The payment packing scam, also known as the "loaded payments scam," happens in car dealerships across the nation all day, every day. The Auto Cheat Sheet will show you how to recognize and avoid this nasty little scam altogether.
Payment packing takes place when a customer starts the negotiation process with the car dealer. The dealer will inflate the price of the vehicle, add in backend products, and increase the interest rate before calculating the customers payments on the vehicle their interested in. This gives the dealer maximum room to work when negotiating the car payments with the customer.
Once an uneducated customer agrees to a payment that's higher than the actual payment for just the car, the dealer can now add warranties, rust proofing, fabric sealant, etc. to fill in the gap between the true payment and the payment the customer agreed too.
Definition of "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. 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.
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.
How the Vehicle Payment Packing Scam Works
You've picked out the vehicle you want to buy and you're about to start the negotiation process. The car salesman went to the sales manager to get the payments and terms.
What your car payment should really be: You have spotless credit and you're buying 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 dealer presents you a payment will be $377.00 a month and try to close you at it or as close to it as possible.
A sales manager will ask the salesman what areas of the car deal you're 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 the numbers in a different area 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.
Use this handy Car Payment Estimator to estimate the payment on any vehicle.
How the Manager Packs Your Payment:
- Falsely increase your interest rate a few points.
- Hold on the trade. (Show less value than what your trades really worth)
- Artificially inflate the price of the car.
- Add a $2,000 warranty or backend products to the car deal.
- Decrease your down payment 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.
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, car salesman, and the overall profit for the car dealership. It also helps out the finance manager by giving you the illusion the backend 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 the paperwork for your new car. The finance manager is going to attempt to sell you backend products such as an extended warranty, GAP, credit life and disability insurance. The total for all these back end products is $50.00/mo over the life of the car loan.
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 payment $388.00.
If 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. 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 a car dealership.
When Does this Scam Become Illegal?
I'm not an attorney and do not practice law. If you believe you were the subject 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 customer.
- 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 Much will Payment Packing Cost You?
The amount can vary from a few hundred dollars to several thousand dollars over the life of a car loan. It really just depends on how effective the scam is if it's used against you.
Sometimes a sales manager will just 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 is made 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 $50 higher than what the true payment really is.
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 backend 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 backend 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 backend 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!
No bank or lender, by law, can require a customer to purchase an extended warranty or GAP insurance.
Visit my article on the forced warranty dealer scam to read more.
Please don't make the mistake and think I believe purchasing an extended warranty or GAP insurance is a bad decision. They are very good products and will protect you if something was to go wrong with your vehicle.
I also believe it should be your decision to purchase additional products or protection.
How to avoid the Payment Packing 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, local credit union, or for the best interest rates inquire with online auto finance services.
- Already knowing your interest rate and the price of the vehicle allows you to calculate what your estimated payment will be before contacting a car dealership.
- Carefully read and understand everything you sign and agree too.
- 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 attempting to confuse you into purchasing a car without making a good car buying decisions.
- Do your homework first before contacting a car dealership. Decide on the vehicle you want to buy and figure the dealer's true new car cost before making them 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.
Car dealers will play a cat and mouse game with you when it comes to the payment packing scam. An example would be if you where to ask about the sales price of the car. 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're using.
Ask the dealer if the monthly payment they're presenting to you is just the base paymentfor the vehicle? If they say no, ask what's been included and tell them you want to see the payment for just the vehicle only.
Having a car dealer disclose all of the above information up front makes them stay within the limits of the law and lower their risk of being investigated by the Attorney General's Office or the Department of Motor Vehicles.
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