1) Buy-here, pay-here dealers

If the dealer suggests you make your payments directly to them, it is a buy-here, pay-here dealer. Calculating financing is a complex process requiring exact records and document management, requiring serious government regulation. Some buy-here, pay-here dealers expect the buyer to default on the loan so they can take back the vehicle and sell it again to the next buyer. While not all buy-here,-pay-here dealers are running scams, it is best to avoid these dealers altogether. 

2) Yo-yo financing

Remember—if you signed financing with the dealer, your financing is not final when you drive off the lot. The dealer has 14 days to find a lender willing to purchase the loan under your signed terms. If the dealer cannot find a lender willing to purchase the loan, they may call you and ask you to come in and sign new financing paperwork. 

If this happens, the law gives you the right to unwind the deal and get your money back (including the down payment and your trade-in vehicle). The dealer may tell you that you must purchase the car because you signed the contract. They might insist you sign new paperwork (with a higher interest rate) or come up with the entire purchase amount. This is NOT true. Suppose there’s no damage to the vehicle. In that case, the dealer can only charge you for usage if they notify you (by letter or electronic communication)of their failure to obtain financing. While you cannot force the dealer to keep the original agreement you and the dealer signed at this point, you are not obligated to sign new financing with different financing terms.*

*Yes, that’s right. The dealer always has the option to unwind the deal by not finding a lender to finance your purchase. If this sounds unreasonable to you, you’re not alone. OCJ is working on policy changes that would require the dealer to abide by the contract they signed.

3) False credit applications

If you apply for financing at the dealer, the dealer will likely ask you to complete a credit application. Sometimes, the dealer will inflate your income to get you better financing. Do not agree to write any false information on credit applications (or any paperwork, for that matter). The dealer and the finance company may blame you for fraud if anything goes wrong. Also, do not sign any credit applications with blank fields for the dealer to fill out. These offer the dealer an opportunity to inflate your income and blame you if something doesn’t work out.

4) Deferred down payment

Sometimes, the dealer will say, “I can get you financing at the rate you want if you put down X dollars more.” If you don’t have the extra money for a higher down payment, the dealer may offer you a separate payment plan for the down payment. This is called a “deferred down payment,” meaning you will have to make payments to the dealer in addition to your regular monthly payments for your vehicle. Even if you can afford the payment plan, agreeing to a deferred down payment is generally not a good idea. It is best to avoid deferred down payments. While technically legal, dealers rarely follow all the requirements for a valid deferred down payment program.

5) Negative equity adjustment

You want to buy a car and trade in your current vehicle, but you owe more on your trade-in than it is worth. In these situations, the dealer will sometimes inflate the value of the trade-in vehicle and the purchase price of your new vehicle. This is called “negative equity adjustment,” and it is illegal. Ultimately, it is fraud committed against the lender to gain financing for your purchase. If anything goes wrong, the lender may blame you for being complicit in falsifying the transaction.

6) Title

Dude, where’s my title? The most common violation resulting in a DMV dealer sanction is failing to promptly provide titles to the purchasers. Contrary to common belief (and common sense), it is perfectly legal for dealers to sell a car without having its title. Dealers usually purchase cars on credit and plan to pay off the car after the sale. The law requires the dealer to provide the title within 30 days of the sale, but dealers frequently miss this deadline. The consumer usually pays the dealer to process the title transfer paperwork with the DMV if the purchase is financed. Then, the title is typically sent to the lender. For this reason, sometimes, the consumer may not notice the title has not been transferred into the consumer’s name for several months. If you are still waiting to receive your registration from the DMV within 45 days of purchase, you should contact the DMV. Ask them if they received the title application from the dealer. If no such application was submitted, you should report the dealer to the DMV’s Dealer Investigation Unit: 503-945-5281. If this doesn’t work, contact a lawyer to help you get your title.

7) Worthless add-ons

When you are in the finance office to sign the purchase paperwork, the finance manager will try to sell you as many add-ons or third-party products as possible. Dealers often make more money on add-ons than on the vehicles themselves. While some finance managers are upfront, others will automatically include the add-ons and hope you will sign the contract without noticing them—making it even more important to carefully read through all the paperwork before signing anything. These are the common add-ons included in vehicle sales:

Service contract/warranty

Many call these contracts third-party warranties, but they are service contracts, not warranties. While the selling dealer gives a warranty free of charge, a service contract costs extra money, and a portion of the price is sent to a third-party administrator. Service contracts vary in quality depending on the package and service contract company; their price can also vary significantly. Before buying a service contract, it’s important to carefully read through it to determine whether it’s a good idea. The dealer generally keeps 50-70% of the service contract price as pure profit. You can also purchase service contracts directly from the company providing the service or see if this is an option at your financial institution.

GAP waiver/GAP contract 

Although most dealers call these “GAP insurance,” GAP waivers are NOT GAP insurance. In 2015, the Oregon Legislature passed a bill that allows dealers to sell GAP waivers. Since then, every dealer now sells GAP waivers instead of GAP insurance. GAP insurance covers the purchaser if they are in an accident and the remaining loan amount is more than the vehicle’s value; the GAP insurance company will pay the difference. A GAP waiver is an agreement where the lender promises not to collect the difference in the event of an accident or theft. The result for the consumer may appear the same, but GAP waivers are a lot riskier than GAP insurance. This is because lenders often do not understand what GAP waivers are, and they treat GAP waivers as GAP insurance. When a shortage happens following an accident or theft, the lender will expect a payment from the GAP administrator. They may sue you to collect this money if they do not receive payment for the remaining amount.

Theft protection/Etch

These products are sometimes called “etch,” as some agreements etch the VIN (Vehicle Identification Number) into the windshield as a deterrent. These contracts are basically theft insurance. They are generally very difficult to make a claim on and usually contain a very low limit on what you can get back. Steer clear of purchasing theft protection.

And the list goes on with many other products not mentioned here. It is a good idea to carefully review the terms of these products before purchasing them. 

8) Consignment Sales

A consignment vehicle sale is when a buyer purchases a vehicle at a dealer, but it is owned by someone other than the dealer. It is more common for RVs and travel trailers, but some consignment sellers also sell cars and trucks. If you wanted to sell your RV on consignment, you would take it to an RV dealer who would sell your RV for you for a fee. When a buyer purchases your RV, the dealer must give you the sale proceeds within 10 days. 

You should be wary of any consignment sales, whether you are buying or selling your vehicle. While not all consignment dealers are fraudulent, several dealers in Oregon have sold multiple vehicles on consignment, failing to pay the consignor (or seller) the sale proceeds and running off with the money. When this happens, both the seller and the buyer are victims of fraud. The seller understandably won’t give the title, and the buyer won’t return the money, resulting in a terrible situation.