Auto dealers may use a variety of tactics that net them greater profit from a sale but cause consumers to pay more than necessary.
Dealers are not required to tell buyers the cheapest loan for which they qualify, and they also can add to the interest rate. This is legal, but the Justice Department and Consumer Financial Protection Bureau are investigating whether dealers and lenders discriminate against women and minorities by marking up their loans more often.
Dealers also might make deceptive payoff promises, such as paying off the existing balance on a trade-in but simply adding that amount to the new loan. "The process itself is only vaguely disclosed to the consumer," warns Chris Kukla, senior council for government affairs at the Center for Responsible Lending. "You really need to read the [fine print] carefully to see what you're getting."
Another stunt is "yo-yo financing," in which the dealer demands that a buyer return the car because the financing fell through. Most buyers will do nearly anything to keep the new vehicle, including agreeing to a higher interest rate, finding a cosigner, or paying more cash for a down payment. "We hear about it in all states across the country," Kukla says. "Dealers have the legal right to be able to back out of the deal even after they send you home with the car."
Other tactics for which auto dealers are notorious including taking advantage of buyers' lack of knowledge about fair price; asking how much car-shoppers can afford to pay each month, then financing the most expensive vehicle possible over the longest stretch in order to meet that target; claiming that a deal is only good that day; and pitching overpriced dealer add-ons.