While December is a popular time for consumers to obtain discounted deals on car purchases as dealers offer lucrative deals to reach their year-end quotas, to avoid paying inventory tax and to make room for new models, shoppers should obtain financing beforehand to avoid fraud.

While purchasing a car can be thrilling, consumers need to be aware of financing scams and do their research beforehand since once they sign a contract to buy one, there is no turning back or getting a refund.

"There is no 'grace period' or 'three-day return period' for car purchases, with the exception of California where you will pay a fee," said Chris Basso, a used car expert for Carfax, the Centreville, Va.-based company which provides vehicle history reports. 

Buyers have been caught up in schemes where they obtained financing from a dealership and after they drove the car off the lot, they were told the original financing failed to go through. Instead, their option was to either lose their down payment or sign a new deal. This type of fraud is a "yo-yo" financing tactic, and dealers swindling unsuspecting car buyers are being targeted by the Federal Trade Commission.

Charges have been brought against Sage Auto Group, which is a group of nine Los Angeles-based auto dealerships and the three brothers who controlled them, wrote Colleen Tressler, a consumer education specialist at the FTC. The FTC alleges the company took part in many yo-yo financing tactics: in one such scam, the dealer would allegedly tell customers a contract was cancelled, but the dealer would not return the customer's down payments or trade-ins if the consumers refused to sign a new deal. 

"The dealerships even threatened some customers with arrest, criminal prosecution or vehicle repossession if they didn't take the second deal - even when the original deal was still valid," she wrote.

The defendants didn't stop there and the FTC alleges the defendants attempted to generate more profit by adding on extra charges for aftermarket products and services, such as extended warranties, guaranteed auto protection and service plans, without seeking consent from the consumers.

"Sometimes, Sage Auto falsely claimed the products were required as part of the sale or financing or were being thrown in for free," said Tressler. "In reality, Sage Auto was adding those charges into the amount financed by consumers."

Sage Auto also allegedly promoted their dealerships online by using fake online reviews in an attempt to counter the negative reviews about their bad advertising, sales and financing practices.

"The FTC's lawsuit seeks a court order to require Sage Auto to stop these bad practices and give refunds to some customers," she wrote.

Compare Offers Online First

Consumers who are in the market to purchase a car need to be aware of deceptive leasing and financing deals. Shopping online and comparing several offers from various dealers and lending sources such as banks or credit unions is your best bet.

While car dealers tout the car buying experience as quick and painless, buyers can make the process work for them, said Bruce McClary, spokesman for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.

"This is one of those areas where the phrase 'buyer beware' is most important, largely due to the significant investment that is made when making a trade-in or cash down payment on a vehicle," he said. "Prospective car buyers should not treat the process the same as they would when shopping for clothes or a new phone."

Before consumers head to a dealer or bank to get a loan, they should conduct research and find "the best, most affordable car that will meet their needs," McClary said.

"Instead of basing your decisions on what you see in the ads, use tools like Consumer Reports or Kelley Blue Book," he said. "In addition to knowing the quality of the cars you are interested in buying, it's good to know the fair market value of the vehicle you intend to purchase as well as the trade-in value of your present car. This helps you stay within your budget."

Dealers offer a variety of deals and starting at places where the vehicle history information is readily available is critical, Basso said. Ask the seller to give you a Carfax Report or get one for free at www.carfax.com.

"While there's lots of great used cars to be had, others do have inherent problems that the seller may or may not disclose to you," he said. "Too often people fall victim to costly scams like odometer fraud or VIN cloning by not carefully considering who they're buying from."

A new tool on Carfax gives buyers a value for a specific vehicle based on its reported history and their local market conditions.

"If you know the vehicle you want to buy, you can get a price from Carfax to get an idea if you are paying too much or getting a really good deal," he said. "Every vehicle has a unique value because every vehicle's history is different."

Why It's Important To Get Pre-Approved

Many banks, credit unions and even online lenders can offer better rates than the dealer, which typically only works with one or two banks. Shopping for financing in advance gives buyers more control over the purchase and an advantage when negotiating the cost of the car or truck.

Check your credit score and history before applying for a loan, because a higher score will give consumers a lower interest rate, helping drivers save thousands of dollar money.

"Every detail counts, and one past-due account or piece of inaccurate information could send your credit score in the wrong direction," McClary said. "With good credit, it's likely that you could be pre-approved for more favorable financing terms than what the auto dealer may have to offer through their lending partners."

Consumers can receive up to four financing offers on their smartphones from AutoGravity's app, which gives them an opportunity to consider the rate and lender before heading to a dealer, said Serge Vartanov, chief marketing officer for AutoGravity, an Irvine, Calif.-based auto finance marketplace provider. The app lets consumers search for vehicles by make and model and see the manufacturer-suggested retail (MSRP) prices along with the estimated monthly payment for a loan or a lease.

"AutoGravity works exclusively with the nation's top auto lenders - large, FDIC insured banks," he said. "This protects our customers and ensures their financing offers are legitimate and valid at the dealership, so they're able to go to the showroom with the confidence that comes with being approved and drive off knowing that they got a fair deal."

Another option offered by some banks such as PNC Financial Services Group, a Pittsburgh-based financial institution, gives customers a blank check ahead of time, which can simplify the process and allow them to negotiate like a cash buyer. This option also gives consumers another advantage because the interest rate offered on the loan is locked in for 30 days, giving drivers more opportunities to search for their next car.

"Customers like the certainty of arranging their financing beforehand because then they only have to worry about purchasing the actual vehicle," said Christopher Dervan, a consumer lending and auto lending product manager at PNC. "They know they have their financing already arranged and won't be declined because of their credit. The check can be used at any U.S.dealership."

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