Seeking the Truth While Buying Cars

Avoid Scams and Dirty Tricks

Vehicle Condition Scams

Lemons: Hiding Mechanical Trouble

The most common scams involve hiding mechanical trouble with the vehicle or simply not ensuring the car is up to quality standards. There are many ways to hide a lemon, depending on what's wrong. For instance, if a car starts and runs poorly when cold, a seller might only show after it's warmed up.

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Odometer Rollbacks

Rolling back the odometer (or lying about the mileage - 175,000, not 75,000 miles) is the oldest trick in the book.

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Hiding Structural Damage

Sellers may try to hide a major accident that has permanently damaged the vehicle.

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Financing Scams

Making Your Credit Seem Worse Than It is

The finance manager lies and tells you that your credit score is lower than it actually is. Now, you have to pay a much higher car loan interest rate than you planned.

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Not Paying Off Your Old Car Loan

The dealer says he'll obtain a payoff figure for whatever you owe on your trade-in, saying he'll add the amount to your purchase price. Months later, you're greeted with the fact that your old car loan is partially, or completely outstanding (meaning the dealer paid less for, or even worse, essentially stole your car!). You are responsible for the loan, not the dealer, because the loan is in your name! Your credit score goes down and you're left without a contract from the dealer stating that they'll pay off your old car loan.

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Con Artist and Internet Scams

The Internet Escrow Service Scam

These internet scammers appear online and look like they are the seller of a used car. When looking at used cars online, you see a car with a much lower selling price than other listings for similar items. The seller claims to be in another country and cannot keep the car.

By communicating through email, these scammers have you outside the eBay Safe Harbor, or whatever online service you are using. The seller asks you to use a 3rd party escrow site that he claims to be trustworthy. In reality, he just created that fake escrow site only a few days ago.

The "seller" is out to steal your money. After convincing you to register on the "escrow" site, you receive payment instructions to Western Union or MoneyGram the funds to the escrow company, and your money is gone. These scammers often trick you by telling you they are signed up for escrow with Yahoo Motors, or eBay, or Square Trade, none of which do escrow or collect money for cars. The scams trick you into thinking you are sending thousands of dollars to a trusted escrow company.

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Pricing 411

How do Dealers set their Markups?

Obviously like any other business, the dealer needs to make a profit. Typically a respectable dealer will offer or pay fair market value for their cars whether it be from a customer via trade-in, an auto auction, or another dealer.

Once a good dealer has purchased a car they will run the car through their shop to determine serviceability and ensure they are selling a quality product. There is a cost involved there and is added to the overall cost for the dealer.

A dealer will then typically hope to sell that car with a profit of 5-20%. For example:

On a $7500 car the profit may be set at 15-20%. $7500 x 20% = $1500 On a $25,000 car the profit may be set at 5-10%. $25000 x 8% = $2000

No two used cars are alike and you may have to pay more for the right car if it is rare or of superior quality, however, if you do your homework you will be able to ensure the dealer mark-up is fair.

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Why are Private Party Cars sometimes less expensive than Dealer cars?

A good Used Car Dealer will pay what they need to in order to acquire the right vehicles. No two used cars are alike and in order to get the better cars, dealers pay more at auction for them. Since they then run the car through their shop to determine quality and safety assurances this also adds costs which affect the price.

With a consumer you may be able to save some money as opposed to a dealer if the person really needs to sell their car which should make them more motivated. A dealer doesn't have to worry about the next payment due like a private party seller and they will sometimes hold out for a higher price if the car is rare or of superior quality.

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Buying a Used Car When the Seller Still Owes Money on it

If the seller still owes money on the car and the bank is holding the title, then you can proceed with the transaction and deal directly with the bank. Have the seller call ahead and make sure that the title is ready. After money has exchanged hands and the bank has been paid the remainder of the loan, the seller can sign the title over to you.

If the title is being held by an out-of-state bank, then go to the DMV and get a temporary operating permit by showing your Bill of Sale, which may need to be notarized in some states. Once the seller pays off the loan's balance, the title will be mailed to you. After all the paperwork is complete, the last step is to relax and enjoy your new used car.

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Negotiating with a Private Party: Deal--or No Deal?

Example: Let's say you're interested in buying a used car with a private party sticker price of $5,000. If the seller sees that you're a serious buyer, then he may drop the price down to $4,500. Let's then assume you offered him $4,250 in cash. He's more than likely to take the deal.

Buyers might also run across steadfast sellers that won't budge from their asking price. In these situations, it's usually best to let some time pass before revisiting with a counter-offer. Consider paying their price only if you're fixated with the vehicle.

