10 Ways You’Re Ripped Off By Car Dealers

Saving Money Buying A CarWhen it comes time for us to buy a car, whether brand new or second hand, we would ordinarily go through a dealer. Here’s a list to help you not get ripped off by dealers who try to trick you to maximize their profits and your loss.

Price Of The Car Mark Up

Marking up the price of the car is the most common way that a dealer makes a profit. The mark-up rate is usually 5-10%. This may seem like a small amount, but if the dealer sells a hundred cars a month, the car dealer could make hundreds of thousands of dollars a month on mark-up alone.

Pack

In addition to the already existing mark up, regardless of whether the car is new or used, the price is usually “packed” by the dealer. This is only an additional amount that usually goes to the owner, but is not really a legitimate add-on cost.

Overcharged Customer Service Fees

Customer service expenses are paid, the dealer will tell you, for processing your paperwork, tag work, title work, tax work, and many others. Document fees differ with each dealer, but it can sometimes reach almost $1,000. All this processing is legitimate and the dealer do need to pay some people to handle the work, but the charge is still way over the real cost. Most of the paperwork can actually be processed within a few minutes and over the phone, internet, or fax. The extra charge is usually pocketed by the managers.

Hold Back And Advertising

For every transaction involving the purchase price of a brand new car, dealers are reimbursed by the manufacturer a certain amount of money for “holdback” and advertising. The dealer informs the manufacturer that a sale has been consummated and once verification is complete, the manufacturer pays the dealer the hold back/ advertising funds, the amount of which are sometimes in excess of $1,000.00 . However, buyers are not aware of this fact and are forced to pay the invoice price of the vehicle without deducting the holdback/advertising fund which is subsidized by the car manufacturer. In effect, the buyer ends up actually over paying on the transaction.

Advance Down Payment

A client with a good credit rating should not be required to place a down payment because banks do not require it. However if you want your monthly payments to be lower and be more manageable, then go ahead, place a down payment. But do not be forced by the dealers to pay a down payment if you don’t want to as long as you are fine with the required monthly payment. Remember, down payments are often just additional profits for the dealers. It is something you can do without.

Negotiating With Bump Stickers

This is a legitimate-looking sticker with a higher priced MSRP than the manufacturer’s, and is placed right next to it. The dealer will claim that the added cost is for a special product applied to the paint or car upholstery, a window etching, or the retail prepping that was done to the car (which includes insurance, gas, detail, service, post-delivery inspection, etc.). the dealer may also claim that the car was marked up because it’s a hot item and customers are willing to pay over the retail price. Either the customer buys all the “additional cost” crap and pays for it or the bump sticker price is negotiated away and the customer feels that he got a great discount and he ends up paying the full and original MSRP.

Extended Service Contract

The sale of an Extended Service Contract, or Extended Warranty, is another money-maker for the car industry. This warranty more often than not covers things that are very unlikely to break. And each time you use the warranty, you would still need to pay an additional deductible fee on top of the amount you already paid for the warranty itself. The mark up for this product is mandated by the state you live in but dealers charge over and above it. However, an extended warranty may be refundable at a pro-rated amount based on what you haven’t used. It is also better to stick to a certified pre-owned model which is backed by the manufacturer’s name, instead of an extended warranty which is backed by the private dealer.

Trade In Undervalue

When a buyer decides to trade in his/her car for another model, dealers will definitely try to make profits from both ends of the transaction. Dealers will undervalue the trade in unit to make profit up front. An 8%-10% difference between what the dealer is willing to take your car in for( trade in value) and the actual market value(ACV) of the trade- in is common, therefore they immediately realize a substantial profit from the trade in plus they also profit from the vehicle that is going to be purchased. A good way to not fall victim to this practice is to be familiar where dealers get their appraisal information. The Black Book and the Mannheim Auction book are good sources of information to determine the ACV of your trade in vehicle and insist on that number to get a fair transaction.

On the other end of the transaction, the dealer will also try to make substantial profits from your traded in unit. If the dealer agrees to get your trade in unit for $10,000.00 he will put your car through a preparation and detailing process to make sure that the car will be safe to drive and will be in good condition inside and out. Normally this will be an additional investment of between $500.00- $1,000.00 but this will be a worthwhile investment for the dealer because after all the preparation and detailing work is done and insurance coverage is also thrown in, the retail price of the trade in will now be $14,000.00, because the car will be in a much better condition inside and outside as compared to when it was traded in. When a buyer purchases the car in cash then the dealer makes a tidy profit of $3,000.00 from this straight transaction. But when a buyer buys the car through bank financing, the dealer stands to make more profit depending on the credit rating of the buyer. If the buyer has a great credit standing, banks will normally loan up to 135% of the vehicle’s value. Therefore the dealer can actually sell the car for $18,900 to the well qualified buyer, thus making a handsome profit off your trade in vehicle.

GAP Insurance

Buying GAP insurance may actually be worth every cent you paid for it, but instead of paying $600 for it at the dealership, you can buy it for only $150 at your local credit union. A GAP insurance fulfills the car loan in case of theft or total loss. Your insurance company will only pay ACV for your loss, but the GAP insurance will pay the difference you still have on your loan and you’ll be off scot-free to buy a new car, clear of any payment for the lost car.

Holding Points Of Rate

When a customer decides to purchase a car through bank financing, his/her application is submitted to lending companies and Banks for approval. A” call back” from the lenders is usually the next step in the process; it normally includes the length/term of the loan (12/24/36/48/60 months) and the interest rate approved by the lender based on the customer’s credit rating. For example, customer A was approved by the lender for a 24- month car loan term at 9.5% interest. The manager of the car dealership is usually allowed by the lender to make 2 points on top of your approved interest rate. Therefore if the call back rate is 9.5%, the manager can actually sign you up for 11.5% interest for a 24-month term. The extra 2% goes to the dealer and is known as the Dealer’s Income from financing transactions. Always insist on checking your call back forms before signing any financing contracts to ensure that you get the lowest interest rates possible.

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2 Responses

  1. car dealerships says:

    Thank you for sharing the info.

  2. Clint White says:

    Yes all information is given perfectly. There are many car dealers tricks hidden under the coat. If you want to learn more and reveal the hidden tips which can help you while buying a new car from car dealers check out Car Dealers

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