In house financing is a staple of the majority of car dealerships these days. Unfortunately offering in house financing is not a service to the consumer, but to the dealership itself. The scams that are perpetrated through in house financing are almost limitless, but here is how to avoid the most common ones.
Pay attention to the actual price and interest rate--NOT just the monthly payment. Car salesmen will typically ask "What sort of payment are you looking for?" Once a dealer has identified your price range, they can "tweak" the loan to fit the payment by extending it. You could end up paying for a car for 7 years rather than 4 or 5 and not even realize it. Plus the extra interest really adds up over time.
Expect your new car to cost more if you were upside down on your old one. Yes, that dealer's ad claims that they will pay off your loan if you buy a car there. What this means is that they will subtract the amount they give you for your trade in from what you owe on the car. They will then add the balance to the price of your new car. They'll pay your old car off, but you will pay them back--plus interest.
Read the fine print. Actual ad: "Only $2999 or $99/month!" Sounds good, right? The problem is that the fine print states that the $99/month payments only apply with a five year financing contract. Over the course of five years, $99/month adds up to $6000. This is double the original price of the car, and we haven't even factored in interest yet.
Know your credit score. If you don't know your credit score you are a sitting duck for a car dealer. A very common scam is to run your credit and lead you to believe its bad. Your dealer will tell you that he is "just not sure" if they can finance you, but that he will "talk to the manager" and let you know. A few minutes later he congratulates you since his manager said to go ahead and finance you. Of course, it will be at an insanely high rate--12 or 13%, when you could have gotten a rate of half that had you financed through your bank.
Of course, you really were approved through their bank, and probably for much less, but anything they can charge you ABOVE the interest rate they are quoted is theirs to keep.
Understand that cars only qualify for a certain interest rate if the buyers do. You've seen the ads, "This car qualifies for a special 5% interest rate!". Of course it does...as long as the buyer qualifies as well, which, through in house financing, they will deftly prevent. The point of the ad was to draw you in.
Make peace with paying interest. Don't fall for the "Pay no interest for 6 months!" trick. Sure, you could agree to that, but once the six month grace period is up your interest rate will suddenly skyrocket. This scam is aimed at buyers with good credit, since bad credit buyers would have a high interest rate anyway. This is why this scam will always say in the fine print "for qualified buyers".
Remember, anything they can get away with charging you ABOVE the actual interest rate is theirs to keep.
Pass up the aftermarket warranty, especially if the car you are buying is still under a factory warranty. The car dealership receives a kickback from each warranty they sell. If you feel you need an aftermarket warranty, shop around and buy one online. It's MUCH cheaper.
Read the contract before you sign. A dealer doesn't have to tell you if your interest rate is going to change next year, and many a dismayed consumer has discovered that by signing the contract without reading it, they signed up to pay for things like warranties and window tinting that they weren't even aware of.
Come with your own financing. This is truly the only real way to avoid in house financing scams. Shop around until you find a good rate with a local bank or credit union. Then let the car dealership pull your credit just for fun to see what sort of rate they "offer". Don't worry, your credit won't take a kick from the pull as long as you do it within 30 days of the first bank pull.
