Seven Tricks a Car Dealership Financier May Try to Trick You
Buying a car is one hell of an experience. Beyond the cost ( nearly $50,000 for the average new car these days!), you’ll be in for a grueling battle of wills. No matter how well you prepare, going to a car dealership can sometimes feel like entering a battle because everyone there is trying to take advantage of you, even if you know exactly what kind of car you want.
Unless you’re paying cash , the hardest part of the car buying process isn’t communicating with the salesperson. He deals with financiers. The finance manager at your typical car dealership is often the highest paid person there, and for good reason. They are the ones who really work to ensure that the dealer gets as much money out of you as possible. They have a long list of sneaky tricks they use to get you to sign a contract that may not be the best deal you could get, or even the deal you expected to get. Here are the tricks to watch out for after the seller hands you over to financiers.
We draw your attention to the wrong number
When you’re financing a new car, there’s one basic thing car salespeople always try to do: focus on the wrong number. The number they usually want you to pay attention to is the monthly payment . They’ll ask you what your budget is, then probe you to see how high you can actually go, and then work backwards to arrive at a deal that hits that monthly number but will make them the most profit in the long run. Common tricks include the infamous “Four Square” where the salesman writes down the numbers, speaks quickly, crosses them out, and helps you see that monthly payment and nothing else.
Even if you beat Four Square and negotiate an open price for the car and a financial deal you can live with, that monthly figure could still come back to haunt you. One trick to watch out for is monthly numbers that are only slightly different from your expectations – they’re close to what you agreed on, but not quite right. Which means it’s time to take a hard look at this contract because something has changed. They may have added fees or something else to the total cost, and when it’s amortized over several years, the extra charge is small and they just hope you don’t notice.
Game with exchange value
If you’re selling a car as part of your trade-in, the seller may be proud to tell you that he’ll value the trade-in for the same amount you owe on it . And that’s great if it’s true. The financial professional can estimate the trade-in amount at a lower price, then roll the extra money into the overall lending principle – and since they have incentives to make loans, more is better (for them). It’s probably illegal in your area, but that doesn’t stop them from making “honest mistakes” sometimes.
Add-ons that unexpectedly increase the price
You’ve closed the deal and are quite happy with the price you got for the car and the financing terms. Then you meet with a finance professional and suddenly the price and payments go higher because the long list of features and options you thought were included in the price weren’t. Now you’ll have to choose between paying more for the car you thought you’d get or starting the process all over again to end up with a smaller car than you want.
Surcharges to interest rates
If you’re financing your car purchase through a dealership, you should still look elsewhere for financing, if only to know what the available rates are. Because dealerships often increase their interest rates to make the deal more profitable for themselves. They call their lender and get a rate of, say, 6% on your car deal. But when they present the financing numbers, the rate is 8% because the financiers raised the rate—the dealer gets that extra 2% charged on the loan. Always ask if the rate in the contract is the dealer’s “buy rate” or if they include some extra points without telling you.
“Yo-yo”
It’s a lot less fun than it sounds. It works like this: you negotiate a deal and buy the car. You are driving the car home. You love the car. Then, a few days later, the dealer calls you and tells you that you were denied financing, so you will have to come back and renegotiate the deal. Often, if you check the paperwork that the finance professionals gave you, you will find fine print that states that the sale is not final and that the dealer has the right to cancel the sale if they need to. They’re counting on a version of the sunk cost fallacy that will force you to negotiate against yourself and pay more for the car.
All you can do to protect yourself from this is to obtain outside funding and read your documents carefully. Look for language that allows the dealer to cancel the sale—keywords like “conditional” or “not final” often hint at this. If you see something you’re not sure about, ask directly, and if you don’t like the answer, walk away.
Combining several conversations into one
Buying a new car isn’t one simple transaction: you’re likely doing two or three separate things in parallel. You’re trading in a car – essentially negotiating a selling price for your old car; you negotiate the price of a new car; and you negotiate financing terms.
Finance people at dealerships like to lump these negotiations into one huge, convoluted deal. That way, if you give up on one aspect of the deal, they can make up for it in others. For example, let’s say you decide you don’t get enough value from the trade, and you insist on getting another $500 for it. The dealer reluctantly agrees and adjusts your financing terms to get that $500 back. The more confusing and interconnected a package is, the harder it is for you to know if you’re getting what you really want. The only real defense is to insist on separating these negotiations so that you can clearly see what each one looks like.
Adding “standard” items without asking
Sometimes you talk to finance professionals and suddenly the price you agreed on ends up higher on the paperwork because they’ve gone ahead and added “standard” things like delinquency insurance (which covers the value of your car if you total the car and your insurance doesn’t cover the remaining balance on the loan) or extended warranties. They often claim that the price you agreed on is still valid – it’s the cost of the car , not the extras. They also often imply that these are some kind of mandatory fees and not add-ons.
Insurance and warranties in case of problems may be a good idea , but you should know the cost before you are presented with a contract. And dealers will sometimes add them even if you already have your own insurance, which will almost certainly be a better deal for you overall.