How to Avoid Car Dealer Scams

Buying a car can be thrilling. Perhaps you’re buying your first car or upgrading to a vehicle with modern features. You might imagine the adventures – big and small – that your new wheels will take you on.
 
That magic can wear off quickly if you feel that a dishonest car dealer is trying to take advantage of you.

Legal Protections from Car Dealer Scams

The good news is that there are laws to protect car buyers. Knowing your legal rights can help protect you against any tricky business.

There are also state laws that protect buyers. Many states have their own Lemon Laws (most applying to new vehicles only) or require dealers to provide a warranty when selling a used vehicle. Depending on where you live, you might enjoy other protections too. California, for example, has a Car Buyer’s Bill of Rights.

What Are Car Dealer Scams?

Dishonest car dealers may do whatever they can to make the sale – even if it isn’t ethical or legal.
 
They’ll use deceptive practices to sell you a vehicle or find ways to bump up the price tag. They might mislead you, hide key information during the sales process or charge you for useless add-ons.
 
If you’ve been scammed by a car dealer, you’re not alone. Every year, the Federal Trade Commission (FTC) gets more than 100,000 complaints about deceptive advertising, car pricing, and sales.

Common Auto Dealership Fraud

It’s important to enter the buying process with eyes wide open. Unethical car dealers use various types of fraud including:
 
The Bait and Switch
You see an ad for a car you love at a surprisingly low price. Filled with anticipation, you visit the dealership – only to discover that the car is no longer available. Sadly, that ad was simply bait to get you to the dealership. The dealer now pressures you to buy a more expensive car.
 
In another bait-and-switch scheme, the dealer tells you that the price in the ad was a typo, then tries to sell you the car for a higher price.
 
Title Washing
You buy a used car that seems to be in good shape. But after you take ownership, your vehicle ends up in the shop for extensive electrical problems. Your mechanic also notices extensive corrosion, possibly caused by flood damage.
 
Some dealers use title washing to hide a car’s history, such as damage from accidents or natural disasters. They might alter the vehicle’s title or order a new title without disclosing the vehicle’s history. They might even relocate the vehicle to a state with more relaxed title laws. Cars with a checkered history, of course, can be more expensive to maintain and may have safety issues.
 
Junk Fees
While signing the paperwork to buy a vehicle, you notice that the price tag is several thousand dollars more than you expected.
 
Hidden fees are likely the culprit. Some fees – like registration charges and sales tax – are unavoidable. But watch out for unnecessary fees that simply hike the cost of your vehicle. Some dealers charge a pre-delivery inspection fee, for example. Or your contract might state that you’ll pay a service fee every time you make your monthly payment. Push back on these types of fees.
 
Add-ons
While buying a new car, the dealer persuades you to have a ceramic coating added to protect your paint job. They also offer to etch your vehicle’s VIN onto its windshield to protect against theft. Next, they recommend you get an extended warranty to protect your vehicle. Before you know it, the cost of your car is far beyond what you intended to pay.
 
Some dealers charge for “add-on” services that you probably don’t need. In some cases, they don’t mention that the add-on is optional. But add-ons can add up, and before you know it, your purchase price has skyrocketed.
 
Think twice before agreeing to add-on services. You can usually get a better quality coating at a detail shop, for example, and pay far less. And you can etch your car’s VIN into the windshield yourself with an etching kit, for a fraction of the cost a dealer charges.
 
Instead of buying an expensive extended warranty, Consumer Reports recommends buying a reliable car and setting aside the money you would have paid for the warranty to use for future repairs.
 
Odometer Fraud
You get a great deal on a used car with just 20,000 miles on it. But you notice that the car doesn’t have its original tires.
 
The dealer may have rolled back the car’s odometer, so it appears that the vehicle has logged fewer miles than it actually has. The National Highway Traffic Safety Administration estimates that consumers buy more than 450,000 cars with false odometer readings every year, costing them $1 billion dollars annually for extra repairs and maintenance.
 
Yo-Yo Financing
The dealer offers you financing for your new car at a low interest rate. You happily sign the paperwork and drive your car off the lot. Then, when you think the sale is behind you, the dealer calls to say that they can’t offer the interest rate in your contract after all. They might say, for example, that you don’t qualify for the low interest rate. Then they hike your interest rate.
 
Dealers use yo-yo financing to hook you with a great deal, then elevate your costs once you have your vehicle and are less likely to back out of the deal.
 
Buy-Lease Switch
You agree to buy a car. The contract seems vague, and you notice the word “lease,” but the dealer assures you that the car will be yours.
 
Some dishonest car dealers trick you into signing a lease agreement when you actually want to purchase a vehicle. If you see the word “lease” anywhere in the contract, it’s a lease agreement.
 
Military Scams
While buying a car, the salesperson learns that you’re in the Army and mentions that he served too. He says, in fact, that the dealership is affiliated with the US military. When you say that you’ll be relocated cross-country in a few months, the dealer says the car will be perfect for your new locale. But when you move, you discover that your car loan doesn’t transfer out-of-state.
 
