You have bought a car using a car loan. You are excited to drive it home, your budget is ready. The whole family is looking forward to it. Then, two weeks later, the dealer tells you that the auto financing fell through. They would explain that this was due to your tarnished credit report. This also means that you must shell out more money for the dealership.

To prevent this from happening, you should be aware of the details of your own credit history. You should also know your credit score before your dealer does. You may need to spend a certain amount ($12 to $15) for knowing ahead your credit report and credit score. But knowing ahead will stop the dealer from leading you by the nose to their loan scam.

Another scam is when the dealer wanted you to trade in your old car so that you can have a better looking new one. You admit that you wanted a new car. Of course, when you already have the new one, you no longer needed the old one. It does make sense to trade it in. Worried about the car loan (of the old car) you haven't paid off yet, you tell the dealer that perhaps you'll buy the new car later when you have reduced your debt. Then, the dealer tells you that his company can take care of your old debt if you trade in your old car. Sounds like a good deal for you. But here is what actually happens.

For example you still need to pay $8,000 for the old car loan and you wanted to buy a new car worth $20,000. The dealer pays off your $8,000 balance but in your new car loan, you will be paying $28,000, the value of the new car plus the money you owed the dealership who paid off your previous loan. In essence, you are now paying for two cars when you only own one. But you may not notice this since your previous debt has a loan term of three years while the new loan has a term of six years. The monthly installments are lower, but the total is definitely, glaringly higher.

Thus, each time you are presented with a sales pitch like this: "We will pay off your loan and you will have a new car!", be cautious and think about how this is going to be carried out. The car dealers are not really there to help you solve your financial worries. They are there to squeeze more money out of you. Perhaps it is best to take this motto when it comes to evaluating an advertisement or a sales pitch: "If it is too good to be true, then it probably is."