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Guy gets ripped off, is embarrassed

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Here’s an email I got just now (names changed).

I need a little help. Well actually a lot of help. My friend got suckered into a TERRIBLE car deal. I mean bad. I don’t know all the details but I know he has a contract for 6 years on a $20,000 car with a APR of 17.something%, and that 1/3 of this monthly income will be spent on this car. Basically I have 2 problems.

1. My Friend is an IDIOT, and not just because he got suckered into a bad deal, that happens, but because he is too embarrassed to do anything about it. He thinks he will just trade it in to the same car dealership and get a cheaper car.
2. I don’t know enough about buying a car (I don’t own one because I cannot afford it right now) and am not familiar with possible legal recourse.

I am a pretty dedicated Ramit follower and have read your site for awhile. I told John (my moron friend) to contact a lawyer, and since I can’t do that for him, I am emailing you. He cannot afford to make these payments and to lose $15,000ish on interest (did I do the math right?) is ridiculous. This is highway robbery, and those car dealers are swine. They made him think when he was signing the papers that he could bring it back in 24 hours if he had second thoughts, and then when he did (I made him) they wouldn’t take the car back, saying that “That wasn’t what we meant”.

I know you don’t have time enough to solve everyones problems and you are not some kind of inexhaustible free resource, but if you can help, please let me know. I would be happy to return the favor in any way I can.

We have exchanged emails a few times in the past. Even if you don’t remember, I did follow through with your advice. It was prolly 6 months ago, and I should have followed up with you. Lesson learned. Now I follow up.

Three things:

Every paragraph has something super-interesting in it.

I find it interesting how we get embarrassed by our money mistakes and we don’t want to talk about them. I’m not pointing fingers–I’ve done it before, too. Rationally, in this case, it would make sense for this guy to ask for help. In fact, it could save him thousands of dollars. But the social pressures to appear knowledgeable exact a surprisingly high cost.

Finally, does anyone have any advice for him? I have no idea, so I just suggested that his friend see a lawyer ASAP.

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43 Comments

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  1. I’m only responding because I got suckered similarly… I was just out of college, no credit history, needed a car, and didn’t read the fine print. I think I was paying over 19%, but luckily it was only about an $8000 car. The good news is that he should have some options, assuming that he’s not locked into some crazy scheme where there are pre payment penalties.

    What I did was find a generous family member who took my loan over at a more reasonable (for the time) 8%. While that’s not ideal, it’s better than 17%. When I got my feet under me, I was able to get a credit card at 0% for transfers for a year, which I was able to pay the family member off with. The 0% transfer fee scheme is dangerous, and requires great attention to detail, but I can proudly say that I haven’t paid a dollar in interest on any of my debt since I bought that car. And I have paid off upwards of $50k in debt (mostly school loans). I also have over $100k in available credit, which while overexcessive, looks good in the credit to debt ratio of my credit score.

    I’m not saying this is the way to go for everyone, but if you can get approved for a decent amount of credit and can transfer the balances and just sign up for another one when the 0% time runs out, you should be able to drive the car long enough to pay it down to the point where you can break even on a trade in. Obviously we should all buy cars with cash, but seriously, how many people can actually do that?

  2. He can hire a lawyer to see if there’s any way he can renounce the contract, but it’s going to have to be for something more substantive that that the dealers are “swine” with 17% APRs. If he was legitimately promised a 24 hour return period, and then had that denied him when he tried to exercise it, that would be grounds enough. Also, if it’s still within 30 days of purchase there may be state laws that grant him various consumer-protection rights. But a lawyer would need to look more closely at the facts.

    Assuming he can’t have the purchase voided, he’ll need to decide what he wants to do going forward. Does he want to keep the car or get rid of it? If he wants to keep it, he needs to go to a bank and get a proper auto loan at a respectable rate, and payoff the dealership loan. If he can’t qualify for an auto loan from his bank, he probably ought to take that as good evidence that he can’t really afford the car.