Some dishonest dealers target members of the military because they tend to be young and inexperienced with financial transactions yet have steady income. They try to win them over by pretending to have a connection to the military. They might also mislead service members by claiming that they can take their new car wherever they’re stationed next, even if the car loan doesn’t allow the vehicle to leave the state or country.
 
Entrapment
You want to trade in your hatchback for a new car and the dealer asks for your car keys. You don’t find a new car you like, so you ask for your keys, but the dealer won’t relinquish them.
 
Aggressive car dealers may find ways to hold onto your car keys so you can’t leave the dealership. They might claim, for example, to have misplaced your keys. Meanwhile, the salesperson keeps trying to bargain with you, hoping to wear you down.

Dealership Scams Are Big Business

Auto dealer scams cost consumers billions of dollars every year according to the Federal Trade Commission.

How to Spot a Car Dealer Scam

To protect yourself during the car buying process, keep an eye out for the telltale signs of a shady dealership.

Before you shop

• Do your research so you know the fair market value of the vehicle(s) that interests you. Resources like Kelley Blue Book can help.
• Get pre-approved for a car loan if you’re financing the vehicle. Get a loan from an institution you can trust so you won’t need to worry about a greedy dealer trying to charge a high interest rate or otherwise get more money out of you. If you do get financing from the dealer, read the loan terms carefully. Credit unions are a great resource for car loans. They often offer lower interest rates than the larger banks.
• Research the dealerships you plan to visit. Look for dealerships that are accredited by organizations like the National Independent Automobile Dealers Association (NAIDA), the American International Automobile Dealers Association (AIADA) and the Better Business Bureau (BBB). It’s also a good idea to check online customer reviews on sites like Yelp, DealerRater, and Edmunds.

At the dealer

• Hold onto your car keys until the purchase is complete. That way, you’ll avoid an overzealous salesperson trapping you at the dealership in hopes of pressuring you into a sale.
• If you’re buying a used vehicle, check the vehicle identification number (VIN) on CarFax or the National Insurance Crime Bureau’s VINCheck to find out if a vehicle has had an insurance claim for theft or has been reported as a salvage vehicle by an insurance company.
• Ask to see the title of any used car you’re interested in buying. Compare the odometer’s mileage with the mileage noted on the vehicle inspection reports and maintenance records. If the numbers don’t make sense, the odometer might have been reset.
• Have your mechanic inspect any used vehicle so you’ll feel more confident about the car’s condition.
• Get any agreements in writing, from your purchase contract to your loan agreement. Keep an eye out for any unnecessary fees. If the dealer promised to repair a small dent at no cost to you, get it in writing
• Get clarification on any fees. You may be required to pay sales taxes, title and registration fees, and a documentation fee (for preparing and filing paperwork). But if the dealer tries to charge you any other “mandatory” fees or extra fees that are not mentioned in your contract, ask for details.
• Think twice about add-ons like extended warranties, window tinting, and upholstery fabric protection. The costs of add-ons can balloon your vehicle’s final sale price.
• If anything doesn’t feel right, trust your gut. If you have questions or concerns that the dealer can’t address properly, it’s best to walk away.

Report Auto Dealership Fraud

If you believe you’ve been a victim of auto dealership fraud, raise your concern with the dealer.
 
If they won’t resolve your issue, tell them that you plan to report it to state and federal agencies so they can investigate and, if appropriate, take legal action.
 
You can file a complaint with:

• your state’s consumer protection agency. In most states, this is a division within the attorney general’s office. Or your state’s Department of Transportation might have a department that handles complaints about auto dealers.
• the Federal Trade Commission (FTC), a federal agency that enforces laws preventing deceptive business practices.
• the National Highway Traffic Safety Administration (NHTSA), for vehicle safety issues.
• the Better Business Bureau’s (BBB) Auto Line. If you agreed to a misleading vehicle warranty or bought a lemon, you can file a claim with the BBB, and they’ll contact the business for you to help resolve the problem.

You might also want to leave a review of the dealership on sites like Google Reviews, Yelp, DealerRater, and Edmunds.
 
If you believe a dealer committed fraud or misrepresentation, you might want to contact an attorney with experience in consumer protection law. Once they learn the facts about your situation, they can advise you about your legal options. It’s best to speak to the dealer first, though, to give them an opportunity to fix the problem (and in some states, that’s required).

 
Sources:
Office of the Comptroller of the Currency, Truth in Lending Act, accessed September 26, 2024
 
Federal Trade Commission, Consumer Leasing Act, accessed September 26, 2024
 
Federal Trade Commission, Used Car Rule, accessed September 26, 2024
 
Federal Trade Commission, Magnuson Moss Warranty-Federal Trade Commission Improvements Act, accessed September 26, 2024
 
Department of Motor Vehicles, State of California, California’s Car Buyer’s Bill of Rights, accessed September 26, 2024
 
Federal Trade Commission, “Understanding Car Add-ons,” accessed September 26, 2024
 
National Highway Traffic Safety Administration, “Odometer Fraud,” accessed September 26, 2024
 
Federal Trade Commission, “Avoiding a Yo-Yo Financing Scam,” accessed September 26, 2024
 

 
This article was created in accordance with the Patelco editorial policy.