'Tis the season for tax refunds. This means that many car dealerships are running "special promotions" to help you spend that extra cash. Here's a list of some of the most common tax season trip-ups for consumers, as well as our advice on how to avoid them:
"Double Down Payment" Deals- A few weeks ago, we posted a blog entry about fake and inflated down payments. This type of scheme is particularly common during refund season because dealers know that consumers are looking for ways to stretch that tax refund as far as it will go.
A dealer running a "double down payment" or similar promotion will advertise double the credit for cash down payments. So, if you bring in $3,000, the dealer will credit you as if you paid $6,000. Sounds like a pretty great deal, right?
In reality, many dealers will simply increase the cash price of the vehicle to something well over the manufacturer's suggested retail price (MSRP), or the advertised price, to cancel out the down payment credit. The paper work may say that you are getting an extra $3,000 toward your down payment, but the dealer may have increased the cash price of the car by the same $3,000 (or more!)
The result is that the consumer effectively pays the same price for the car, but will end up paying more sales tax based on the inflated price. To avoid falling victim to this type of scam, it is a good idea to negotiate the sale price of the car before discussing the amount you're going to put down. Be sure to check the retail installment contract before you sign to make sure that the cash price and the down payment match what you've negotiated.
"Refund Anticipation" - Some dealerships have tax processing software or refund calculation software that they use to tell consumers what they will have in the future to use for a down payment. These types of promotions are more commonly seen in November and December-before the start of tax season-but some dealers will use this when a potential buyer hasn't filed his or her taxes yet.
As most dealerships don't have on-staff tax professionals, consumers should be careful when they make the decision to let a dealership employee prepare or estimate their tax return. If you enter into a contract with a dealer based on your anticipated refund, you may still be liable to make the estimated down payment even if you wind up with less of a refund than you thought.
"Sale" Prices- "Sales" aren't unique to tax refund season, but many dealers will advertise deep discounts to attract customers. It is a good idea to do some online research before going to the dealership. Many times the advertised "sale" price is the same price that was being offered all along.
Cash Down Payments- Like "sale" prices, cash down payments are not unique to tax refund season, but this is a time of year where many consumers have more cash on hand than usual. Whenever you make a cash down payment at a dealership, be sure to ask the dealer for a receipt. Without it, you may not have any proof of the amount you paid! We have seen many consumers that have paid cash down payments, only to realize later that the paperwork reflects $500 less than what they paid. Those "extra" funds may have been pocketed by the dealer.
Cheap "As Is" Cars- Ever year at this time, we see a tremendous increase in calls from consumers who paid bought older cars for cash on an "As Is" basis. Be sure to protect yourself by having the car checked out by an independent mechanic before you purchase it. Connecticut law gives you the right to have the mechanic of your choice inspect the car. Do not buy a car on an "As Is" basis without having it checked out first.
For more information and car buying tips, join us for our March 10, 2014 webinar: How to Buy a New Car.