by Olivia Emisar

Created on: October 05, 2010   Last Updated: October 06, 2010

Getting a car loan through a car dealership is a bad idea regardless of the customer’s credit history. Car dealerships can easily scam customers with complex loan contracts filled with hidden and unnecessary fees coupled with hefty interest rates.

• The pre-approval scam

The dealer informs the customer of a bogus low-ball interest rate that is “subject to approval” but requires signing on the dotted line first. The customer agrees only to find out that the loan was not approved based on the customer’s FICO score. However, the dealer is willing to make the loan at a higher interest rate with slightly higher payments for a much longer term.

*Avoid this scam by getting pre-approved by a real bank.  Know your credit rating and FICO score before shopping for a car.  Ask the dealer to show you the physical report they pulled from either TransUnion or Equifax. 

• Loan Warranty Scams

Loan warranties that are supposedly required by the lending bank can cost upwards of $2000 dollars.  This is not a requirement by any real bank that has approved $30,000 for a car.

*Ask to speak with the loan officer at the so-called bank and to see in writing the so-called “requirements” for this warranty.  Make sure the bank is a real bank and not some financial service company that pays commissions to the dealer for each loan referred to them.

• Extended Warranties

These are unnecessary and very costly.  Any factory defects will be recalled by the manufacturer at no cost to the customer for years after the original warranty expires.  These warranties have many exclusions and loopholes.

• Vehicle Preparation Fees

The dealer will include fees into the car loan as high at $1,000 for “preparing the vehicle” or “inspections prior to delivery” or some other euphemistic sounding title that simply involves removing plastic covers from seats.

Other outrageous fees included in the contract are: rust-proofing (the manufacturer has already done that), “clear coating” (this is nothing more that liquid wax), Fabric protection (A can of fabric protection spray will do the same thing for under $4.00), Dealer installed accessories (these can run upwards of $1,000 for specialty rims, pin striping or upgraded sound system).

Documentation fees are often inflated to net additional profits for the dealer. 

*Refuse any and all of these fees. These “costs” should not be part of the purchase price.  Any extra accessories can be installed elsewhere for a lot less after taking possession of the vehicle.

• Low Balling Trade-In Value

Customers are given a very low price for their current vehicle. The dealer claims to reduce the price of their current vehicle by that amount.

In reality they had already added the “discount” to a higher price on the new vehicle. By the time the customer drives away with their new car they will realize they gave up their old vehicle for free. This nets the dealership thousands of dollars on a future sale.

* Never make your current vehicle part of the purchase price for a new vehicle.  Always know the “Blue Book” value of your car and only negotiate a trade-in after you have negotiated the price of your new car first. 

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