The Payment Packing Car Dealer Scam Exposed
Everything you ever wanted to know about the "Payment Packing Car Dealer Scam" but didn't know who to ask. Also known as the "Packing Payments Scam".
All About the Car Dealer Prep Fee Scam:
- Definition of "Car Payment Packing" at a car dealership.
- How the "Car Payment Packing Scam" works at a dealerhip.
- Sneaky options availble to the car dealer to increase your payment without your knowledge.
- When does the "Payment Packing Scam" become illegal?
- How much can the "Payment Packing Dealer Scam" cost you over the life of your car loan?
- How to avoid the "Payment Packing Car Dealer Scam".
Definition of "Payment Packing" in a car dealership.
Payment Packing is when a car dealer presents a much more inflated car loan monthly payment to a customer during the negotiation process when buying a car.
One of the most common car buying scams found in car dealerships across the Nation. The Payment Packing Scam is committed 95% of the time during the negotiation process when presenting car payments to a customer.
Never Negotiate to Buy a Car Based on Monthly Payments and Down Payment Alone!
How the Vehicle Payment Packing Scam Works
You've picked out a car you want to buy and you are about to start the negotiation process. The car salesman went to the Sales Manager to get the payments.
What your car payment should really be:
You have spotless credit and you're buying a vehicle for $18,000.00. You decide to put $3,600.00 down and finance for 48 months at an interest rate of 6%. Your monthly car loan payment should be $338.00. (TT&L not included in example)
What a car dealer will do here is inflate your payment:
Instead of telling you the true monthly payment of the car. They will inflate the payment to $377.00 for example and try to close you on the higher payment or as close as possible to it.
A Sales Manager will ask the salesman what areas of the car deal you're most worried about. These areas might be the car's price, interest rate, trade, down payment, etc. Knowing this information a Sales Manager can adjust something else to increase your payments. He can do one thing or a combination of things to inflate your monthly payment before presenting the figures to you.
Sneaky options available to the Sales Manager to increase your payment:
- Falsely increase your interest rate a few points.
- Hold on your trade amount. (Show less trade value than what your trades really worth)
- Artificially inflate the price of the car you want to buy.
- Add a $2,000.00 warranty or back end products to your car deal without your knowledge.
- Decrease your down payment without your knowledge.
- Just write down a higher car payment and try to close you on it.
The reason behind the Payment Packing Scam is to increase the gross profit on the car sale. This increases the commissions of the Sales Manager's, car salesman and the overall profit for the car dealership. It also helps out the Finance Manager by giving you the illusion the back end products he's offering you are not as expensive.
Once you agree on the monthly payment:
Once you agree to the monthly payment you will be sent to the Finance Manager to sign all your paperwork for your new car. The Finance Manager is going to attempt to sell you back end products such as an extended warranty, GAP, credit life and disability insurance. The total for all these back end products is $50.00/mo.
If the Sales Manager in the above example presented you with the true car loan payment of $338.00. The Finance Manager will have to convince and sell you on adding $50.00 a month to your payment for all these additional products. Making your total monthly car loan payment $388.00.
By closing you at the higher packed payment before reaching the Finance Department. The Finance Manager only needs to bump you $11.00 from $377.00 to $388.00 for all those juicy back end products. Sounds like you're getting a great deal doesn't it? Yeah, right.
It's much easier to show the value someone will get for only $11.00 more a month, than $50.00. As you can guess, Finance Manager's have very good relationships with the Sales Managers at the desk.
How to Find a Pre-approved Low Interest Car Loan Online Before Contacting a Car Dealership
When does the Payment Packing Scam Become Illegal?
I am not an attorney and do not practice law. If you believe you were the subjects of the vehicle payment packing scam you will want to contact your personal attorney.
Payment Packing becomes illegal once:
- The dealer has obtained and reviewed a credit report on the car buyer.
- The sale price has been disclosed to the customer.
- The term of the loan has been disclosed.
- The finance rate has been disclosed.
I've owned car dealerships and I've held several positions in several different car dealerships. I've witnessed this scam being committed several thousand times. I have never seen anyone in my career win a lawsuit or be able to prove; in a court of law this scam was committed on them.
How to Get the Lowest New Car Price Online
How much can the Vehicle Payment Packing Scam Cost You?
The amount can vary from a few hundred dollars to several thousand dollars over the life of the car loan. It really just depends on how effective the scam is if it's used against you.
Sometimes a Sales Manager will just pack a customers payment a certain amount and move on to the next victim. The Sales Manager will leave it up to the Finance Manager to ensure the maximum profit is made on the car deal.
The Sales Manager may tell the Finance Manager that he has "$50 fluff" or "$50 worth of leg." This let's the Finance Manager know that the customer is closed on a car payment higher than what it really is.
Car dealers make a LOT of money from unsuspecting customers with this scam. $50 X 60 months = $3,000.00!
That's before interest and on top of any regular money made on the car deal!
An ethical Finance Manager will disclose your base payment before offering you any additional back end products. Not doing this is illegal. If you choose to decline any back end products like warranties and such. The Finance Manager should lower your packed payment to the original true monthly payment of the car.
If you refuse back end products. Some unethical Finance Manager's will attempt to add the packed money back to the price of the car or reverse the money out of your trade balance.
When you refuse to buy back end products from a Finance Manger and they know they have "fluff" in the payment. They may resort to deceitful tactics using statements like:
- "If you purchase an extended warranty and GAP insurance also. I can get you a better interest rate and approval because you're protecting the lender." LIAR! He'll just move the numbers around to give you the illusion you're getting a better deal.
- "I worked very hard on your car deal. The only way I could get your deal approved was by adding an extended warranty and GAP insurance to the deal." LIAR, LIAR Pants on Fire!
Remember, no bank, by law, can require a customer to purchase an extended warranty or GAP insurance. You can read more about the Forced Extended Warranty Scam here.
Please don't make the mistake and think I believe purchasing an extended warranty or GAP insurance is a bad decision. I believe they are very good products that will protect you if something was to go wrong with your vehicle. I do believe that back end products such as these are optional and you should have a choice to buy them or not.
How to avoid the Payment Packing Car Dealer Scam
- The easiest way to avoid the payment packing scam is to visit online automotive research sites to obtain low discount Internet pricing before visiting a car dealership. Read our tips here - How to get the Lowest New Car Price Online.
- Only finance a car with a dealership as a last resort. Check current finance programs and apply with your bank, local credit union or use online auto finance services for the best interest rates.
Car dealers play a cat and mouse game with you when it comes to the payment packing scam. An example would be if you asked what the sales price of the car is. They will tell you and then pack profit in other areas of you loan without your knowledge.
To easily end all these deceitful games ask the dealer to:
- Disclose the vehicle's sales price.
- Disclose the total amount financed.
- Disclose the actual cash value of your trade. (If applicable)
- Disclose the term of your car loan.
- Disclose the estimated interest rate they are using to figure your car loan monthly payment.
Also ask the dealer if the monthly payment they're presenting to you is only for the vehicle that you want to buy, and there is nothing else added to the payment.
Having a car dealer disclose all of the above information up front makes a car dealer stay within the limits of the law. Not doing so they will risk being visited by the Attorney General's Office or the Department of Motor Vehicles.
Familiarize yourself with the most common Car Dealer Scams committed in dealerships nationwide.
Car Dealer & Salesman Scams Exposed Index