How To Avoid Getting Scammed At A Car Dealership

The Dealership Dilemma

Buying a car at the dealership can easily turn into a heated negotiation filled with mind games and pushy sales tactics.

That’s why you need to arm yourself with the right knowledge before you open those dealership doors. Otherwise they’ll eat you alive.

The dilemma is this: you’re trying to save as much as possible, and they’re trying to make as much as possible.

Their solution to this problem? Sales tactics that make it seem like you’re getting a good deal.

With a few psychological tricks, easy (but painful) financing options, and tricky add-ons you don’t really need, they can greatly increase the price of the car you want.

In fact, most cars will sell for 20-30% over MSRP on average, not even including any additional add-ons like paint protection, cleaning, warranties, or etching.

Here’s what you need to know and what tactics to look out for when you gear up to buy your new ride.

Understanding the Dealership’s Playbook

First, let’s break down how dealerships operate.

Think of it like their playbook…a series of moves designed to get the most out of the sale.

The first thing to understand is pricing psychology.

Ever notice that big sticker price plastered on the windshield? That's the list price, and let's just say it's not exactly your starting point for negotiation.

The real number you want to know is the invoice price, basically, what the dealership paid for the car from the factory. This is a much better benchmark for where you should aim in your negotiations.

And there’s another reason why they seem to show you the highest price cars right as you walk in. It’s a sales concept called anchoring.

Anchoring is a psychological strategy to influence your perceptions of price.

Initially, a salesperson might introduce a higher-priced car or model, setting a high benchmark in your mind as the buyer.

This high price serves as the anchor, making all other cars shown afterward seem more reasonably priced in comparison.

The salesperson may then show progressively cheaper models, enhancing the attractiveness of these lower-priced vehicles due to the initial high anchor.

Another common tactic involves quoting a price with all possible add-ons and premium features.

After the customer expresses budget concerns, the salesperson offers to remove these extras, reducing the price, which can make the customer feel like they are receiving a better deal.

This strategy strengthens the anchoring bias, where the first price presented heavily influences subsequent pricing judgments. The result? You pay more than you should have.

Add Ons And Upsells

Add ons and upsells are car dealerships’ secret weapons.

They can either significantly increase the price of your car, or (as mentioned before) can be removed by the customer to give them an illusion of power.

These are usually extended warranties, paint protection, that fancy nitrogen in your tires, VIN etching, etc. And while some might sound good at first glance, they can add a hefty chunk to the final price.

Here's the truth: most extended warranties aren't worth the paper they're printed on, and you can probably get a better deal on fabric protection elsewhere.

Learn to differentiate between what's genuinely useful and what's just padding the dealership's profits.

Here’s an example of just how much a car you want can be up-charged:

• Base Price: $25,000

Add ons:

• Extended Warranty: $2,500

• Paint Protection: $1,000

• Fabric Protection: $500

• Nitrogen in Tires: $200

• Wheel Locks: $150

• Window Tinting: $300

• Premium Floor Mats: $200

• VIN Etching: $250

• Total Add-Ons: $5,300

Final Price Calculation:

We started with a decent $25,000, but after all those extras:

• Total Cost Without Add-Ons: $25,000

• Total Cost With Add-Ons: $25,000 (Base Price) + $5,300 (Add-Ons) = $30,300

Just from the add-ons you’ll see there’s over a 20% price increase.

And these are charges on top of the price that the dealership is already inflating past their invoice price.

Remember, there is always wiggle room, with both the add-ons and the base price. So don’t settle on either.

The Four Square Method

A common dealership pricing trick is the four-square method.

It's basically a confusing way to present the price of the car, your trade-in value (if you have one), your down payment, and the monthly payment.

The goal? To make it seem like you're getting a better deal than you actually are by focusing on the monthly payment (which can be manipulated) instead of the total cost of the car.

It’s called the four-square method because the salesperson draws a large square on a piece of paper divided into four smaller squares.

Each quadrant represents a different component of the transaction: one for the vehicle price, one for the trade-in value, one for the down payment, and one for the monthly payment.

