The car loan markup scam, how to avoid it

The car loan markup scam, how to avoid it. Nobody wants to fall prey to a scam. The best scams however are the ones you don’t even realize are a scam. The car loan markup scam is so good it’s legal. This doesn’t mean you shouldn’t avoid it. According to a recent study, this scam is skimming hundreds of millions of dollars from car buyers which are oblivious about how this extra cost. What can you do about it? A lot, knowledge is power, but only if you use it. Don’t be a sucker to unscrupulous car dealers. Do your research and protect yourself from the car loan markup scam.

So what is this scam about anyway.

Calling it a scam might be a little overkill as nothing illegal is done. However in my book if you are charged for something you didn’t ask for and don’t know about… is well stealing. However car dealers are in many countries not required by law to describe the fees they charge or to provide a breakdown of the loans cost. This is how it works. You choose a car, you like the engine, bodywork, nice color, good diesel engine with low mileage. Now you just need the car loan. The dealer looks for a car loan with their sister car loan company. They check your credit score and find out your credit score is rather low. Besides increasing the interest rate they inflate the car loan markup fee to pad the loan. There are two main points to look out for in this case.

First. Do you know how much the markup is? Most people are so excited about getting a new car, like who isn’t, and don’t even look at the mortgage fees. It is your right as a borrower to ask for a good faith estimate of the loan. This should include a list of fees, penalties, interest, capital borrowed and the total amount to be paid after interest and fees.

Second. Is the credit score quoted by the car dealer accurate. Some car dealers will lie on the credit score you have further increasing the price of insurance. How can you fight this deceiving practice. Again knowledge is paramount.  For just under 30$ or in some cases for free you can check your credit score in the three main finance credit score companies. This credit score will help you to understand the loan interest rates and fees you should expect. The higher the credit score the more reliable banks find you and the better the deals they offer will be.

Another key point to avoid being conned by the markup scam is to shop around. Ask for the above mentioned good faith estimate and use it to compare it with other car dealer and finance providers.

Car dealers don’t generally provide the best car loans. It is best to try to get the best deal by comparing your car loan and fees with competitive banks.

Beware, look out for the fine print. Ask about any points you don’t understand. Find out your credit score and use it’s full potential