When you buy and finance a new or used car at the dealer look out for the car dealer interest rate scam. During the process of buying the car that you have chosen, the car dealership will run your credit to determine if they can get you financed or what interest rate you will be charged. The dealer will use an interest rate for your financed vehicle that will be based on your credit score and the categories of the lender they are using.
The car dealer interest rate scam happens when the finance department at the dealership uses an interest rate that is higher than the category that you qualify for. The finance manager at the dealership will tell you that you qualify for a certain rate which can be one or two categories higher than the category that you actually qualify for, now that is a car dealer financing scam. It doesn’t matter if you have the best price on a new car or not.
The Car Dealer Interest Rate Scam Example
An example of the car dealer interest rate scam: Let’s say that the car dealer runs your credit and your credit score qualifies you for an interest rate of 6.5%, but the dealer tells you that you qualify for 7.9%. In your state of excitement of buying a new car and your lack of research regarding your credit score and other financing availability you accept the interest rate that the dealer tells you, rather than avoid this car scam. You sign the paperwork and you are paying 1.4% higher interest for 60 months. Depending on the amount you are financing, that 1.4% could potentially add up to thousands of dollars over the life of your finance contract. This car dealer interest rate scam allows the dealer to profit the 1.4% difference.
The car buyer that is most susceptible to this car dealer interest rate scam is the person that has not done their homework. By doing some homework before going to the car dealership will allow you to already know what you qualify for regarding interest rate. Then you tell the dealer that you already have financing set up at 6.75% and you would be willing to finance with the dealer if they can beat your 6.75% rate. I have seen people pay 3, 4 0r 5% points over their qualifications. Now that can be BIG MONEY.
Why the Car Dealer Interest Rate Scam Works
People that have fair to good credit, but may have had a few blemishes on their credit report in the past are more willing to accept this car dealer interest rate scam. The finance manager will remind them of some of the late payments that are on their credit report by reading it. There are times these blemishes don’t have too much impact on your credit score because they were so long ago or the were very minor. When people are confronted with credit report issues they usually just want to put it in the past, because it can be embarrassing. This is one major reason why the car dealer interest rate scam works so well. Another reason is since the “financial crisis” 0f fall 2008, people are uncertain about financing cars based the media reports. It is currently another tool for the car dealership to use to get you to accept a higher interest rate.
Protect Yourself from The Car Dealer Interest Rate Scam
Your best protection from the car dealer interest rate scam or any car dealer scam is to do your homework. Check with any bank or credit union that you may already have a relationship. Credit unions often have a better interest rate when you are a current customer, but not always. Check the kind of rates and terms you can get before going to the dealership. Tell the finance person that will be doing your paperwork that you have financing, unless they can beat the rate you have from your local bank or credit union. In the end it could potentially save you thousands of dollars. Don’t let the car dealer interest rate scam or any car dealer scams happen to you. See Car Dealer Financing Scams or Car Buying Questions for some answers.