    If he’s going to get rid of the car, he could consider selling it, but needs to understand he’s likely going to have to eat a several-thousand-dollar loss to do so. How’s his credit? If his credit isn’t great, and he isn’t particularly interested in protecting it (which is a bad option, but could possibly end up being the least-bad option), he could just return the car to the dealership (just leave it on the lot if necessary), and tell them he’s not making payments. (And then ignore any bills he recieves in the mail.) Their only recourse is repossession of the car — they can’t garnish his wages or anything — and the car will already be back in their possession. His credit will take a major hit, but in some circumstances that could be less bad than losing thousands of dollars to an unaffordable auto loan. If he’s young, and he begins using credit modestly and responsibly, his credit will have plenty of time to recover.

  3. The same thing happened to my husband when he was 19. He bought a 16,500 truck at 19.9% interest for 6 years. He purchased the truck through a reputable dealer and got financed through GMAC, the primary lender for all GM vehicles, he was told that he could only buy brand new due to his lack of credit history. He paid payments on time for a year and then he got 3 months behind. They worked with him and he got caught up on payments. He made payments on time again for the next 4.5 years then he fell a little over a month behind, we called and they said that it was fine and to try to catch up when we could. We woke up one morning, my husband went out to get into his truck and go to work and it was GONE! We called the police to report it stolen and were told that it had been repossed (Yes after paying 20,000 on the truck and only 5 months until it would be paid for!) The towing and storage fees that were charged were more than we owed on the truck, we contacted a lawyer and were told that the lender can take a vehicle at any time for any reason, so don’t EVER be late on payments because they don’t have to give you any notice, and it takes an act of god to figure out where they have taken the vehicle and it is even harder to get it back. My advice for the young people is to drive an old junker and save your money to work your way up to a nice car because we were told that basically a lender can do whatever they want as long as they can get you to sign that you agreed to it. I know that everyone wants to do things on their own, but there are some places you should ask a parent or another experienced person to go with you, the guy in the email will just have to cut his losses and hopefully some other people don’t get talked into making the same mistake that he did.

  4. He definitely needs to see a lawyer as soon as possible. A simple letter from an attorney might be able to get him out of this situation without wasting more money.

  5. Uh-huh. Suuuuure it’s his “friend.” ;)

    In all seriousness, there is little this guy can do unless he has something in writing saying he could bring the car back in 24 hours. That said, while there may not be anything the legal system can do for him, he could always start a blog about his experience and become the #1 Google ranking for that dealership. It probably wouldn’t take much if it’s a small-time operation.

  6. I wish the social pressure was to gain knowledge rather than to appear knowledgeable, but that’s just me.

    My only advice would be to get some kind of math and finances education to avoid this kind of stuff in the future.

    For the current problem, he could also try contacting the Better Business Bureau for his area.

  7. Can’t he just finance the car through someone else and pay up the bad contract?

  8. I’m in the UK and have done something similarly stupid myself (in fact, it was also a car deal and the numbers involved are almost identical). I was able to take a loan from another source at a much better rate, and immediately pay off the high-interest finance deal with it, though it cost me the equivalent of about 1800 dollars in admin fees. Not smart, but it got me out of a particularly bad deal and I’ve paid it off now, so no harm done and lesson learnt. I don’t know if that’s a n option here though, since I don’t know if you have different rules about early repayment in the US.

  9. Most states have a 3 day “buyer’s remorse” period where you can return a vehicle with no questions asked. The dealerships aren’t always upfront about it and you might have to force their hand though. If this guy’s three days are passed then he probably needs a witness that will say that he really did try to return the vehicle within the period or it will just be his word against the dealer’s (and we already know this dealer is slime). Some states may have different periods or may not even have this law, but it doesn’t hurt to check. DAMHIKT…

  10. If he’s going to do something he better do it fast–if there IS a grace period it may be fairly short (as little as 3 days it appears from a couple minutes of googling).

