With the possible exception of setting up a new cell phone account, obtaining financing for a car is one of the most confusing and frustrating transactions most of us do in our lives.
While there are plenty of reputable and caring auto dealers and lenders out there, there are also plenty that have no problem making a quick buck at the customer’s expense. Their tactics, while not necessarily illegal, can be downright shady and end up costing you a lot of money.
Let’s take a look at some of the most common auto financing scams:
Payment Packing – This is when a dealer adds high-margin products such as extended warranties, upholstery protection or credit life insurance to your loan, which increase your monthly payment without you realizing you’re being charged.
Most car shoppers focus on what their payment will be on the car they like and assume the monthly payment only covers the cost of the vehicle. However, most lenders will allow additional items to be included in the loan. Dealers often take advantage of this. For example, depending on the interest rate, $2000 for the extras could add $30-$40 per month to your payment.
Before signing anything, you need to be provided, in writing, the exact sale price of the car, the total amount financed, the length of the loan, and the interest rate. By knowing these figures, you’ll know if anything has been “packed to your payment.”
Yo-Yo Financing – This type of scam normally targets those with less-than-perfect credit because they have fewer options.
In this scheme, you apply for financing and leave the dealership with the car, thinking everything is OK. Soon the dealer calls and says the financing didn’t go through. The dealer then pressures you to sign a new financing contract, most likely with less favorable terms, or return the car. The dealer will often threaten to charge you for wear and tear on the car or even a daily rental fee for the time you’ve had it if you choose not to refinance.
We recommend, if possible, going to the dealership with financing already secured. You will most likely get a better interest rate with a bank or credit union you already have an account with.
Loan Modification – Consumers facing possible repossession because of overdue payments are targeted in this scam. The borrower answers an advertisement in which a company promises to lower the borrower’s payments by renegotiating loan terms or finding new financing. The company charges a fee of $100-$200 or more for the service and instructs the borrower to stop making payments. The problem is the company doesn’t do anything, the borrower’s car is repossessed and he’s out the money he paid the scammer.
Avoid anyone claiming to be able to modify your loan. If you have difficulty making your payments, contact your lender directly. Explain your situation. Often lenders will be willing to defer payments or extend the term of your loan.
Guaranteed Approval – Steer clear of dealers that offer guaranteed approval. This scam falls under the “If it seems too good to be true, it probably is” category.
With this promise, many dealers lure to their lot customers who have less-than-perfect or even just plain awful credit. The chances are those borrowers will be approved, but at eye-popping interest rates and terms, possibly including substantial upfront fees. Some buyers have relatively decent credit and qualify for a moderately higher, yet affordable rate. Other borrowers, however, accept the outrageous terms simply because they desperately need a car.
It is always best to educate yourself and avoid a scam altogether. If you think you’ve been scammed, phone the Better Business Bureau at 419-223-7010. We can explain options that may be available to you.
Reghan Winkler is executive director of the Better Business Bureau serving West Central Ohio. The BBB may be found on the Internet at bbb.org/us/oh/lima.