Example: Let's say you're interested in the same buying a used car with a private party sticker price of $5,000. You make him a reasonable offer and the seller sees you're highly interested in buying. HE might use that as a bargaining chip in his own favor, and tell you that he has another offer on the vehicle that beats your offer.

The key is to start low and find a middle ground. If you lay all your cards out on the table too early, you'll get taken for a ride - and not a pleasant one - in your new car! Once you've wrangled yourself a final price, make sure your seller completes all necessary paperwork in a timely fashion.

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Behind the Glass

Understanding Dealer Lingo

Allocation:
Also known as an incoming vehicle. This means that a vehicle is being built and sent to a dealership.
Dealer Cash:
A manufacturer to dealer incentive. At a traditional dealership, this incentive is not always passed on to the customer.
Dealer Trade:
If dealers do not have a vehicle in stock, they can trade with a local dealer to make the vehicle available to customers.
Documentation Fee:
Dealers charge this fee to cover administrative costs associated with registration and title. This fee can range from $45.00 in California up to $499 in states such as Florida.
Drive Off:
When leasing a vehicle, this is what the customer pays when taking delivery to reduce how much is being financed (includes any acquisition fees, taxes and licensing).
Invoice Price:
The vehicle's cost to the dealer, not including holdbacks or other discounts.
MSRP:
The suggested retail price from the vehicle manufacturer.
Out the Door Price:
How much the car will cost the customer (includes the price of the vehicle, taxes, title, licensing fees, the documentation fee and any additional official fees).
Rebate:
A manufacturer to customer incentive. Rebates are taxable in most states.
Upside Down:
When the balance owed on a loan is greater than the vehicle's value.
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Negotiating with the Dealer

Needless to say, auto dealers have been around the negotiating block quite a few times. You may have a different experience in dealing with a dealer than you would if you were to deal with a private party, but both have the same goal: selling you the car and making themselves the biggest profit.

When you make the dealer an offer, let them know that you are a serious buyer and you are ready to buy if the offer is appropriate. You should adhere to the following guidelines:

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Should you buy an extended warranty?

This question has been debated by many. An extended service contract can be a great thing to have, you just want to make sure it will be needed and it is at a fair price. It is like health insurance, if we knew we would never get sick we wouldn't buy it. Every manufacturer of cars has a shop and all cars breakdown. Often times, extended warranties serve as the auto dealers' big moneymakers. No matter how they spin the jargon, be sure you actually need one before signing anything! Extended warranties are nothing more than extended service contracts, which will cover the cost of certain repairs and problems after a car's factory warranty expires. Make sure to check the vehicle's original warranty and if there's any coverage left on it. Many warranties expire once you reach a certain mileage limitation or after a certain period of time has passed since purchase.

Example: If a car with a 36 month / 36k warranty has 15,000 miles on it but was purchased 3 years ago, it could be out of coverage. You should calculate how many miles you will drive per year and how long you will drive the car. If you are intending to keep the car a long time and drive a lot of miles per year, an attractively priced warranty might be a great decision.

More and more car manufacturers are surpassing the outdated three-year or 36,000-mile warranty, especially higher-end automakers. Acura, BMW, Cadillac, Volvo, Saab, Mercedes, Lincoln, Lexus and Jaguar are sold with four-year or 50,000-mile warranties. Infiniti's vehicles have four-year or 60,000-mile warranties. Hyundai and Kia offer five-year or 60,000-mile warranties on new vehicles, plus 10-year/100,000-mile powertrain warranties, which cover engine and transmission repairs. GM recently trumped all other warranties currently being offered by announcing a five-year or 100,000-mile warranty.

Most factory warranties are transferable to used-car buyers, but some warranties have restrictions, so be sure to check. If you paid to have your vehicle certified by the car manufacturer, then you have added warranty protection on your used vehicle.

Recently, many major car manufacturers including Honda, Ford, Lincoln, Mercury, Volkswagen and Volvo have heightened their warranties on Certified Pre-Owned vehicles. Several luxury automakers offer an additional two-year warranty on their Certified Pre-Owned vehicles. Others offer an additional twelve-month/12,000-mile warranty after the new-car warranty expires. After determining how much coverage is leftover from the previous warranty, how long you plan on keeping the car and how much additional coverage you'll need, the next step is to negotiate your terms for an extended warranty.

Lastly, if you buy an extended warranty, remember that in most states you are allowed to cancel that contract at anytime and receive a prorated refund on the unused portion. Dealers don't always tell customer this, and some customers have sold cars and not asked for the refund when they were entitled to it.

