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The Most Common Car Financing Scam: Packed Payments

A scam you're likely to encounter if you finance through a dealer is called the "packed payment" scam.

This is when the dealer increases your monthly auto loan payment to include back-end products such as an extended warranty without you realizing it.

They're essentially "packing" a bunch of expensive products into your loan, and since you're only seeing the monthly payment, you may not realize how much extra you're paying for these items.

Most people assume their monthly loan payment only covers their vehicle, but most lenders allow you to include additional items and the dealer takes advantage of this.

On a 60 month loan, a dealer can pack $2,000 worth of additional add-ons and your monthly payment will only go up by $33. Doesn't seem like much, does it? This is why payment packing is so common and easy for dealers to get away with.

Most car shoppers are payment buyers - meaning they focus only on the monthly payment and are susceptible to falling for this scam.

Let's take a look at how this scam typically works:

Let's say you qualify for a $15,000 car loan, 6% interest, over a 60 month term. Your monthly payment should be $290.

After arranging your financing, the dealer will come back to you with a monthly payment of $330 and tell you this is a "fully protected" payment including warranty protection up to 100,000 miles or whatever add-ons they included. You won't realize that your monthly payment should really only be $290.

They will make it seem like all the additional add-ons are simply included with the vehicle, not that you're paying extra for them.

It all sounds great and your monthly payment doesn't seem that high, but in this example, the dealer sold you $2,400 in extra add-ons.

An informed consumer should be able to avoid this scam easily.

First, never go to a dealership without arranging your own financing. If a dealer can beat your best rates, than go with the dealer. If not, then you know you're getting the best financing deal on your own - and you don't have to worry about packed payments.

In addition, you should never focus only on the monthly payment. You need the dealer to disclose the sale price of your vehicle, the total amount financed, the term, and the interest rate. If you know these figures, there won't be any room to pack the payments.

My Recommendation for Car Shoppers

TrueCar No-Haggle and Edmunds Price Promise are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan

Gregg Fidan

About: Gregg Fidan


Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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