I Didn’t Agree to Buy That
The forced auto warranty scam is also known as the “Back End Products 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.
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The scam is most commonly attempted when you’re 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 and/or GAP insurance, credit life, and disability, or some other back-end product the dealer’s selling.
Never let a car dealer tell you that you must purchase an extended warranty before a lender will approve you for a car loan. This is false and illegal.
The forced warranty or back-end products scam is normally 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. This makes it easier to convince someone in need of a car to fall for this scam. However, this scam may also be used on people with good credit.
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You visit some car dealerships shopping for a new car. After looking around you finally find the perfect car you’d like to buy. You go inside the dealership and do the back-and-forth with the car salesman and his manager for a couple of hours. 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 really just 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 and explains to you 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 different excuses a finance manager may tell you why a lender is requiring you to buy an extended warranty or other high price back-end products.
If you’re buying a used car he may tell you the lender is requiring you to purchase an extended warranty because of the excessive miles on the vehicle and the lender wants to make sure that you can still pay for the vehicle by having protection if the vehicle was ever to breakdown.
With the price of new cars, this explanation is starting to become more popular when attempting this scam. The lender is requiring 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:
By Law, a lending institution cannot require a customer to purchase an extended warranty, GAP insurance, credit life, disability, or any other backend finance products.
Please don’t make the mistake and think I believe purchasing an extended warranty or GAP insurance is a bad decision. I believe they’re very good 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.
A very common practice by car dealers is to 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 and/or other back-end products into the deal. Payment packing is one of the most common car buying scams in use 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 it’s included in the payment. The salesperson isn’t exactly lying. However, he is leading you to believe the extended warranty or back-end products are free when they are not. It’s all in the wording, when you’re discussing price and payments, be careful to listen to the way numbers are presented to you.
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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.
$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 also. I cannot stress enough how important it is to take your time, do your homework, and read everything before you sign.
Never negotiate a new or used car’s price based on payments or down payment alone. You will lose money negotiating using this technique. Always research and personally figure the dealer’s true 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.
If 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 is requiring you to purchase an extended warranty or any other back-end products.
If he starts to backtrack or make up excuses, tell him you believe he is trying to force these products on you and you do not want to purchase them. If he’s persistent, tell him to put it in writing that you must purchase an extended warranty or certain back-end products before you will be approved for a car loan.
Always read everything and have the finance manager explain all the numbers to you. 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 completely.
If the finance manager insists you must purchase any extra products you don’t want, kindly thank him for his time and just GET UP AND WALK OUT IMMEDIATELY! Your car salesman or a sales manager will surely approach you and ask what happened. Some finance managers may work independently and will 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 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 insurance, credit life, and disability insurance, and other back-end products hundreds, if not thousands, of dollars.
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Further tips on the forced extended warranty scam:
