How to Identify Car Financing Scams

Car financing scams are scams that trick you into paying more for your car then you have to. While most car dealerships will deal with you honestly, there will be many that will try to take advantage of you and squeeze as much extra cash out of you as they can. They will justify it as either mandatory fees or benefits that you should be happy to receive. In reality, the only people who benefit from those arrangements are the dealers themselves. The following lists the most common car financing scams and show you how you can avoid them.

Loan Approval Scam

This scam is usually pulled on people who have less-than-perfect credit score. When you buy a car, a dealer gives you low interest rates. What they don’t tell you is that the contract you signed included a loan approval clause. This clause allows them to adjust your interest rates based on your credit rating.

Unless you have a perfect credit score, the interest rates you will qualify for will be higher. It will take a few weeks for the loan approval to go through - by the time the dealer informs you that your interest rates will be higher, you won't be able to get out of the contract and you'll be stuck with higher interest rates.

The best way to avoid this scam is to carefully look through the contract before signing it. Make sure that it specifically states that the interest rates will be set once the contract is signed. If the dealer isn't willing to include that in the contract, you are better off looking elsewhere.

Credit Score Scam

In this scam, the dealer will tell you that your credit score is longer than it actually is. This gives them a pretext to offer you interest rates that are higher then what you would qualify for. The best way to avoid this scam is to check your credit score ahead of time. Try to get it on paper - that way, you will have undeniable proof that the dealer is lying.

Forced Warranty Scam

In this scam, the dealer tells you that you are not eligible for a certain loan from a bank unless you pay a few extra thousand dollars for an extended warranty. The truth of the matter is that the dealers are legally prohibited from forcing you to get a warranty. If a dealer tries to coerce you into getting a forced warranty, report them to your state attorney general.

Preparation Costs Scam

In this scam, a dealer will charge you extra for preparing a new car for delivery. Charging preparation costs in on itself isn't illegal. However, what many car buyers don't realize is that the costs are already included in the purchase price. A dealer can't force you to pay anything beyond that. You can avoid this scam by refusing to accept the extra charge. If the dealer refuses to sell you the car, try another dealership.

Need an Auto Loan? Get a Free Quote Here!