Three auto-financing scams to avoid

Car on a road

Before you walk into the auto dealership, the very best thing you can do for yourself is secure the financing for your car loan. That way, you can take your time and familiarize yourself with the terms of the loan without pressure from a salesperson or the tempting new car smell to distract you.

Not convinced? These three common financing scams may just change your mind.

The Spot Delivery Scam. Several days after buying a car, the dealership informs you that your financing fell through. If you don’t return to the dealership to sign a new contract (at a jacked up interest rate, and often with more money required in down payment), they will report the car as stolen.

What happened? The dealership is exploiting the “Subject to Financing” clause, which means that even though you signed the contract, the deal isn’t official until the loan is finalized. People with lower credit scores are an easy target, because they are likely to believe they have no option but to accept the new, higher-interest terms. While the finance manager who ran your credit report knew exactly what you would qualify for before handing you the keys, if financing fell through, it’s not your car.

So now what? Get to your Credit Union! Secure new financing, and take a check to the dealership to settle up. If you are unable to get a loan and must return the car, you are legally entitled to have your trade-in and down payment refunded. If the trade-in is sold already, the dealership should pay you for it.

How to avoid it? The simplest way is to get your financing in advance, especially if you have less-than-perfect credit. If you do get dealer financing, ask for written proof that the loan is approved before you drive away in the car.

We’ll pay off your trade-in, no matter how much you owe. It sounds like a great deal, but the dealership isn’t doing you any favors. All they’re doing is rolling the balance of your existing loan into the new, higher-interest car loan. For example, if you owe $10,000 on your existing car loan, and purchase a new car for $20,000, your new loan amount will be $30,000. By stretching out the loan terms to 60 or 72 months, the payment is deceptively lower. While it may seem like you’re saving money, in actuality, you just tripled your debt!

How to avoid it? Get your financing from a trusted source, like your Credit Union. But more importantly, don’t fall for the salesman’s shell game. Make sure you understand the sales contract. If it seems to good to be true, it probably is.

Surprise! We lowered your payments. In this scenario, you’ll receive a phone call from the dealership telling you that they’ve lowered your monthly payments — all you need to do is stop by to sign the new contract. What nice people, right? Wrong. What they actually did was raise your interest rate. Then they stretched out the term of the loan to 60 or 72 months to cover their tracks. While it seems like you’re saving money, you’re not.

How to avoid it? Your best bet is to just ignore the call. If they become persistent, ask the finance manager to email you a copy of the new paperwork so you can review it in advance. Chances are, you’ll never hear another word about it.

Fight back

Whether you’re a victim of a scam or walked away from a car dealer’s attempt to take advantage of you, speak up! File a complaint with the Better Business Bureau and the NC State Attorney General’s Office.

NC State Attorney General’s Office

Report a scam: 1.877.5.NO.SCAM (1.877.566.7226)

File an online complaint: www.ncdoj/consumer/aspx

Better Business Bureau

NC is divided into seven regions. To find the contact information for your region, visit

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