6 Little-Known Ways Car Dealers Rip You Off

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Before Shauna Zamarripa became a personal finance writer, she sold cars. Money Talks News asked her for a behind-the-scenes glimpse at the job – and what you should watch out for when you walk onto the lot.

I might not look like it at first glance, but I’m an old “car dog” – that’s what car salesmen (and women) call themselves. From 2000 to 2005, I worked at various new and used car dealerships. It was my job to keep you on the lot and sell you a car, no matter what. We had a handful of tricks for bumping up the price and our commissions – and our buyers almost never spotted them. Here they are, along with advice for how to outsmart an ol’ car dog…

1. Inflation in plain sight

When you look at the stickers on the window of that shiny new car, you might think all the prices you see are set by the manufacturer. They’re not.

We called them “bumper stickers” – not because they went on the bumper, but because they bumped up the price of the vehicle. We strategically placed those stickers next to the manufacturer’s suggested retail price (MSRP) and hoped you wouldn’t notice. What’s on there? Services like VIN etching, fabric treatment, undercarriage sealant – which you don’t really need or could do yourself cheaper.

Some of the DIY is admittedly harder to do (check out the kits for VIN etching) but others require no time – like buying a can of fabric protector at any auto shop and applying it yourself. In many cases the dealer is using the same stuff.

Solution: Tell the dealer you want to see the “original invoice” minus the “bumper sticker.” If he refuses, walk out and head to a dealer who will.

2. Lowballing your trade-in

Car dealers want you to think that the Kelley Blue Book price is the best resource for determining the value of your trade-in. It isn’t. It is, however, the most effective way for dealers to lowball you.

Dealers use NADA (The National Automobile Dealers Association) for used-car valuations. This site lists the most likely amount the dealer can get for your trade – and what they can likely resell it for. Trust me, it’s typically higher than KBB. I’ve seen trade-ins undervalued by $5,000 or more on a regular basis.

Solution: Print out and bring with you the NADA values for your car based on its age, mileage, and condition – so the dealer knows that you know its true value. Better yet, sell your car privately before heading to the lot. That’s the way you’ll get the most money for it.

3. Inflating your interest rate

When a sales manager submits your credit application to lenders, the lenders reply with the requirements for your loan and quote an interest rate. If the dealership sees that you were approved for 7.9 percent APR, they can adjust that rate by as much as 2 points.

Different states allow different hikes, but the result is the same: That 7.9 percent APR you should get is now 9.9 percent, and the dealer gets to pocket the extra cash. That often adds up to several thousand dollars.

Solution: Get your financing done ahead of time through your bank or credit union.

4. Paying for customer service

On your loan paperwork, you’ll notice something called a “customer service fee.” This is what the dealership charges you to handle your loan paperwork, issue your tags, process your title, and pay your taxes.

How much do they charge for something that takes a grand total of 30 minutes for your salesperson and the finance office to complete? Anywhere from $299 to a whopping $1,000.

Solution: Don’t pay it. Or at least get it reduced, especially if you’ve obtained financing elsewhere.

5. Gap insurance

If you wreck your financed car, gap insurance pays the difference between what you owe and what it’s worth – handy when you’re upside down on the loan.

The dealership will try to sell it to you for $500 or more. But you can often get the same thing at your local credit union for $200.

Solution: Buy gap insurance from your credit union or other outside source after-market. But don’t drive off the lot without it.

6. Extended service contracts

Extra protection and peace of mind are usually good things when it comes to car buying, but a dealer isn’t the least expensive place to find it. You’ll undoubtedly find better rates after-market than at the dealership.

Solution: Before deciding on an extended service contract, shop rates, terms, and deductibles from outside warranty sources.

The best solution for outwitting the car dogs? Avoid them. Buy a nice used vehicle for cash.

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