The Most Common Car Financing Scam: Packed Payments
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.
3 Steps Every Car Buyer Needs to Take to Save Maximum MoneyThe key to getting the best deal is to gather price or lease bids from as many local dealers as possible. Then shop that best price around until no one can beat it. Here are the steps:
Step 1 Get Prices From My Trusted NetworkSelect the vehicle you're interested in to see if there are local dealers in my network who will provide you with their best upfront price. You will get direct access to an internet sales manager who you can further negotiate with online (no need to visit dealership).
Step 2 Get Prices From TrueCar / CarsDirectTrueCar, and CarsDirect are my top 2 online price quote recommendations. These services show you pre-negotiated prices from dealers closest to you - and the deals are usually pretty decent. But remember, you can still negotiate further.
Step 3 Complete my ChecklistFollow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid