How to Avoid Car Financing Scams

Car financing scams tend to appear not as anonymous emails or faxes from third-world countries but as wolves in sheep's clothing. They are often contrived by car dealerships, salesmen, finance office staff and other lenders. To avoid scams, car buyers must prepare thoroughly for the process of getting car financing, and do everything they can to simplify and separate the issues that lenders often try to bundle together.

Instructions

Difficulty: Moderate

1. Do the math. Sit down with the car dealership's finance person and walk through the calculations involved in setting your interest rate and monthly payment, based on your credit score and any other factors. Ask for a detailed explanation of any discrepancies and make sure that your rate and payment is not being padded to provide extra profit for the dealership.
2. Avoid add-ons that are offered to you by the finance department when you thought you had already negotiated everything. Add-ons, such as additional maintenance coverage, are sometimes referred to as "junk fees" that offer little, while adding significantly to your monthly payment.
3. Minimize the amount you need to borrow by maximizing the value of your down payment and trade-in vehicle. Borrowing less may get you a better interest rate and will also protect you against the possibility of having "negative equity" in your new car, which occurs when its market value is less than what you owe.
4. Prepare for your meeting with your car dealer's financial representative. It may be presented to you as a perfunctory paperwork session where you dot every "i" and cross every "t" after all the key negotiations have been completed. The reality is just the opposite. The impact of decisions made in the finance office will ultimately determine whether you have a good deal or a bad one.
5. Simplify your car purchase negotiations with a new car dealership by presenting yourself as a cash buyer. In the eyes of a car dealer, a cash buyer includes anyone who has already obtained independent financing from a third-party lender such as a bank.

Tips & Warnings

• Don't declare victory just because you have negotiated a great price--you have only arrived at halftime. If you make a poor deal on car financing or fail to avoid scams, you can easily give up any savings you may have negotiated on the price of the car.