Car Buying Tips 1, Quoting packed payments. Quoting packed payments is a common trick that is used by new car dealers. In fact, this trick is taught to their salespeople in training seminars to make sure that they know how to use it.
When a customer asks how much the monthly payment would be on a particular vehicle, the salesperson gives them an inflated figure that is known as a packed payment. The salesperson can then use that packed payment to pull off two dirty tricks. Concealing overcharges and tricking people into bad lease fields. We'll illustrate how these tricks work using several charts.
The first chart is for conventional purchase using an 8% loan for 60 months on $25,000. To make things simple, we're using 25,000 for the purchase price and the loan amount. In this example, the real monthly payment is $507 but the salesperson tells the customer that the payment would be $557. Notice that packed payment represents a loan amount that is $2500 higher than the original price, and this overcharge grows to $3000 by the end of the loan due to additional interest.
If the customer agrees to the inflated monthly payment, the salesperson then has a number of ways to get his hands on the additional money. For example, the customer might be talked into getting one or more high-priced and high profit items like an extended warranty or car alarm at little or no extra cost, at least that's what the customer is told. Or the customer might be charged an APR of 10 to 11% on a loan when the going rate is only 8% so the dealer can receive a kickback on the additional finance charges.
In most cases, the packed payment is $40-50 higher than normal which would represent an overcharge of $2,000-3,000. However, if the salesperson is going for a home run, the packed payment might be $100 or more above the normal payment representing an overcharge of $6,000 or more.
This is usually done with the trade-in or large down payment so the monthly payment does not seem too high. To avoid this scam, always calculate your own monthly payments before visiting the dealer and before signing any contracts. If a dealer offers to throw in something valuable at little or no extra cost, that probably means that your payment was packed and you are being overcharged for one or more items.
Packed payments can also be used to trick car shoppers into bad lease deals. This next chart illustrates how this dirty trick works.
Here we have payments for a 60 month loan on a $25,000 vehicle compared to payments on a 36 month lease. The Real Monthly Payment on the Loan is only 507 but the salesperson tells the customer that the loan payment would be 675 and the Lease payment would only be 525. So leasing would save them $150 per month that is not true. That is the packed payment scam.
The inflated lease payment is actually higher than the real loan payment. So there are no savings from leasing in this example. Notice that the lease payment is inflated by $53 per month, which adds up to a total overcharge of $1,908 by the end of the lease.
The extra money here can find its way into the dealer's pocket through a secret price or interest rate increase, or it could turn into one or more of those at little or no extra cost options that we mentioned in the inflated loan payment section. This is a common trick that has been used to victimize thousands of car shoppers. If you're wondering why we compared a five-year loan to a three-year lease, this is actually the most accurate and honest way to compare leasing with buying.
First, leasing is nothing more than a long-term rental with no ownership at all. So comparing it to buying is not an apples-with-apples comparison. No one should ever lease for longer than 36 months because that's the end of most vehicle warranties and it would be crazy to start paying for repairs on a vehicle that you don't own.
Leasing for less than 36 months is an equally bad idea because the monthly payments will be a lot higher. Since most new car buyers choose five-year loans, that's the appropriate term to use in a lease by comparison.
The use of a longer lease term versus a shorter loan term just creates a misleading comparison. If the dealer tries to do this, don't fall for it. It is a deceptive practice that has been slammed by numerous state prosecutors.
Well, that's it for today's lesson. Be sure to visit CarInfo.com for more new car buying tips plus free quotes on new cars, auto loans, leases, car insurance and a lot more.
Transcription by:
Scribe4you Transcription Services