The Forced Extended Auto Warranty Scam

The forced extended auto warranty scam commonly takes place in the finance department.

The forced auto warranty scam is also known as the “Back End Products Scam” or “Hidden Warranty Scam.”

This unethical dealer scam occurs when a dealer incorporates additional financial items, such as an extended warranty or other supplementary products, into your auto loan without disclosing them to you at the time of signing the contract.

What is the Forced Extended Warranty Scam?

This scam is commonly attempted when you are about to sign the paperwork for your new (or used) car.

The finance manager tells you the lender will not approve your loan unless you purchase an extended warranty, GAP insurance, credit life and disability, or some other back-end product the dealer sells.

Never let a car dealer tell you that you must purchase an extended warranty before a lender approves you for a car loan. This is false and illegal.

The forced warranty or back-end products scam is typically used on car buyers trying to finance a vehicle with poor or bad credit.

Dealers know people in these situations need transportation and are just excited about being approved. Making it easier to convince someone needing a car to fall for this scam.

Dealers may use this scam on people with good credit as well.

How the Forced Extended Warranty Scam Works

You visit some car dealerships shopping for a new car. After looking around, you finally find the perfect vehicle you’d like to buy. You enter the showroom and spend a few hours arguing back and forth with the salesperson and management. Finally agreeing to a price, you’re about to meet with the finance manager and sign all the paperwork. Now all you can do is sit and wait when you want to drive your new car.

You finally get into the finance office and meet with the finance manager. He tells you the lender will not approve you unless you purchase an extended warranty for the vehicle. He explains further that the lender wants to make sure you can still afford the payments if you have any unexpected repair costs because of a mechanical breakdown.

There are several excuses a finance manager may give you why a lender requires you to buy an extended warranty or other high price back-end products.

If you’re purchasing a used car, he could inform you that your lender needs you to get an extended warranty due to the high mileage on the vehicle. Your lender wants to ensure that you can continue making payments on the car by providing you with insurance if it breaks down.

With the price of new cars, this explanation is starting to become more popular when attempting this scam. The lender requires you to purchase an extended warranty because of the extended term of your requested car loan.

If you refuse all back-end products – If you refuse to buy back-end products from a finance manager. Be careful with the unethical F&I Managers out there; 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 protect the lender.” LIAR! He’ll 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!

By Law, a lending institution cannot require a customer to purchase an extended warranty, GAP insurance, credit life, disability, or other back-end finance products.

Please don’t make a mistake and think I believe purchasing an extended warranty or GAP insurance is a wrong decision.

I believe they’re excellent products and will protect you if something was to go wrong with your vehicle.

Back-end products such as these are optional, and it should be your choice to buy them or not.

How a Dealer May Try and Set You Up

A widespread practice by car dealers is preload or “pack your auto loan payments” when negotiating payments with a customer.

When initially quoting monthly payments to the customer, the dealer artificially inflated the payments for the vehicle by adding an extended warranty or other back-end products into the deal.

Payment packing is one of the most common car buying scams in car dealerships today.

If a customer inquires about the extended warranty, the salesman may tell them that it’s included with the car or in the payment. The salesperson isn’t exactly lying.

However, he leads you to believe the extended warranty or back-end products are free when they are not. It’s all in the wording. When discussing price and payments, be careful to listen to the way numbers are presented to you.

What Warranty Costs Add to Your Monthly Payment

Here are a few examples of how a $2,000.00 forced extended warranty or back-end products will affect your monthly car payment. There is no sales tax or additional fees in the example below.

Additional cost of an extended auto warranty

$2,000 at 6% for 48 months = $47.00/mo = $2,246.00 Total
$2,000 at 6% for 60 months = $39.00/mo = $2,340.00 Total
$2,000 at 11% for 48 months = $52.00/mo = $2,496.00 Total
$2,000 at 11% for 60 months = $43.00/mo = $2,580.00 Total
$2,000 at 18% for 48 months = $59.00/mo = $2,832.00 Total
$2,000 at 18% for 60 months = $51.00/mo = $3,060.00 Total

As you can see from the example above, letting a car dealer slip a $2,000.00 warranty in on you without your knowledge will end up costing you even more over the life of your car loan.

This amount can be even higher if the dealer slips in other back-end products such as GAP, credit life, and disability insurance.

I cannot stress enough how important it is to take your time, do your homework, and read everything before you sign.

