Fraudulent Dealer Tricks and Helpers for Consumers

Bob Jensen at Trinity University

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Car Buying Tips ---

When teaching Excel's financial functions (Insert, Function, Financial) to my students, I often illustrate Excel functions using actual dealer terms.  One of my spreadsheets for this is called Big Earl in the Excel Workbook FraudEarlBob.xls at 

I ran across a rather interesting Fitzgerald Auto Mall payment calculator at 
It checks out and returns the same answers as my Excel file illustrations.  For example, read in a price of $16,995 and a financing of $15,996 after a $1,000 down payment on a 60 month loan at 2.80% APR, and the payments really are $286 per month after you hit the site's "Recalculate" button.  

Fitzgerald Auto Mall calculator is a nice calculator, but it is very limited in terms of typical deals offered today such as no payments for six months.  My Excel workbook using the Big Earl spreadsheet tries to illustrate more complex deals.  For example, the Fitzgerald Auto Mall calculator will not work for the 0-0-0 (Zero down, Zero interest, Zero payments for 12 months)  terms illustrated at 

Other online calculators are linked at 

How can you verify if the financing terms offered to you are honest?

Probably the best approach is to pretend that you are going to make a purchase for cash without a financing deal.  Then try to negotiate the lowest price you can get for cash for the car, the extended warranty, etc.  Next use that as "the" price when you use some type of calculator such as my spreadsheet or the payment calculator at 

If a car seller cheats you on the financing deal, it will typically entail using a financing price that is higher than the rock bottom cash price that you can get in a cash deal.  If the financing price is not equal to the rock bottom cash price, then the disclosed APR is not the true APR interest rate that you will be paying.

How Badly Can a Car Salesman Swindle You ---

Other dirty tricks played by car sellers and sometimes banks are listed below



Using Excel
Download the Excel Workbook file FraudEarlBob.xls file on the path 
I then recommend that you study the Earl Bob and Consumer Reports spreadsheets in this Excel Workbook.  If you run the FraudEarlBob.xls file in Excel, you can also run the macro buttons.  Note that there are various spreadsheets leading up to the Trick 2 example from Consumer Reports spreadsheet.




Resist these dealer ploys that squeeze you for
for more cash than you should pay
Consumer Reports April 2003, pp. 17-19

You want a great car at a great price.  The dealer wants to make as much profit as he can.  "Any question you pose them about dealer cost or car reliability is always answered like this: "What response will give us the biggest profit right now?" says Remar Sutton, author of "Don't Get Taken Every Time" and cofounder with Ralph Nader of the nonprofit Consumer Task Force for Automotive Issues, which collects information on dealer practices.

Trick 1    The False Credit Score

The scenario: The dealer checks your credit report but lies about your credit score, telling you it is lower than it really is.  (The higher the score, the better your credit.)  Alas, you don't qualify for the low-interest car loan that drew you to the dealership in the first place.  The salesperson says you'll have to pay a higher rate.

The details: All states have laws that protect consumers from deceptive and unfair practices.  "If you can prove it was done, it would be illegal," says Bill Brauch of the Iowa attorney general's office.

Michael Meiring, who owns a Cleveland die-casting business, checked his credit score before car shopping.  His average score from the three major credit bureaus was 750.  Generally, scores above 700 are considered excellent.  Yet Meiring said he was told by a Chrysler salesperson that his credit score was too low to qualify for the 0% financing offer he had seen on TV.  How low was his score?  The salesman said he didn't want to say because it would embarrass Meiring in front of his wife and son, who were with him.  "He told me the only way he could sell me a car was through a lease or for $2,200 more than the Internet price," Miering says.  "I was so angry I ended up buying my car online."

What you can do: Know your credit score before you shop for a car loan.  A report with a credit score costs $15 or less at each of the major credit bureaus; Equifax,, 800-685-1111; Experian,, 888-397-3742; and TransUnion,, 800-888-4213.  Correct any errors that appear in your credit reports.  Ask your lender about the interest rate you can expect to pay with your credit score.

If the dealer says your credit score is lower than you know it is, buy your car elsewhere and report the deceptive dealer to your state attorney general's office.

Trick 2    0 Down, 0 Interest, 0 Payments For One Year

The scenario: Sure, the deal looks great.  But when the year is up, you find out you owe all the monthly payments you've delayed--sometimes plus retroactive interest.  You end up owing much more than the sticker price on a vehicle that is now a used car.

The details: "It's hard to find anyone who doesn't have a 0-0-0 program now," says Art Spinella, president of CNW Marketing Research in Brandon, Ore., which tracks consumer auto spending.

In some cases, the contract states that the buyer owes the dealer X number of monthly payments at a high interest rate, then must refinance the balance of the loan.  That's the deal an insurance-claims assistant in Austin, Texas, who did not want her name used, signed for a Mitsubishi Montero last year.  She thought she was paying $31,000.  Now that the 0-0-0 time is up, a 9.9 percent interest rate has kicked in.  She must pay $677 per month for the five years, or a total of $40,591 for the car.  She can't refinance at a lower rate; the loan is much more than the $16,800 her depreciated car is now worth.  "At this point, I just want to let them repossess the car," she says.

