The Payment Packing Car Dealer Scam

The payment packing scam is a negotiation tactic that is an illegal practice.

The payment packing scam, also known as the “loaded payments scam,” happens in car dealerships across the nation every day.

Payment packing occurs when a customer begins negotiating payments with the car dealer. I will show you how to recognize and avoid this common car dealer scam.

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What is Payment Packing?

Payment Packing is when a car dealer presents a much more inflated monthly payment to a customer during the negotiation process when buying a car.

Before presenting the initial payments to the customer, the dealer will inflate the price of the vehicle, add backend products, or increase the interest rate before calculating the customer’s payments on the car. The dealer may choose to inflate ( pack ) only one or several areas before presenting the payments to the customer.

This gives the dealer maximum room to work when negotiating car payments with the customer.

Once an uneducated customer agrees to a payment higher than the actual payment for just the car itself, the dealer can now add warranties, rustproofing, fabric sealant, etc., to fill the gap between the actual payment and the payment agreed to by the customer.

Before presenting the initial payments, the manager will inflate the price, increase the interest rate, and add all the backend products they can before calculating the term and payment on the vehicle.

Never Negotiate or Buy a Car Based on Monthly Payments or Down Payment Alone!

The payment packing scam is committed around 95% of the time during the negotiation process, making it one of the nation’s most common car buying scams.

How the Payment Packing Scam Works

You’ve picked out the vehicle you want to buy and are about to start the negotiation process. The car salesman goes to the sales manager to get the payments and terms.

When the salesperson initially brings your information to the sales manager. The sales manager will ask the salesman what areas of the car deal you are most focused on. These areas might be the car’s price, interest rate, trade, down payment, etc. Armed with this information, the manager can adjust or manipulate numbers in different areas to increase your payments.

He can do one thing or a combination of things to inflate your monthly payment before presenting these figures to you.

Your car payment should be: You have spotless credit and buy a vehicle for $18,000. 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. (TT&L not included in example)

What the dealer claims your payment is: The car salesman comes back with a payment of $379.00 a month and will attempt to close you at it or as close to it as possible.

How a Dealer Packs a Car Payment

There are many ways a sales manager may manipulate the deal. Here are some of the most common ways a manager can pack your payments

Falsely increase your interest rate by a few points.
Hold on the trade. (Show less value than what your trade’s worth)
Artificially inflate the price of the car.
Add a $2,000+ warranty or backend products to the car deal.
Decrease the down payment amount without your knowledge.
Just write down a higher car payment and attempt to close you on it.
A combination of any or all of the above techniques.

The reason dealers use the payment packing scam is to increase their chances of making more gross profit on the car sale. This increases the commissions of the sales managers and car salesman and the overall profit for the car dealership.

It also helps the finance manager by giving you the illusion that the backend products he’s offering you are not as expensive.

Once you agree to the monthly payment: Once you agree to the monthly payment, you will be sent to the finance manager to sign all the paperwork for your new car.

The finance manager will attempt to sell you backend products such as an extended warranty, GAP, credit life, and disability insurance. The total for all these backend products is $50.00/mo over the life of the car loan.

Suppose the sales manager in the above example presented you with the actual 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 payment $388.00.

Suppose the manager closes 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 backend products. It sounds like you’re getting a great deal. 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 managers have excellent relationships with sales managers and work hand-in-hand at a car dealership.

When Does Payment Packing Become Illegal?

I’m not an attorney and do not practice law. You will want to contact your attorney if you believe you were the subject of the vehicle payment packing scam.

Payment packing becomes illegal once:

The dealer has obtained and reviewed a credit report on the customer.
The sale price has been disclosed to the customer.
The term of the loan has been announced.
The finance rate has been revealed.

In my career, I’ve witnessed this technique being used time and time again in multiple dealerships. I have never seen anyone win a lawsuit or be able to prove they were a victim of this scam in a court of law.

How Much Can the Payment Packing Scam Cost You?

The amount can vary from a few hundred to several thousand dollars over the life of a car loan. It depends on how effective the scam is against you.

Sometimes a sales manager will load a customer’s 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 on the car deal.

The sales manager may tell the finance manager he’s added a “$50 fluff.” The finance manager knows the customer is closed at a payment of $50 higher than what the actual payment is.

$50 X 60 months = $3,000.00!
That’s before interest and on top of any regular money made on one car deal!

An ethical finance manager will disclose your base payment before offering additional backend products. Not doing this is illegal. Suppose you choose to decline any backend products like warranties and such. The finance manager should lower your packed payment to the original actual monthly payment of the car.

If you refuse backend products, some unethical finance managers will attempt to add the packed money back to the price of the car or reverse the funds out of your trade balance.

When you refuse to buy backend products from a finance manager, 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 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!

No bank or lender, by law, can require a customer to purchase an extended warranty or GAP insurance.

Please don’t make a mistake and think I believe purchasing an extended warranty or GAP insurance is a wrong decision. They are excellent products and protect you if something goes wrong with your vehicle.

I also believe it should be your decision to purchase additional products or protection.

How to Avoid the Payment Packing Dealer Scam

Competition between dealers always gets the best price; use the Internet to get competitive new car price quotes online.
Only use car dealership financing options as a last resort.
Check current finance programs and apply with your bank or local credit union, or for the best interest rates, inquire about online auto finance services.
Knowing your interest rate and the price of the vehicle allows you to calculate your estimated payment before contacting a car dealership.
Carefully read and understand everything you sign.
DO NOT let a car dealer or salesperson talk you into putting down more money than you can comfortably afford.
Don’t talk to several salespeople at the same time. Dealers may use this technique to confuse you into purchasing a car without making an excellent car-buying decision.
Do your homework first before contacting a car dealership. Decide on the vehicle you want to buy and determine the dealer’s actual new car cost before making an offer.
Don’t visit a car dealership alone. Take a close friend or family member with you. Fast-talking salespeople are very talented in manipulating you into buying something you don’t want or, worse yet, can’t afford.

How to End the Payment Packing Game

Car dealers will play cat and mouse games with you regarding the payment packing scam. An example would be if you were to ask about the sales price of the car. They will tell you and then pack profit in other areas of your loan without your knowledge.

To quickly 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’re using.

Ask the dealer if the monthly payment they’re presenting to you is just the base payment for the vehicle? If they say no, ask what’s been included and tell them you want to see the payment for just the car only.

Having a car dealer disclose all of the above information upfront makes them stay within the limits of the law and lowers their risk of being investigated by the Attorney General’s Office or the Department of Motor Vehicles.

About the author
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 many dealerships use nationwide. 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.