8 tricks up your auto dealer’s sleeve

Dollar bill shaped like a car with quarters for wheels

Auto dealers have lots of ways to make the most off of every sale.

Everything from interest rate markups and dealer add-ons to longer and longer loans can drive up the cost of buying a new car or truck.

If you're not careful, you can wind up paying more to buy and finance a new car or truck than you really need to.

That's a total waste of money for anyone trying to build financial security for themselves and their families. Look out for these 8 well-known tricks when you visit the showroom.

Dealer trick 1. Preying on your lack of information.

There's nothing a salesperson loves more than a clueless car shopper.

You can't negotiate a fair price for a vehicle when you don't know what that price should be.

Before taking off for the dealership, go to Edmunds.com and Kelley Blue Book to find the average transaction price for the car or truck you want to buy.

Or add the Edmunds or Kelley app to your smartphone and punch in the model, trim level, equipment packages and other options listed on the window sticker for any car on the lot.

Either way, you'll know what car buyers are actually paying for the ride you're considering, and it's usually hundreds, and often thousands, of dollars less than the suggested retail value posted on the window.

You want to be the smart shopper who pays a little less than the average transaction price.

Dealer trick 2. Making it all about the monthly payment.

Salespeople often ask potential buyers what's the biggest monthly payment they can afford.

With that number in hand, they'll calculate the most you can possibly spend and still hit that monthly payment by dragging out the loan for as long as possible.

He or she will then show you cars and trucks in that price range, which is often higher than what you wanted to spend, while reassuring you that a better ride is well within your budget.

Let's say you came in to buy a compact sedan that cost about $20,000 but let slip that you could afford a payment of $450 a month.

The salesperson immediately recognizes that a 60- or 72-month loan would allow you to buy a $25,000 midsize sedan while keeping your payment at about $450 a month — and that is what he or she will try to sell you.

The bigger sticker price, and longer loan, both mean more money for the dealership.

Use the 20/4/10 rule to see what you can really afford.

It says you should put down at least 20% on a vehicle, finance it for no more than four years and not spend more than 10% of your monthly income on your auto expenses, including your note, maintenance and insurance.

Here's how to put that rule to use before you go car shopping and come up with a purchase price that won't drain your checking account every month — and then stick to it.

Dealer trick 3. Imposing finance charge markups.

You've picked the car you want to buy, and now the finance manager is searching his computer for the best deal on a loan.

But the dealership is not required to tell you the cheapest loan you've qualified for and can legally pad the interest rate with a couple percentage points for themselves.

Let's say the bank or finance company says you're eligible for a 5% loan, but the finance manager tells you 7%.

On a $22,000 five-year loan, that extra 2% will add an extra $1,277 to your payments.

The lender is in cahoots with the dealer. It collects the extra money, keeps half for itself and sends the other half back to the dealer.

While this is quite legal, the U.S. Justice Department and the Consumer Financial Protection Bureau have been investigating whether dealers and lenders are prone to discriminate against women and minorities by adding markups to their loans more often.

Dealer trick 4. Making deceptive payoff promises.

Let's say you're looking to buy a new car but still have a balance on your current car loan.

To close the deal, a salesperson will often promise: "We'll pay off your loan no matter how much you owe."

Most dealers will make up for that loss by charging more for your new ride, offering less on your trade-in and imposing a finance charge markup.

But unscrupulous showrooms pay off your old loan, just as they promised, then secretly add that amount to your new loan.

To get away with that, they're counting on you to focus on the monthly payment and ignore the total amount you're financing.

Initially you might have been told that your monthly payment would be around $400, which is what it would be if you financed $20,000 over 60 months at 6%.

When you sit down to sign the papers, the finance manager points to the monthly payment line and, sure enough, it's $397.

What you don't see is that the dealer added that $4,000 payoff to the balance on your loan and financed that $24,000 over 72 months, committing you to pay on that car for an additional year.

Dealer trick 5. Pushing you to lease.

Some salespeople may steer you to leasing because it may get you a new vehicle at less than half the monthly payment it would cost to buy.

The problem is, you'll still be making years of monthly payments at the end of which you will own nothing.

If you need to lease a car to "afford" it, you probably can't afford it in the first place.

Read our story about why leasing is a bad deal.

Dealer trick 6. Saying the deal is only good now.

Salespeople love to pressure buyers for quick sales with things like "the deal is only good today."

It's a common tactic to prevent you from checking other dealerships or having second thoughts. They're worried if you leave the lot, you won't come back.

Chances are you'll get the same deal if you return.

The one exception would be around the end of the month when incentives provided by the car companies — rebates and discount loans — often expire.

Click here to find all of the current automaker incentives and exactly how long they last.

You don't want to make impulse decisions or be pressured on such a big purchase anyway.

Don't be scared to sleep on it.

Dealer trick 7. Trotting out the old bait-and-switch.

You see an ad for a great price on a car you've been considering.

Then you get to the showroom and find that's only for a stripped-down model, or trim level in auto lingo, which no one ever buys.

The salesperson is sympathetic. When was the last time you saw a car with crank windows and no air-conditioning?

Over the next hour, he or she shows you better-equipped versions. By the time you finally see the car you thought the ad was touting, you're paying $4,000 more.

So ignore the prices you see in ads.

Most dealers now have their inventories on their websites, allowing you to find the fully equipped model you're really interested in buying before leaving home.

Take those VINs (vehicle identification numbers) or stock numbers with you to the showroom.

Not only will you have a more realistic idea of how much the car you want really costs, it shows the salesperson you did some homework.