How to Avoid the Extended Warranty Scam

Never negotiate a new or used car’s price based on payments or down payment alone. You will lose money negotiating with this technique. Always research the dealer’s actual cost of the vehicle you want to buy.

Read my section on calculating a fair profit new car offer to learn how to do this.

Never Buy a Car Based on Payments Alone!

Arming yourself with this information before visiting a dealership will keep a car dealer from being able to force any back-end products into the car deal without your knowledge.

Suppose a finance manager tries to pull this kind of dealer scam on you while you’re in the finance office. Ask them to see the callback or approval sheet where the lender requires you to purchase an extended warranty or other back-end products.

If he starts to backtrack or make excuses, tell him you believe he is trying to force these products on you and that you do not want to purchase them. If he’s persistent, ask him to put it in writing that you must purchase an extended warranty or certain back-end products before you are approved for a car loan.

Always read everything and have the finance manager explain the numbers. If you don’t understand something, have them explain it until you do. If you find something added to your car deal like a warranty, credit life, disability insurance, or GAP, and you did not agree to it. Have them explain it or remove it from the deal altogether.

If the finance manager insists you must purchase any additional products you don’t want, kindly thank him for his time and GET UP AND WALK OUT IMMEDIATELY! Your car salesman or a sales manager will approach you and ask what happened. Some finance managers may work independently and get into serious trouble by attempting this kind of scam in some dealerships.

Once you sign the contract, it’s a DONE DEAL. Consider yourself an OWNER!

Most finance managers work on a commission-based pay plan. This means that the more money they make for the dealership, the more money they get to put in their pockets.

This is why they don’t just inflate warranty prices; they will also mark up GAP insurancecredit life and disability insurance, and other back-end products hundreds, if not thousands, of dollars.

Further Tips and Advice

Further tips and advice on the forced extended warranty scam:

  • Before visiting a car dealership, get some free auto warranty quotes from reputable online auto warranty companies. You can even use their quotes as leverage when negotiating with a car dealership.
  • NEVER negotiate the price of a new or used car based on monthly payments alone.
  • Get new car price quotes on the car you’re interested in before visiting a car dealership.
  • Only finance a vehicle through a car dealership as a last resort.
  • Use outside finance sources to get a pre-approved car loan, such as your bank or credit union, or for the best interest rates, use online auto finance services.
  • All finance and insurance products are optional. (It’s your choice to purchase them, they cannot force you to buy)
  • Get GAP insurance or Total Loss insurance quotes from a reputable company before going to a car dealership.
  • Always read everything you sign. I can’t count how many times people have confronted me, days or weeks later, and told me they did not agree to purchase an extended warranty or did not realize the warranty price was $2,500. It’s incredible to me how many people don’t read what they’re signing, especially when buying something expensive like a car. You must read everything BEFORE signing it!
  • Read everything and pay attention, don’t let the dealer sneak any products into your car deal without your knowledge. (Yes, I put this one down twice. It’s that important.)

If You Believe You’re a Victim of the Forced Warranty Scam

GAP insurance is a necessary item if you lease or buy a car with little or no money down and owe more on it than it’s worth. You have only a few options to purchase GAP coverage. Some are more expensive than others.

Your car insurance company – You may also get some form of GAP insurance through your car insurance agent. An insurance company may not call their coverage GAP insurance. Still, you will want to ask them what kind of insurance they offer that will cover the amount between the actual cash value (ACV) of your total loss and the remaining balance you owe.

They may tell you depreciation of a vehicle is not an insurable loss. If this is the case, you may want to explore purchasing GAP insurance through your loan officer or attempting to purchase it at the car dealership where you buy the car.

The finance company you get your car loan through – GAP insurance usually is available through your finance company. You can ask your loan officer what types of GAP insurance are available to you. Keep in mind that the purchase price of GAP insurance is ordinarily negotiable.

The car dealership you buy your car from – You have the option to purchase GAP insurance from a car dealership. I do not recommend it, though. Car dealers may charge anywhere from $295 to $1,000 for GAP coverage on a single car.

About the author
Carlton Wolf is the author and founder of Auto Cheat Sheet.My name is Carlton Wolf, and I’ve been in the car business since 1994, both retail and wholesale. I created the Auto Cheat Sheet to better educate buyers about the deceptive sales practices used by many dealerships throughout the country. Please understand that not all car dealers are dishonest. However, you never know who you’ll be dealing with, though. I’m willing to share my knowledge and experience with anyone who listens. Keep in mind that I’m a car guy, not a writer.