This layout is used to juggle numbers between the sections to distract you from the overall cost and focus your attention on the monthly payment, which is easier to manipulate by extending the term of the loan or adjusting other variables without you noticing.

Example of the Four-Square Method:

Imagine you're looking at a car priced at $20,000. You have a trade-in valued at $5,000 and you're willing to make a $1,000 down payment.

The dealer then proposes a monthly payment plan that seems affordable, but by adjusting the loan term and the interest rate, they make the overall deal more costly than it appears. For instance:

Car Price: $20,000

Trade-In Value: $5,000 (Dealer inflates this value to appear generous)

Down Payment: $1,000

Monthly Payment: $350 for 60 months

The dealer might focus on the trade-in value and monthly payment to distract from the total loan cost and interest rate, which could result in you paying more overall for the car.

This is why you should ask them to show you a clear breakdown of the total out-the-door cost with taxes and fees included. Transparency is your friend.

The Financing Trap

Understanding how interest rates on financing can affect you is crucial to avoid being scammed.

Always inquire about both the annual percentage rate (APR) and the total amount of interest you'll pay over the life of the loan, as lower monthly payments might conceal a longer loan term with higher overall costs.

Dealers might also offer low introductory rates that could dramatically increase after a short promotional period.

To protect yourself, secure financing quotes from multiple sources, including your bank or credit union, before going to the dealership, giving you a baseline for comparison. It’ll be like a secret weapon.

And remember, don't hesitate to negotiate the interest rate offered by the dealership, as these are often not fixed and can be adjusted based on your creditworthiness and negotiation skills.

You’ll also need to protect your credit with your life when you’re shopping for cars.

Your credit will help you get lower interest rates on your payments, which is why the dealership needs to check it. But these credit checks can actually really hurt your credit score.

These credit checks can either be soft inquiries which do not affect your credit score, or hard inquiries which can, especially if multiple are made over a short period.

Be cautious and confirm the type of inquiry beforehand to avoid unnecessary impacts on your credit score. If your credit is already less than stellar, be prepared for potentially high interest rates.

External Financing For Better Terms

Dealership financing can be appealing due to its convenience and the potential for promotional offers like low interest rates or rebates.

However, these perks often come with fine print that could end up costing more in the long run.

Dealerships might focus negotiations on monthly payments instead of the total loan cost, which can obscure the actual expense of the car and the financing, such as with the four square method.

Opting for a loan from a bank or credit union usually offers more competitive interest rates and clearer terms.

Plus, getting pre-approved for a car loan can strengthen your negotiating position, allowing you to focus on the car's price without the complications of financing terms. This clear separation can lead to a better overall deal.

Pro Buyer Strategies To Use

Before you even step foot on a dealership lot, do your research. Know the car's true market value…resources like Kelley Blue Book are your friends here.

Read reviews, compare similar models across dealerships, and get a clear idea of what a fair price looks like. The more informed you are, the harder it will be for dealerships to pull any fast ones.

Now let's talk about the art of the negotiation.

Here's a key point: dealerships are used to haggling on price, but don't get hung up on the monthly payment. Focus on negotiating the total cost of the car, including taxes and fees.

Be firm, be polite, and know your walk-away point (the price you absolutely will not exceed). If they won't budge, be prepared to walk away. There's a good chance they'll chase you down with a better offer either literally or the next day over the phone.

Finally, timing is everything. Did you know that dealerships are more likely to offer significant discounts towards the end of the month or year? 

They're under pressure to meet sales quotas, and you can use that to your advantage. If you're flexible with your timeline, waiting for these sales periods can save you some serious cash.

The BMM Takeaway

Buying a car is a bit of an eternal struggle.

You want the best deal, dealerships want to maximize their profit. That's the nature of the game.

But by being prepared, informed, and armed with the knowledge you've gained here, you can level the playing field and score a ride you love without breaking the bank.

Lastly, remember that confidence is key. Dealerships can sense when someone is unsure, and they'll pounce. It also helps to bring someone along to even the odds.