Predatory car dealers are still out there. These entities are not always easy to spot. Here are five things that should scream ”predatory practices” to everyone.
- Dealer kickbacks. Many dealers have a preferred lender. That is because the lender will allow them to add a few interest points to your loan. Secure your own financing before you shop and you will avoid this common scam.
- Junk Fees. Some dealers will pad their profit margin by adding junk to a loan. Extended warranties, rust-proofing, GAP insurance, and window etching are typical ways to put money in a dealer’s pocket. Each of these might be needed or nice to have, but all are cheaper to buy from anyone other than the dealer.
- Conditional Sales Agreement. This is pure scam. A buyer will be sent home with the car. After they have had a few days to get to like the car, the dealer calls and says there is a problem with the loan and the buyer has to agree to a higher interest rate or return the car. If this happens to you, return the car and get a lawyer.
- Buy Here/Pay Here. These guys are providing a service, but at an interest rate that can be 10 points higher than a traditional bank or a subprime auto loan specialist.
- Mandatory Arbitration. Look carefully for this one. It takes away your right to sue a dealer over predatory practices. If this clause is in a contract, the dealer knows they are walking a blurry line and will cross it as they please.
The majority of car dealers are in business to sell cars to repeat customers. They have a goal to sell cars to the children of former clients. Others are there for the immediate profit. Look for the above practices to tell which type of dealer you are involved with.