Buying a car? Make sure you avoid these car financing traps (scams, really) as you negotiate your car deal and sign the dotted line. The tips here are from the Consumer Federation of America—an association of non-profit consumer organizations that aims to advance the consumer interest through research, advocacy and education.
Car Financing Scams to Avoid
1. Back & Forth Financing
This happens when you’ve actually already signed a loan agreement—and you’ve even driven your
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Make sure any contract you sign is final and binding—no words like “conditional” or “subject to approval” anywhere on it. Also, to avoid the tactic entirely, you may want to seek financing from a bank or credit union—and compare rates with what you would get from the dealership. Just because you’re buying a car from that dealership doesn’t mean you have to accept financing from them.
2. Dealer Kickbacks
A dealer may assure you that his financing will give you the “best terms” possible. However, many times the dealer offer is not the best due to lender kickbacks that the dealership might receive once the loan is closed; or, the dealer’s lender may pad the interest rate—and pass that higher interest rate on to you—in order to make more money.
Again, you do not have to accept financing from the dealership. Rather, shop around for a car loan and get pre-qualified by a bank or credit union. Then, head to the dealer to shop for a new car.
3. Trade-Ins
If you still owe money on your trade-in, the amount you owe may be more than the car is currently worth. And a dealer may add that amount to your new car loan—in effect, your new loan then is actually paying for two cars: you new one and what you still owe on your trade-in. You may or may not be made aware of this when your new loan is discussed.
One red flag to this practice is if the dealer offers you more for your trade-in than it’s worth. It surely sounds like a good deal at first, but car dealers aren’t in the habit of making car buyers financially better off. If your trade-in is worth less than the amount you owe on it, there’s a good chance the dealer is baking that ‘great deal’ into your new car financing—so you’re really not getting such a great deal.
While it’s not always possible, to help avoid being in this situation, try to hold onto any car you own until the amount you owe on it is less than its resale value—ideally, wait until the full loan has been paid off before you consider using it as a trade-in.
4. Dealers’ Failure to Pay-off Existing Loans
If you’re trading in a car in order to buy a new one, the dealer may promise to pay off any outstanding loan balance you have on your trade-in. However, the dealer may not actually pay off the unpaid balance of that loan. That can affect your credit rating (not his!)
Make sure you any paperwork you sign covers the payoff of your trade-in vehicle’s loan. Be sure to then follow up with the lender on that loan to make sure that the loan was actually paid off by the dealer. If not, you should contact an attorney for legal help.
If possible, either keep your current car until the loan on it is paid off, or try to sell the car yourself and use that money to pay the loan off.
Special note on buying a used car: make sure you ask to see the title before you sign the purchase agreement. The dealer cannot take ownership of the title until any pre-existing loan on the vehicle is paid off.
5. Loan Packing
Car loan packing refers to all those “add-ons” that the dealer “packs” on to the car loan all while telling you they are necessary in order for you to get financing. Add-ons would include things like upholstery protection, GAP insurance, theft-etching, rust proofing, extended service contracts or lifetime oil changes.
Make sure you read your contract very carefully and understand all that’s been included as add-onsbefore you sign on the dotted line.
Source: www.lawyersandsettlements.com
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