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Before You Buy

How to read a vehicle history report

Old cars don't die, they just get resold. If you're buying a used car, whether from a dealer or someone who put an ad in the paper, you'll want to know as much about it as you can. Even without anyone trying to deceive you, the vehicle may have problems you can't see from a simple visual inspection or even a short test drive.

A vehicle history report prepared by a third party is one way to know what you're getting. Combining information from state DMVs and RMVs as well as police reports and other sources, a vehicle history report can give you a comprehensive overview of where the car's been.

Here are some things to look for - or look out for - when you get a report on a vehicle. None of these things is necessarily a reason not to buy a car, but you shouldn't make a decision without asking about anything you see on a vehicle history:

AutoCheck vehicle history reports provide car buyers quick access to the history of any used vehicle by leveraging Experian's National Vehicle Database of over half a billion vehicles to reveal possible undisclosed or unknown problems, such as salvage and flood damage history that can affect a vehicle's safety and resale value. Learn more at AutoCheck.com.

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How to visibly inspect used vehicles

For starters, walk around the vehicle looking closely at the lines of the vehicle. Check to ensure spacing between body panels is the same and that the paint matches evenly. These are tell-tale signs of an accident. Next, open all the doors, hood, and trunk. Look on the inside of the door panels, inside the trunk, and down inside the engine compartment for paint lines, replaced parts, or overspray from painting. These are also signs of an accident.

While in the driver's seat, start and stop the engine more than once with the ignition key. Listen for any rough starting, rough idling, vibrations, other unusual noises or run-on after the engine is turned off. Anything out of the ordinary should be documented. If you live in an area that has varying climates during the day, ensure you try this during the most extreme time frame of the day. Once a list of symptoms is compiled, give it to your trusted mechanic.

When the car is running, move the gear shifter from park to drive, neutral, and reverse. Listen for any abnormal noises. If possible it is always best to bring someone with you who can listen from outside the car while you are testing it inside.

Slowly move the car and apply the brakes, listen for noise. You can also visually inspect the brakes and rotors to see if repairs may be needed. Inspect the tires to ensure tread depth and no visible signs of wear and tear or dry rot.

Lastly, drive the car at slow and fast speeds, ensuring you make turns to the left and right as you listen for abnormal noises.

If the radio is on, turn it off... If the person showing you the car turns it on to show you that, again, turn it off and check that separately when you are not testing the reliability of the vehicle.

Once you've assessed the pros and cons of the vehicle and see if it's worth investing your time and effort into. If repair costs outweigh the bargain price being offered, don't invest.

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What mileage is considered OK for a used car?

Assuming the vehicle has been serviced well at the required intervals, a car can usually run well into the 100's of thousand on miles. The more miles on the vehicle, the less it will be worth, but that doesn't mean it is a bad car.

Typically a good rule of thumb is 12,000-15,000 miles per year driven is normal. Be careful that you compare this to the in service date, or date when purchased. Many cars now are released well ahead of the calendar year change, however have the new year as the age. You very well could buy a current year model that was released in the previous year.

Anything under 12k per year usually adds to the value of the vehicle and over 15k detracts. If your buying a high mileage car make sure you get the car inspected by a mechanic or it comes with a warranty. Lastly, don't fall for the myth that they are all "highway" miles, while city driving is harder than highway driving on a car, you have no way of knowing how the previous owner drove that car on the highway.

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How old is too old?

If you buy a used vehicle, be cautious of the fact that certain gears and mechanisms may not run like new. This may cause added expenses down the road; but isn't it better to know what to expect now rather than being caught off-guard later? You can refurbish the insides, you can repaint the outsides; but know that you're still dealing with "used goods."

A general rule of thumb is to consider cars and trucks no more than ten to twelve years old. No matter what the bargain price now, you'll inevitably have to fork over more money in the future on repairs. Most used car shoppers look for vehicles between three and five years old, because they'll have a vehicle with only minor wear-and-tear, enough to enjoy a few trouble-free years. Also, the price has been significantly reduced, enough so that they'd consider buying a used version of that vehicle rather than a brand new model.

Keep in mind that production years and model years can differ from one another. For example, the redesigned Toyota Camry is a new model for 2007, but it was introduced in the 2006 production year. To know exactly what year the used vehicle that you are considering came out, look for the first registration date in the car history report.

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Should you buy a used vehicle in "as-is" condition?

If you have inspected the car thoroughly and are sure it is up to par it is ok to buy an as-is car as long as you are getting a price that takes the risk into consideration. In other words, you pay for what you get.

It is ok to assume some moderate risk if the price is attractive, but remember what you parents told you "If it sounds to good to be true, it very well may be".

Just do your homework and don't buy on impulse.

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Don't Buy A Car If...

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Don't Trust a Seller Who...

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