A few weeks ago, Deepti, a friend who is recently single, asked for help with buying a new car. We live in DC. This was the first time in her life she was making such a big purchase by herself. Throughout her 25-year marriage, her (now) ex-husband had taken charge of all financial matters, so buying a car was an especially alien universe for her. She was nervous, quite literally, about being taken for a ride.
“I don’t want to be cheated,” she worried. “I have a budget and I know I don’t need all those fancy features they sell you, so I put my foot down on all those extras, but they’ve asked me to sign this service agreement. They say it’s necessary. Should I?”
I was familiar with the service agreement because that had been a hard sell when we bought my Lexus. My husband had refused the ‘extra protection’ hard sell over and above the manufacturer’s warranty, which was quite substantial, despite the dealer’s high-pressure tactics.
Unlike buying a new house, buying a new car appears on the surface to be easy enough. Those gleaming car dealerships and slick salesmen with facts and figures at their fingertips are prepped to move new high-tech models into your garage.
You May Be Vulnerable to Dealership Scams
But the Federal Trade Commission (FTC) warns that car buying is one of the few major individual purchases susceptible to fraud, and that consumers from a minority background are more vulnerable to dealership scams.
At an EMS briefing on Feb 4, FTC attorney Dan Dwyer warned about consumer fraud when buying new or used cars, and suggested how people could protect themselves from the kind of fraud which is less overtly visible to the average car buyer.
“There was a recent case prosecuted by the FTC in New York,” said Dwyer, “where a dealership in the Bronx was told, very specifically, to charge African American and Hispanic customers more money. They were told that these consumers were not highly educated and could be charged more money than white buyers.”
“Those kinds of things are hidden from the consumer because they are not easily detected. However, the consumer can protect themselves by treating car buying like a research project. Dealers will test you and the limits of your knowledge and are more likely to put one over on you if you appear to be uninformed.”
How To Protect Against Dealership Scams
Dwyer suggested that the free online Kelly Blue Book was a great car buying guide for both new and used cars.
“It will give you the average range of fair prices for the make and model of car you are thinking of buying.”
Start planning well in advance, advised Dwyer, starting with a budget and an assessment of dealership offers. There are hidden loopholes.
Often dealers advertise prices which rise after a few months, or promote a great price for a car that is unavailable when you reach the dealership. Read the small print on discounts which could be applicable only to special customers, like college students.
“Calling ahead to confirm the current out-the-door pricing of the car you are planning to buy will save a lot of grief,” said Dwyer. “Make sure to take someone with you when you go to negotiate your price at the dealership. Everything is negotiable, no matter what the dealer says about no room to bargain.”
Car buyers should complete several important steps before a purchase stated Dwyer. Getting pre-approval from the bank for a car loan and a credit report at annualcreditreport.com, will help guard against dealer loans which have higher interest rates. Dealers have been known to enter false income and down payment information in the loan application just to make their sale numbers.
Unfortunately, the consumer is liable if a loan is approved based on fraudulent information.
Understanding the loan agreement, total sale price, and how it’s related to the monthly payment is imperative. Low monthly payments have a longer loan periods and higher interest rates.
Dwyer warned consumers against refinancing scams where dealers offer to negotiate with a lender for an upfront fee.
“Don’t fall for it,’ said Dwyer. “You don’t need anyone to negotiate with the bank for you. You can do it directly. Upfront fees for anything are usually a scam.”
Beware of Red Flags if…
- You feel you are being rushed through the documentation. Ask the dealer if financing is approved and written into the contract Don’t budge until you see the figures.
- A dealer insists on extra service contract, where they perform repairs themselves. Don’t sign on because most cars have substantial warranties. A dealer’s service contract only covers repairs at their dealership – if it happens to go out of business, you are stuck holding the bill.
- You’re feeling pressured into extras, which are being sold as essential for safety – most car models are very safe; you don’t have to take extras.
- When buying a used car, make sure the dealer provides all information about its history to check for safety recall issues. Get a mechanic to inspect the car for an assessment. If the dealer fails answer these questions, switch on your fraud meter.
- For used car history and safety recalls – go to NMVTIS
- To report malpractice go to the Better Business Bureau or the State Attorney General.
- If you’ve fallen behind your car payments, go to the FTC for assistance.
Deepti eventually refused the service contract on her Volvo. She did her research and believed she got a good deal, quite apart from the added bonus of learning everything she would ever need to know about buying a car.
Jyoti Minocha is an DC-based educator and writer who holds a Masters in Creative Writing from Johns Hopkins, and is working on a novel about the Partition.