Recently, the Federal Trade Commission (FTC) charged nine auto dealerships with using deceptive and unfair sales and financing practices. With that in mind, we thought it would be a good idea to go over some of the more common auto financing scams. We'll also provide some tips to help you avoid ever becoming a victim of one of them.
The FTC Charges Nine Auto Dealerships
At the end of September of this year, the Federal Trade Commission formerly charged nine Los Angeles-area dealerships with using deceptive and unfair sales, advertising, and financing practices.
Here are some of the things that the FTC is alleging the dealers did:
- Payment packing - These dealers are accused of packing extra, unauthorized charges for add-ons or aftermarket products into car deals. Some consumers were charged without their consent, while others were told the products were required or free (neither is true).
- Yo-yo financing - They used deception or other unlawful tactics to pressure consumers, who had signed finance contracts and driven away, into later accepting a different deal with different terms. This represents the first time that the FTC has taken action against a dealer for yo-yo financing tactics.
- Using misleading advertising to coerce consumers into their dealerships - Ads filled with misleading claims including but not limited to: vehicles generally available for the advertised terms; stating that consumers could finance the purchase of a vehicle when in fact the prices listed were lease offers; stating that they would pay off consumers' trade-in vehicles.
Most dealerships operate above board and would never do these types of things to consumers. But there are bad apples in every bunch. Some unscrupulous dealers, such as these particular ones in the Los Angeles area, will stop at nothing to make a quick buck. It's unfortunate because it ruins the trust that ethical dealers work so hard to build with consumers.
Auto Financing Scams: Payment Packing and Yo-Yo Financing
With these particular auto financing scams in the news, we thought it'd be a good time to go over them.
- Yo-Yo Financing
This scam happens when the dealer tells you that you can take the car home while the loan application is still being processed. They ask you to sign documents before you leave. However, the paper(s) you sign most likely state(s) that you have to bring the car back if the financing falls through. Then, soon after, you get a call telling you that you were not approved. When you bring the car back, they work up another financing deal that typically requires more money down and/or carries a higher interest rate. Typically, consumers with bad credit are targeted with this scam.
- Payment Packing or Packed Payments
This happens when the dealer increases the loan amount by including aftermarket products or add-ons without your consent. They "pack" a bunch of extra products and/or services into the loan and hope you don't realize it. How is that possible? They only show you the monthly payment. They can add thousands in extras to the loan and your monthly payment only increases incrementally. These days, payment packing is illegal and the buyer has to be told what the monthly payment is for just the car.
Now for some tips to help you avoid becoming the victim of any auto financing scams.
Tips to Avoid Becoming the Next Victim of a Scam
Again, the great majority of dealers would never participate in these practices. However, you can help yourself out with these tips.
- Check Your Credit Reports and Scores
Before you head to a dealership, you need to know where you stand with your credit. You should also research what interest rates people in your credit score range are qualifying for. Then, you will be able to have an idea of whether or not you are getting a fair deal.
- Read and Understand Every Document
Before signing on the dotted line, make sure that you have read and understand everything. Better yet, read over every document twice. Make sure all of the terms are what you agreed to. Ask questions if you see anything that doesn't look right. Also, you are entitled to receive copies of every document that you sign.
- Never Rely on Verbal Promises
Under no circumstance can you rely on a dealership's or salesperson's verbal promises. You need to get everything in writing and entered correctly on the documents before you sign.
- Don't Take the Vehicle Until Financing Has Been Approved
Don't leave the dealership with a vehicle until you are certain that the financing has been approved at the rate and terms you agreed to. Also, don't sign any documents until those agreed-upon terms are included and you are clear about your obligation.
If you are an informed consumer, there will be no surprises.
A Final Tip
At Auto Credit Express, we help people with less than perfect credit find auto financing. We can connect you with a dealership that stands to give you the best shot at being approved for an auto loan. Also, every dealer signed up with us has been carefully screened for quality.
We can help you out next if you simply complete our free and easy online application.