Purchasing a new car is already a challenging task without the added stress of navigating potential scams. Car dealerships often employ various tactics to maximize their profits, sometimes at the expense of the buyer. This article delves into common car buying scams and offers tips on how to avoid them, ensuring you get the best deal possible.
One common scam involves etching the vehicle's VIN (Vehicle Identification Number) on the windows. Dealerships may try to charge you for this service, claiming it's a necessary security feature. However, no lender requires this, and it's often an unnecessary expense. According to the Federal Trade Commission (FTC), VIN etching is not mandatory and can be done for a fraction of the cost at a local shop or even by yourself (FTC).
The phrase "subject to loan approval" is often used to exploit buyers, particularly those with poor credit. Dealerships may use this clause to increase finance fees, sometimes adding up to $1,000 more in finance charges and an extra $50 per month to your car payment. To avoid this, consider securing financing through your own bank or credit union. According to Experian, the average interest rate for a new car loan from a bank is around 4.21%, compared to 6.05% from a dealership (Experian).
Another prevalent scam is the credit score scam, where dealerships falsely claim your credit score is lower than it actually is to justify a higher interest rate. To counter this, bring a recent copy of your credit report when negotiating. According to a 2020 study by the Consumer Financial Protection Bureau (CFPB), 20% of consumers have errors on their credit reports that could affect their credit scores (CFPB).
Dealerships may insist that you need to purchase an expensive warranty to qualify for a loan. This is often untrue. Extended warranties can cost upwards of $2,000 and may not be necessary, especially if the car already comes with a manufacturer’s warranty. According to Consumer Reports, 55% of people who purchased an extended warranty never used it (Consumer Reports).
The dealer prep fee is another common scam, where dealerships charge an extra $500 for preparing the car for sale. In reality, cars arrive at dealerships ready to be sold, and this fee is often just a way to pad profits. Always negotiate this fee or find a dealership that doesn't charge it.
The dealer markup fee is an additional charge added to the Manufacturer's Suggested Retail Price (MSRP) for no other reason than to increase the dealership's profit margin. This fee is often listed on an orange sticker next to the MSRP. According to Kelley Blue Book, the average dealer markup can range from $1,000 to $5,000, depending on the vehicle's demand (Kelley Blue Book).
While these scams are prevalent, many reputable dealerships offer fair deals without resorting to deceptive practices. The key is to be informed and vigilant. By understanding these common scams and knowing how to counter them, you can ensure a smoother car buying experience. Always do your research, secure your financing, and bring necessary documentation to avoid falling victim to these tactics.
Best of luck in your car buying journey!
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