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Yesterday, I heard an advertisement for a local car lot that promised to double your tax return money. All you had to do is bring in your pay statements and they would estimate your tax return, double it, and apply that towards a down-payment on a used car.  (Up to some limit, subject to various unnamed stipulations and regulations, and subject to credit approval, yadda, yadda. Typical disclaimers).

This is a regular sales scheme every year with the local small-time car dealers. You know, the ones that are maybe there the next year. These little fly-by-night car sales have a yearly sales push around tax season that attempts to take advantage of those people that; A) don't have very good credit, B) don't have a large down payment and C) need transportation BADLY.

Now I've bought cars from these little dealers in the distant past, and I don't recommend it if at all possible, but like check cashing places and payday loan offices, they service a niche purpose. When someone needs a ride to get to work and no one else will sell because of bad credit, there's little choice. I'm not making judgements because of that.

David vs. Goliath

Now the small car dealership is just trying to survive against the big guys, but much of the time they do it by taking advantage of those with less experience buying cars, less money for down payments, and lower credit ratings (so they CAN'T readily go to the bigger dealerships). They offer all kinds of incentives to get you in the door, but when you finally get down to negotiating, many times you end up with interest rates for the car loan at MORE THAN 14% INTEREST. With other car loan sources averaging around 9-10% for people with decent credit, this can add nearly a hundred dollars a month to payments.

Dangle the Bait

Some of the more predatory car places (and thankfully most of these don't last a year) are COUNTING on the buyer defaulting on the loan at some point. They then spring into action, hiring a repossession team to repossess the car, and then re-sell the vehicle (again).

If the car sells for less than the remaining balance on the loan, the dealer can come after the first buyer legally for the difference, so even if the original buyer doesn't have money for the car, they still might end up paying more for a car they'll never see.

To make matters worse the dealership has undoubtedly sold the car again, and financed the amount (again) to another needy buyer, and the whole thing plays out again.

Personal History

This exact story happened to a friend of mine that was really into Mustangs. He didn't have a very good job and needed a car. He went to one of these little dealerships and was talked into a Ford Mustang that he couldn't afford, but liked.

Not two months later, he had to release the car back to the dealership because he couldn't make the payments. Then the dealership started hounding him for the equity difference, threatening to garnish his wages, destroy his credit, and other strong-arm tactics to get him to cough up even more money.

Unfortunately, by that time he had lost the job he was at (which was the cause for the repossession to begin with) and couldn't pay them off. The calls/letters continued for another couple of months, then finally subsided. We did hear through various friends that the car had sold (again) and that my friend was the SECOND owner of the car in the last 6 months.

Let the Buyer Beware

Most small car dealerships are on the up-and-up, but to remain afloat against the huge competition, they are even more hard-sell than the bigger dealerships. If you go to these dealers, remember a couple of simple rules-of-thumb to help you.

• Don't be 'sold' a car you can't afford or don't want.
• Most states have a 'Lemon Law' in effect. You can cancel the sale within 3 days, and you can return the car for repairs within 30 days. If the car needs the same repair multiple times, you can return the car completely (depends on state regulations; Check with your Department of Transportation on used car sales).
• Have the car inspected by an outside mechanic. Sawdust in the transmission or other 'temporary' fixes to problems aren't urban myths, they DO have some basis in fact. Get your car checked out before signing the paperwork.

If you have a story or tips about your used-car experience, we'd love to hear it!

Please leave a comment.

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