3 Ways to Get Milked on a Used-Car Lot

Some devious tricks of the trade.

<a href="https://www.flickr.com/photos/kurt-b/6927387715/in/photolist-by9F2e-6zFbCh-6zY9Dm-8BNBvQ-6zU7cX-8BKYpx-6zTNdR-6zTLei-6zw4dC-6zXQnE-6zYgpu-6zTCBT-6Cznq2-6zuUdU-6zXEaQ-6zU726-6zY6p7-8BPf2y-9sF3fY-6zED3H-agCN3L-52xDrp-6fpCc7-6eRnAH-8BKtRg-6dfXD4-8NWK8V-6zXX91-8uyX9B-6pkZXP-8vs15X-4wjX3w-Dr4BcN-a6Rmje-D2fZby-4MiBM5-Dr4AE5-8cGP9T-5mjCYL-8vkASi-4wFuGc-7d8CN6-9bXdSy-79r6nF-6fpCgu-wvMMt2-6zFvGs-6zJJhb-6zBJti-8vVP1y">Kurt Bauschardt</a>/Flickr

Car dealers, especially used-car dealers, are notorious for playing unpleasant little games with their customers. So are lenders, especially subprime lenders. (Read “Car Trouble,” our accompanying piece on the rise of the subprime auto industry.) Combine the used-car dealers with subprime lenders and throw in a patchwork regulatory setup—wherein dealers and lenders are regulated by different agencies, making it easy for one to deflect blame onto the other—and you end up with a lot of customers in the lurch. Here are just a few of the tricks—not including the starter kill switch your lender may force you to install—that might come up when you’re shopping for a secondhand car.

Interest rate markups: Used-car dealers often act as middlemen between the buyer and a financier like Credit Acceptance Corp. The financier sets a minimum interest rate based on the customer’s financial circumstances and lets the dealer mark it up and pocket the difference as compensation. (Most dealers shop around in search of the biggest markup.) In effect, this means you are likely paying the dealer a kickback on the lender’s behalf. What’s more, studies have found that dealers impose higher markups on black and Hispanic customers relative to white customers with comparable credit.

Credit kinking: By exaggerating your income and assets, a car salesperson can “kink” your credit to secure a more aggressive deal. The dealer gets paid when the lender buys your finance contract. You, on the other hand, are stuck with a bigger loan than you can afford—one that may soon show up in some Wall Street bond offering.

Offshore add-ons: Credit Acceptance and other subprime lenders now push their own pricey add-ons—products such as extended warranties, vehicle upgrades, gap insurance, and paint and tire protection—and give dealers financial incentives to “pack” loans with them. The paperwork often suggests that these side products, which are purchased disproportionately by low-income customers, are provided by third-party businesses. In fact, those entities are commonly just administrators who quickly transfer the contract to an offshore reinsurance company owned by the lender. After the claim period expires, says John Van Alst, a lawyer for the National Consumer Law Center, most of the money you paid comes right back to your financier—at a favorable tax rate, no less.

And then there are those interest rates themselves…



In 2014, before Donald Trump announced his run for president, we knew we had to do something different to address the fundamental challenge facing journalism: how hard-hitting reporting that can hold the powerful accountable can survive as the bottom falls out of the news business.

Being a nonprofit, we started planning The Moment for Mother Jones, a special campaign to raise $25 million for key investments to make Mother Jones the strongest watchdog it can be. Five years later, readers have stepped up and contributed an astonishing $23 million in gifts and future pledges. This is an incredible statement from the Mother Jones community in the face of huge threats—both economic and political—against the free press.

Read more about The Moment and see what we've been able to accomplish thanks to readers' incredible generosity so far, and please join them today. Your gift will be matched dollar for dollar, up to $500,000 total, during this critical moment for journalism.

We Recommend


Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.


Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.


We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.