What you can do: Don't fall for this gimmick.  A 0-0-0 deal costs more in the long run than a conventional loan.


Note from Bob Jensen

Excel Version Using Excel
Download the Excel Workbook file FraudEarlBob.xls file on the path 
I then recommend that you study the Earl Bob and Consumer Reports spreadsheets in this Excel Workbook.  If you run the FraudEarlBob.xls file in Excel, you can also run the macro buttons.  Note that there are various spreadsheets leading up to the Trick 2 example from Consumer Reports spreadsheet.



Trick 3    We'll Pay Off Your Loan!"

The scenario: The ads suggest that the dealer will assume your old-car debt or lease to get your business.  But the debt doesn't simply disappear.  Whatever you owe on your old vehicle--including any early-termination fees that a new lease or purchase may occasion--are rolled into your new loan.

The details: Say you owe $8,000 on your car and you buy a new one for $21,000.  You'd owe the dealership $29,000, minus any trade-in value.  Often the installments are spread out over six years or more to make it look as if your payments are lower.

What you can do: Stick with your current lease to avoid early-termination fees, which can top 5 percent.  And don't trade in a car if you are still "upside-down" on the loan, meaning you owe more than the car is worth.

Trick 4    "Pay More Or We'll Say You Stole The Car."

The scenario: The salesperson says you can drive home today in your new dream car.  And you also qualify for a better rate than you expected--if you finance your purchase with the dealership.  You sign the papers and away you go.  A week later, the salesperson calls and says you didn't qualify for the low rate after all; you  now have to pay more for the loan.

The details: You assumed the deal was done, but you missed the fine print in the contract that read something like, "Subject to financing approval."

You may be told that you must pay a larger down payment and higher monthly installments, or the salesperson may threaten to report the car as stolen, says Jeff Ostroff, president of, a consumer web site.  If you want to cancel the deal, he may say you can't, the dealership has already sold your trade-in, and you signed a contract.

A variation: A salesperson calls a few days later and claims he can lower your payments if you sign a new contract.  How?  He raises your annual percentage rate--thus charging you more--but spreads your payments over a longer time period, which lowers your monthly payment.

What you can do: Accept the dealer's financing offer only if it beats the best rate you find elsewhere.  Before taking possession of the car, be sure to have in hand an approved financing agreement.

Trick 5    The Mandatory Credit Check

The scenario: You go to a dealership to buy a car, but you plan to get the financing elsewhere.  The salesperson tells you he still must run a credit check on you.

The details: If you're paying cash, have other financing, or are just taking a test drive, car dealers may obtain a credit report only with your written consent, according to a 1998 opinion letter to a car-dealer association by Federal Trade Commission staff.

Credit reports may be obtained without a customer's express permission only if the customer is initiating the purchase or lease of a car and wants dealer financing or is writing a personal check for the vehicle, the letter states.

Rebecca Fowler, a vice president of data management with SunTrust Banks in Atlanta, says a salesman told her that she had to sign an agreement allowing the Nissan dealership to check her credit, even though she told him she had arranged financing elsewhere.  She said the manager told her it was company policy, but they wouldn't run the check unless it was "necessary."

"No way was I going to sign, because I knew that signing it would allow them to run it whenever they wanted," Fowler says.  It wasn't until she started to walk out that the salesman and his manager backed down.

An excessive number of credit inquiries can lower your credit score and thus blemish your credit.  Generally, all inquiries concerning auto financing within a 30-day period will not lower your score.  However, if you shop for financing for more than a month or are also applying for other credit, your score may drop.

What you can do: If you have already arranged financing elsewhere or plan to pay cash, tell salespeople the moment you walk in that you do not authorize them to run credit checks on you.  Do not give them your Social Security number or your driver's license.  If a dealership requests your license before a test drive, show it but do not allow a copy to be made.  Before you sign any papers, insist that the credit-check authorization clause be stricken from the document and then read it to make sure it was done before you sign.

Trick 6    The Mandatory Extended Warranty

The scenario: You're ready to sign the papers when the finance manager says you must buy a $3,000 extended warranty.  The bank requires it, he says.

The details: In some states such a pitch is illegal, but it's hard to prove if you don't get it in writing.  At any rate, lenders typically don't require an extended warranty.

What you should do: Consumer Reports does not recommend buying an extended warranty unless the car is particularly trouble-prone.  Most basic warranties are sufficient, covering at least three years or 36,000 miles.

Trick 7    "We Don't Take Checks From Online Banks Or Credit Unions."

The scenario: You arrive at the dealership with a financing deal from a bank or a credit union.  Your salesperson or the finance manager tells you that the dealership does not accept deposits from your source.

The details: Dealers have the right to refuse a check from a source if it is stated in a written policy, much like a restaurant can post a "No checks" sign.  But this often amounts to another ploy to try to get you to finance through the dealership.

