Deferred Down Payment Car Dealer Scam Exposed
Everything you ever wanted to know about the "Deferred Down Payment Car Dealer Scam" but didn't know who to ask.
All about the Deferred Down Payment Scam:
- The "Deferred Down Payment Scam" explained.
- How the "Deferred Down Payment Scam" works.
- What you can do before doing a deferred down payment at a car dealership.
- What is a hold check agreement?
- How the "Deferred Down Payment Scam" can hurt you financially.
- How to avoid the "Deferred Down Payment Scam."
- How to further protect yourself from the "Deferred Down Payment Scam."
The Deferred Down Payment Scam Explained.
The Deferred Down Payment Scam is another scam used in many car dealerships across the Nation to this day. In the car dealership world it's treated like it's "no big deal." It's used when a customer is not able to pay the entire down payment amount up front at the time of purchasing a vehicle.
Never let a car dealer talk you into putting more money down than you can afford!
A dealer will let the customer make payments to the dealer for the remaining balance of the required down payment. These payments are called deferred down payments. This situation becomes a scam when car dealers do not add this itemized information such as the date the checks are due and the balance of payments into the contract and thus creates obligations that aren't included in the purchase agreement or a single document.
How the Deferred Down Payment Scam Works.
You go out and find a nice new car you'd like to buy. You negotiate the price and the dealer tells you if you put $3,500.00 down your payment will be right where you want it to be. Only problem is you only have $2,000.00 to put down. You tell the car salesman you don't have that much money and will just have to wait to buy the car, so you can save up some more money.
The car salesman is going to do or say whatever it takes to sell you a car NOW. He says to you, "No problem, I can help you out. We can take "hold checks" for the remaining balance." The car salesman will then discuss with you a payment plan with you on how you will pay the remaining $1,500.00 balance.
You decide to write three checks for $500.00 a piece over the next three months. The dealer has you sign, "hold check agreements" for each check allowing the dealer to deposit the checks on dates you've agreed upon.
What you can do before doing a deferred down payment with a car dealership
Get a pre-approved auto finance loan though an outside finance source such as a bank, credit union or for the best rates use an online auto loan company. Online auto finance companies don't have the overhead most banks and credit unions have, read our section on how to find low interest car loans online to learn how easy it is to get free, no-obligation car loan quotes from these companies.
How to Get the Lowest New Car Price Online
What is a Hold Check Agreement?
A hold check agreement is a form that states the agreed upon date the check they're holding for you will be deposited on, the amount to be deposited and any provisions regarding any returned check fees that may be incurred. The hold check agreement will then be signed and dated by the car dealer and the person whose name is on the check. Rather than disclosing deferred down payments as required hold check agreements create obligations that aren't included in the single document or purchase agreement.
Even though most car dealerships will run hold checks through a company like TeleCheck before accepting them as a form of payment. Some hold check agreements have a section on them where you must add a credit card number in case your check doesn't clear. A car dealer will not hesitate to deposit your check or run your credit card on the date you've agreed to.
How the Deferred Down Payment Car Dealer Scam can hurt you financially
It's funny how us humans will succumb to the pressures and do whatever it takes when we want something right away. Car dealerships and their salesman understand these emotions and know how to use them against you. If you're not careful and keep focused, agreeing to write hold checks to a car dealer can put a hurt on you financially.
Using the above example of writing three checks for $500.00 to be deposited over the next three months. You have created an unexpected extra debt load for yourself. Not only do you have to pay the car dealer $500 a month towards your down payment obligation for the next three months. You also have to pay your new car payment, car insurance and your normal every day bills.
How to Find a Pre-approved Low Interest Car Loan Online Before Contacting a Car Dealership
How to avoid the Deferred Down Payment Scam
The easiest way to avoid the deferred down payment scam is to not buy a new or used car until you have the full down payment. If you can't afford a down payment of at least 15-20% you should at least put down an amount equal to the tax, title and registration fees.
Although we don't recommend it, if you have a strong credit history and excellent credit score, you can buy a car with $0 down. You should always be aware of what is on your credit reports and know your score before applying for any kind of credit or loan. You don't want the company your applying with to know more about your credit history than you do, this will put you at a serious disadvantage. Read our section on how to get your credit report & score online to learn how to get your credit history and why you should review it.
Putting at least a 15-20% down when buying a new or used car puts you in great shape when it comes to saving on finance charges, bank fees, financing for shorter terms and keeping you from being in an upside down position in your vehicle.
Never negotiate to buy a vehicle based on monthly payments or down payment. If you negotiate in this fashion you are sure to pay too much when buying your next new or used car.
How to further protect yourself from the Deferred Down Payment Scam.
- Only use car dealership financing options as a last resort.
- Never give car dealerships cash or a check as your down payment. Only use a credit card.
- Explore finance options through your bank, credit union or free online auto finance services.
- Figure the car dealer's true cost and calculate a fair offer on any new car you want to buy before visiting a dealership.
Familiarize yourself with the most common Car Dealer Scams committed in dealerships nationwide.
Car Dealer & Salesman Scams Exposed Index