Tips to avoid getting ripped off when buying a vehicle
By: Cohen, Placitella & Roth @ Mar 22, 2017
The New Jersey Division of Consumer Affairs reports that they receive many complaints from consumers about car dealers (which are the second leading area of complaints after home improvement contractors). When buying a vehicle from a car dealer, remember the following:
1. EVERYTHING IS NEGOTIABLE. When you purchase or lease a vehicle, the dealer is not only selling you a vehicle but also other products (usually all sold by the finance manager) such as financing, a vehicle service contract, gap insurance, and striping/window etching. Remember that the price of all these products are negotiable. In addition, the markup on any of the other products results in a profit greater than that which the dealer makes on the sale of the vehicle. In addition, all of the various provisions in the contracts that you are asked to sign are also negotiable. YOU SHOULD NOT HESITATE TO NEGOTIATE EVERYTHING.
2. DO NOT NEGOTIATE BACKWARDS. Assuming you are financing the vehicle, usually the first thing that the salesman does is try to find out how much money you can afford a month. The reason that this question is asked is so that the dealer can then maximize his profit by tailoring the price of the vehicle to your monthly payment and the length of the loan. AVOID THIS AT ALL COSTS. Negotiate the price of the vehicle first and educate yourself before hand as to what a particular vehicle should sell for.
3. NEW VEHICLES. Before you shop, find out what the MSRP (manufacturer’s suggested retail price) is on the type of vehicle you want. This may be found in an advertisement or on the manufacturer’s website – – but the law requires that the MSRP sticker be posted on every new vehicle prior to sale. Most vehicles can be sold at a discount of up to 8% below the MSRP plus other consumer discounts such as rebates and loyalty programs. Even when a dealer tells you that he is selling a vehicle at the dealer’s invoice price, there is still a markup you should still be able to get a discount from that price. You can also find the dealer’s invoice price on the Internet or you can simply ask the dealer to show you his invoice price. EDUCATE yourself on price.
4. USED VEHICLES. You can easily find out the average retail price for used vehicle by going to the Internet to the NADA website, the Kelly blue book website, or the Edmunds website. Three important items in buying a used car:
a. Run a CARFAX report to find out the prior history of accidents, title history and potential flood damage. It is well worth the cost.
b. Ask the dealer to allow you to take the vehicle to your mechanic to be checked out BEFORE YOU SIGN THE CONTRACT. Any reputable dealer will allow you to do so – if they refuse go somewhere else to buy your vehicle. Spending a $100 to check out a vehicle will potentially save you thousands later.
c. DO NOT WAIVE your right to a refund if the vehicle does not pass state inspection. The Motor Vehicle Retail Order contains a section on the right-hand side that permits the dealer to get a waiver of this important right – many persons sign this waiver unknowingly. NEVER SIGN THIS WAIVER.
5. THERE IS NO 3 DAY RIGHT of RESCISSION. When you buy a vehicle and take it from the dealership, it is yours. Many people mistakenly believe that there is a three-day right of rescission – – this is absolutely incorrect. If you have problem with the vehicle after you sign the contract and take it home, many dealers will not allow you to bring it back and refund your money or give you another vehicle (although some dealers will sell you another vehicle and make a double profit-scam you twice). You need to make sure everything is 100% perfect before you sign the contracts and leave with the vehicle— and follow all of the advice in this article.
6. READ EVERYTHING YOU SIGN— every single document. If you are pressed for time, require the dealer to give you all of the documents (it is a violation of the Truth-in Lending law not to allow you to take a copy of the retail installment contract home and read it before signing) and take them home to read in the comfort of your home. One of the sales techniques is to drag out the process as long as possible to wear you out during the negotiations. If this happens walk away. There is always another dealer to buy a vehicle from and there is usually always a better deal. YOU ARE BOUND BY THE CONTRACT LANGUAGE—it is no excuse if you do not read the documents or if the salesperson tells you something different than what is in the documents.
7. GET EVERYTHING IN WRITING. The contract will state that the entire agreement is contained in the written contract and that you have been given no oral representations or promises. If the salesperson or dealer makes promises to get you to do the deal, make sure the promises are in writing. If they say that you can disregard certain contract language or the words do not mean anything, make sure that they strike it out of the contract documents. DO NOT sign any documents where the salesperson or finance manager states that they will explain it later— get the explanation before you sign and make sure that the explanation mirrors what’s in the contract.
8. STRIKE OUT ANY ARBITRATION CLAUSE. Today, most car dealers include arbitration provisions in the contract documents. The reason that they do so is that the provisions are favorable to the dealer and unfavorable to the buyer. Ask that the arbitration provision be crossed out– and if they refuse to do so, walk out. Most reputable dealers will again strike out that provision to get a deal.
9. Dealers also make money on arranging financing—it pays you to arrange your own financing to get a better interest rate—which is also negotiable with the dealer. Sometimes they arrange financing where the dealer receives a portion of your finance charge—they tell you 7% interest rate but the financing is actually 5% and they get the difference as profit. Ask about whether they are making money—it usually says so in very fine print on the retail installment contract. Look for the *.
10. YO-YO SALES. Many times you are asked, UNKNOWINGLY, to sign a document that says the deal is contingent upon the dealer obtaining financing—this is called a Spot Document—and if they do not get the promised financing then you have to return the car. This enables the dealer to call you a few days after you take the vehicle (having enjoyed driving it and show it to your friends etc) and tell you the financing did not go through but the lender will agree if you pay another $25/month( the Yo-yo). This enables the unscrupulous dealer to get a few more dollars profit from you by pulling the string. Some dealers will refuse to return your trade-in in order to coerce you to sign documents for the new deal. This is called DE-HORSING-removing you from your horse (the trade). Make sure it is 100% clear and in writing that financing is approved before you leave the dealership. Never sign a Spot Document-the dealer can usually get instant info on whether your financing has been approved-even at night.
11. VEHICLE SERVICE CONTRACTS. The cost of these contracts run anywhere from $1500-$3000— whatever the dealer can get the buyer to pay. First, do you really need a vehicle service contract on a new car that has a manufacturer’s warranty? The Profit on a vehicle service contract can be 200%-300% or more. Depending on the year and model of the used car and length of the vehicle service contract, the cost to the dealer may only be $400-$600. The dealer usually has a card or document that shows his cost—ask them for it. If you think you need a service contract, you can negotiate the price as close to possible to the dealer’s cost.
12. GAP INSURANCE. If your vehicle is in an accident, this pays the difference between the actual retail value of the vehicle (which is usually less than what you paid) and what you owe to the finance company. After many payments, this insurance may not have any value. Dealers charge $600-$1000 for this product which can cost them $150-200. If you feel that you need GAP, you can negotiate the price and again, ask to see the dealer cost.
13. BUYER BEWARE. Some dealers think that there is a sucker born every minute—and that if you fail to read the contract or believe there promises, then that’s your problem. That is not the law in NJ—the NJ Consumer Fraud Act requires dealers to be truthful and honest and not engage in deceptive conduct. If they violate this Act, you may be entitled to triple damages and payment of your attorney’s fees by the dealer.
14. DO NOT TRUST ANYONE ASKING YOU TO PAY THEM MONEY. A car deal involves signing a lot of documents and can be a horrible experience if you do not follow the above tips.