you do, be wary of anything that sounds too good to be true.
The Buy Here Pay Here Car Buying Scam
In every mid-sized city across America, you are sure to find car dealerships offering “buy here, pay here” options. Glossy flyers and quick talking salesmen advertise 100% credit approval, fast loan applications, and cheap cars to people with low incomes and no credit.
1. Overpriced and Dangerous
These car dealerships known that most of their customers have no other options when it comes to car financing. Their customers are typically lower income, usually non-English speaking, who don’t qualify for good credit and who don’t have access to transportation to dealerships farther away. Many of these scam car dealers are located right on bus stops, easy access for their target market.
“Buy Here, Pay Here” car dealers purchase most of their cars at auction, choosing extremely cheap cars and marking them up many times. For example, a $2,000 car at auction might be marked up to as much as $8,000 on the dealership floor, but the dealers hide the true cost with fees, markups, and through only advertising the monthly rate.
2. How the buy here pay here Scam Works
The dealer will require a down-payment that initially seems like a fraction of the car’s value, but is actually close to half what the dealer paid for their car at auction. The borrower must come back to the dealership every year to pay extremely high interest rates, also allowing the dealer to keep track of them. Typically, these dealers have no grace period on their loans, and they will repossess the car the very second that a loan is delinquent. In order to get the car back, the car that they now repossessed, you would have to pay yet another high down payment. Usually, these dealers make 100% of their money back on each car with just one borrower, and they are able to sell that same car to 3 or 4 borrowers as each borrower falls delinquent and has the car taken back. The same beaten up cars are sold multiple times, each time for predatory interest rates and huge down payments.
3. Alternatives to the Buy Here Pay Here Scam
If you have bad credit, don’t feel trapped into using shady dealerships to buy a used car. In almost all cases, dealerships finance cars at much higher rates than banks, as they have fewer total borrowers to spread out their risk.
Many lenders use internet lending sites to match loan generators with borrowers, allowing borrowers to shop around for the best rates. These lenders will give you a loan agreement that you can take into a reputable dealership of your choice, giving you much more freedom when searching for a car. By separating your car financing and your purchasing, you are able to avoid the high pressure sales tactics and deceptive wording that dealers can use to make your car purchasing experience a nightmare.
Trigger Words Scammers Use To Sell You a Car
Auto dealers have long developed a reputation as fast talking and smooth salespeople, but most auto dealers stop short of outright deceit when they deal with customers. Unfortunately, some auto dealers break the law on a regular basis. When searching for a new or used car at a dealership, be aware of these top five auto dealer scams,
1. “We pay your old car loan, no matter how much you owe!”
When an auto dealer says that they will pay off your old car loan, be sure that you read the fine print. Unscrupulous car dealers will roll your old loan into your new one, adding to the total loan amount and costing you more in the long run (Carty, 2012). For example, if you had a $3,000 car loan, and you walk into a dealership to buy a $14,000 car on a new loan, some dealers will finance the new car at $17,000. Despite claiming to have paid your old car loan, the dealer is just adding it to the new, increasing the interest rate and reaping an even greater profit.
2. “We’ll do monthly payment matching.”
Car dealers will do nearly anything to get a customer, especially if it leaves the customer feeling like they got a good deal. Some car dealerships only advertise the monthly payment of their automobiles, leading buyers to believe that they are getting a car for a cheaper price than the competition. Pay close attention to loan terms; those low monthly payments usually come with longer loan periods and a correspondingly higher total payment over time.
3. Chasing lease agreement by playing with words
According to Business Insider, some auto dealerships will literally steal money from their customers, using confusing wording to change the lease agreements around at the last second. Phrases like “capitalized cost” and “money factor” have little meaning to most people, but they are used to increase loan interest rates and payment amounts (Davies, 2013). Before signing a lease, consider running it by a third party to have someone objectively look at the terms.
4. “We have dealer installed ‘packages’.”
Many dealers will include several options as part of their “basic” car packages that were not installed or recommended by the manufacturer. These options include everything from fabric protection to special lights, but they are always overpriced and unnecessary (Eneix, 2013). Before shopping for a car, know the MSRP of the car model that you want with the options that you require. Refuse to pay extra for dealer options, even if they try to claim that the options come standard.
5. Turning lemons into lemonade (You bought a Lemon Car)
When you buy a used car from a dealer, you have a reasonable expectation that the used car has been inspected and has a clean history. Many dealers with unethical designs on your wallet will buy salvage title cars from states with floods and hurricane damage, transferring those cars over state lines where the titles can be changed. Require your dealer to give you the CarFax or AutoCheck report on your car – as these can’t be changed by the dealer.