Dealer trick 8. Selling worthless or overpriced dealer add-ons.

Dealers boost their profits by selling all sorts of accessories, from roof racks to premium sound systems.

Take a careful look at the cost. You can usually get the same thing for half price or less at electronics or auto parts stores.

Be especially alert for surprise add-ons salespeople try to slip in as you're wrapping up the deal.

VIN-etching is the latest add-on to avoid. Also, be on the lookout for paint protection, fabric protection, rust-proofing and car alarms.

  • LMV

    So how much mark-up do you think dealers have on a MRSP of 60K vehicle? I don't have an IT guy to help me.

  • James A Rowe Jr

    I just had to answer your question. Cash means that you are a highly qualified buyer and can pay for the car. The leverage it gives you with the dealer is that you can buy right now! Ay dealer mworht his salt will make some kind of concession. There is a car deal if an agreement is reached. Many buyers believe paying cash on the spot entitles them them to astronomical discounts. It doesn't. Whether you finance, pay cash on the spot or bring a check from the credit union, it all hits the dealers bank at the same time.

    Regarding the price a dealer will accept ,make an offer, but don't assume the mark up is astronmically high.

    • Inacrysis

      Question, if I owe 31k and want to pay cash for a veh at 16-20k will the dealer pay off my trade? I do not have neg eq. My truck is worth 37-38k but I just want them pay off so i can buy an cheap get around veh for work as I have another car for weekends any help will help thanks

  • James A Rowe Jr

    Good advice Andrew.

  • Edward Fradera

    I saw a sweet car at this advertised dealership. long story short, after making a deposit of around 4 grand, the general manager said that i needed to pay another $1,000 if not i couldnt have the car. This was after i was there for hours and had made a deal with both the sales associate and the manager.

  • DainLaguna

    oh man. This is so epic! I probably wont ever get a response, but what on earth were you able to dig up on them???

    I feel like regardless, if you go into a situation where you have negative equity, the dealer isn't going to bend over backwards for the average consumer to accommodate them you know?

    • http://www.schnittshow.com Schnitt

      I concur, if you have negative equity then you no longer have any power.

      Thus I've been advised by dealership owners that when you have a vehicle in which you owe more than its worth, never trade it in, sell it outright for what you can and just write the check to the finance company for the balance.

      Now if you're not concerned about this fake system of credit worthiness is this county we have, then you'd get the new car first and just have the finance company take the other one back as a repo.

      However unless your willing to live the Dave Ramsey lifestyle of having no credit score for the remainder of your life, ID caution against the latter tactic.

      • scarhill

        You will usually get more if you sell rather than trade. However, the difference can easily be offset by the tax advantage from trading. In most states you do not pay sales tax on the value of the trade.

        For example, you may sell for $13,000. You might trade for $12,000. A $1,000 difference. However, you do not pay sales tax if you trade. At a 6% tax, that is a $720 savings. Therefore the difference is only $280. Is $280 worth the effort?

        It really makes no difference if you sell and pay off or trade. Other than the difference in what you get by selling or trading. For example, if you owe $15,000 and you sell for $13,000, you will need to pay the $2,000 difference. If you trade for $13000 you also need to pay the difference of $2,000.

        Negative equity does not impact your power. It may limit your options but it does not impact your power.

        You, the buyer still control the deal. You can still walk away. Allowing a dealer to control the process always results in a bad deal. Sales people always think they control the negotiation. They do only if the buyer lets them. Smart buyers always control the process.

  • Fitzgerald Darbone

    You still lost, it's a Hyundai

  • boriel

    i bought a car on monday for 430 a month for 72 months, now the bank says that they cant do that deal, they want me to pay 579 for 72 months with 7% interest, they send a letter after 6 days of financing the car, what can i do? i already signed the original payment with the dealer.

  • Ana Jimenez

    Hi, I recently traded in my mini van, i owed 19k on it. I traded it in for a brand new subaru legacy for 25k. We paid the negative equity and a down payment on top of that 6k total. A month and a half later, subaru calls me and tells me I owe them 210 because the payoff was more than expected. I refused to pay anything and now they are threatening to take me to court. Are they allowed to charge me more money?

  • David Shannon

    But there is more money dealers make besides the invoice. Why would a dealer sell a car to an affiliate member at 1% below invoice for instance. There is usually a 5-7% profit holdback just at invoice pricing. In addition to that there are dealer incentive to sell certain cars. Then the dealer receives a price per unit sold and bonus money for meeting quota. So even below invoice the dealer is making money. If a car depreciates 20% leaving the lot how much of that is dealer profit.

  • kris

    My FICO is 800+++, been looking for an Automobile, and I still feel that pipe going deep into my azz. The sad fact is somebody is getting all the bucks, I don't think it's the Salesman, nor the Secretary, I believe the Manager and Corporate gets it all. The employees get a kick in the butt. I was armed with KBB, Black Book and Consumer Reports, so they did not like me. Please, all you Peeps, read up, be prepared, it is MONEY. Remember, they do not care whether you make your House Payments, feed your Children, or pay your children's or your Medical Bills. At least be Prepared. They hate that, so you must Make your Game Plan and stick to it. Consumer Reports this month lists the best cars to make it to 200,000 miles. Honda Accord followed by Toyota and only one Ford in the top 10, an F150. Some very good Used Cars are in Consumer Reports this month and last month 4 and 5/16. Homework Matters. SEMPER FI AMERICA. You work hard, You spend Softly!! Be Smart for your Family and Yourself!!