Tim Woods, a school-bus contractor, was told, "We won't get our money," by a Lexus finance manager in Florida, and the dealer would not accept his check from PeopleFirst, the nation's largest online vehicle lender.  "She literally threw the check back in our face," he says.  SunTrust Banks VP Rebecca Fowler was told the same thing about her PeopleFirst check at the dealership she visited.

What you should do: Point out to the finance manager that online banks and credit unions have been around for years, and they are in the business of writing loans.

Fowler suggests you note that most U.S. online banks are FDIC-insured and they don't bounce checks.  If the dealership won't back down and accept the check, or won't offer you a better rate for financing, leave.

Trick 8    "What Can You Afford To Pay Per Month?"

The scenario: The salesperson greets you with this line, hoping to use your monthly payment limit to determine the model he'll recommend and the price he'll charge.

The details: The dealer stands to make more money this way than if you negotiate a purchase price.  Say your limit is $320 per month.  He proposes a 2003 Ford Taurus LX sedan, having qualified you for a 7.25 percent loan and charged you the manufacturer's suggested retail price of $19,415 (without destination fees).  But if you started with 15 percent down on the price the dealer paid for the car ($16,080 with rebates and holdbacks, according to the CR Wholesale Price, part of our New Car Price Service; see "Front Lines," page 8), and even added a dealer profit of 6 percent, you would pay $288 per month and save $1,900 over the five-year loan period.

What you should do: Negotiate the vehicle price first, as if you were paying cash.  Calculate the monthly payments only after you agree on the sale price.

Trick 9    Dubious Fees

The scenario: You've agreed on a price for a new car and your trade-in.  You think the deal is complete.  But the bill of sales includes "protection package" fees and "dealer prep" charges that no one discussed with you.

The details: These additional charges usually include protection you don't need, including etching your Vehicle Identification Number (VIN) on windows to deter thieves, rustproofing, and fabric protection.  Approximate dealer cost: $90 for all three services.  The cost to you: $1,000 or more.  "Usually the charges are printed right on the form, as if you have no right to change them," says Author Sutton.  One Consumer Reports car buyer was asked to pay $159 for VIN etching and $189 for glass, battery, and tire protection, though no one had explained those services.  The prep fee is supposed to cover the dealer's cost to gas up the car and get it ready for you.

What you should do: Refuse to pay these fees; put a line through the items on the bill of sale.  Vehicle bodies are already coated to protect against rust.  Upholstery is typically treated at the factory.  Some states require dealers to offer VIN etching, but you can do it yourself with kits you can buy online for $25.

"Get used to saying, I'm not going to pay that," Sutton says.  "You'll be surprised how quickly they'll back off, especially if you threaten to walk out."

Trick 10    The Arbitration Clause

The scenario: After you've bought your new car, transferred your title, and signed the paperwork, an increasing number of dealerships place another piece of paper in front of you notifying you that you must agree to arbitrate any future problem you have with them that warrants legal action.  Or the clause may be in fine print on the back of the contract, and no one bothers to tell you.

The details: Arbitration is an alternative to a lawsuit in resolving disputes.  Two parties--you and the dealership--present your case to an arbitrator, who is supposed to be neutral.  The arbitrator weighs the facts and arguments of both parties and suggests a resolution.  In the kind of binding-arbitration clause used at many dealerships, you're required to waive your right to sue, to participate in a class-action lawsuit, or to appeal.  The contract may also state the dealership has the right to appeal.

What you should do: Don't buy from a dealer who requires that you sign a mandatory arbitration clause.  You would effectively be giving away your right of redress should a serious problem arise.


Bob Jensen's threads on how to detect and report frauds ---

Other dirty tricks played by car sellers and sometimes banks are listed at 

Bob Jensen's threads on how to detect and report frauds --- 

April 15, 2004 reply from Don and Ted Mathis

Dear Dr. Jensen, One of my brothers has an automotive repair shop in Austin, one works with debt collection at Frost Bank here in San Antonio. I had forwarded your message about autos to both. You may appreciate Ted's feedback.

Don Mathis,

-----Original Message-----
From: [
Sent: Thursday, April 15, 2004 11:26 AM
To: Mathis, Donald E. Subject: Fw: Automobile Financing and Cheating

Dr. Jensen is fascinating. I really liked this site about Automobile Financing and Cheating, since it pertains to my business. The zero zero zero deals that Mitsubishi offered were not only disastrous to the buyers, but Mitsubishi suffered also. Last year Mitsubishi repo'd so many cars after the buyers defaulted on the 1st payment (a year after purchase) that there cars were a glut on the market. The San Antonio Auto Auction, which has thousands of fenced, secured acres, ran out of room. They had to park Mitsubishi's in unsecured areas and hire extra security to patrol. One auction in Florida had to temporarily close its lanes to Mitsubishi's, as there were so many of them. The only winners in the zero zero zero scam were the wholesale buyers who could buy a Mitsubishi for 5-6 thousand dollars below a comparable Honda or Toyota.

I so liked the info at  that I follow links to his other sites and spent several hours informing myself of all the useful sites he has. I even bookmarked  and will refer back to it later.

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