  11. Lawyer for sure. In the meantime invest in 2 big pieces of white board, some paint and string. Make yourself a sandwich board and patrol in front of the dealership, especially on Saturday. Be sure not to write anything libelous or obstruct traffic to the dealership. Handouts explaining the situation are a nice touch too. This in combination with a lawyer’s letter will make it worth their while to get rid of your friend by settling.

  12. Financing the car through someone else and paying up the bad contract would probably be one of the best ideas. Hopefully there is no early payment fee or something.

    This is one of those things where it would have been best to avoid ahead of time, but I’m sure there’s a way out of it or to at least make it better.

  13. You’ve already received some great advice.

    Unfortunately if the friend isn’t brave enough to ask questions, odds are he isn’t brave enough to take action.

    I find a big difference between successful people and not-so-successful people is that successful people are willing to admit when they’ve made a mistake.

  14. We see this all the time where I live, where the kids are young, naive, short-sighted, and are fresh meat for predatory lenders. If he has decent credit he can try and refinance with his bank, and if not, he may have to just suck it up and try to pay that loan down quicker next time. It looks like others have suggested to refinance as well.

    My question to him is, why in the hell did he sign such a stupid finance agreement in the first place? Wasn’t the idea of being tied into such a big payment for seventy-two months a deterrent?

  15. i did the calculations and at 17% for 6 years with a principal of $20,000 and no down payment he should have monthly payments of $444. the amount he’ll be paying in interest over the 6 years is $12,000

    i suggest getting a lawyer.

    if the lawyer says he can’t do anything, then i suggest getting the car re-financed.

    the friend needs to contact a bank or a loaner like e-loan to see if they will finance him. if the friend has horrible credit he should get his mom or dad to co-sign for him. should he need to grovel and beg, then thats life, suck it up. with a co-signer the interest rate will come WAY down.

    if the banks or loaners dont want to touch him, he could try prospect.com. thats a site where people loan each other money. at 17%, anything is better than that.

    once he secures a lower interest loan, he should pay off this ridiculous 17% loan.

  16. I’m assuming there are no easy “outs” in your contract like paying it off early without penalty. I’m also assuming that it is still very soon after you bought the car (like before your first payment and you haven’t really used the car much yet).

    Play hardball. Tell them you want the car, but want a better financing deal, and if you don’t get it you’re not going to pay and they can have the car back. Tell them you will go bankrupt if you have to pay for this car.

    What are they going to do? Pay thousands in legal fees to make probably a partial recovery of the interest? Just make it clear to them that you will not pay no matter what and that if they want to make money on the sale of the car then they should give you a fair deal or let you get your own financing elsewhere.

    At the same time ask a lawyer, but you might get action just by explaining to them that this contract won’t be fullfilled no matter what and it’s up to them to decide if they want to make _some_ profit or waste a lot of time and money to get nothing but bad blood.

  17. All depends on what he wants. If he has good credit, he could get a loan through a credit union at probably 8 to 10%.

    I would suggest he buys a used car and start investing right now. All the money that he will be giving to the bank, he could invested.

    Signed up for Ramit’s blog.

    We all made money mistakes. Our school system doesn’t teach wealth creation.

  18. I believe it may be Federal law, but normally there is a 3 day right of recision during which a buyer can cancel the contract. Contact a lawyer

  19. In addition to the recommendation above, two things your friend can do:

    1. Check out Capital One Auto Loans. They lend money not necessarily based on credit score.

    2. Check our Prosper.com. This is a peer lending website that *may* be able to help should you find deadends with the bank.

  20. California does not have any provisions for Buyer’s Remorse on new cars, so if he bought it here he is probably SOL. Some dealerships do have this thing called a 24 hour test drive, where they run papers for you like you are getting ready to buy the car, but you don’t actually sign the purchase agreement until the next day when you decide to purchase it. Once you sign the purchase agreement you have agreed to buy the car at the terms offered.

    The reason this guy got such an ass deal is that he has terrible or no credit. If he can handle it he should make on-time payments on this loan for 3-6 months and then either

    1. Refinance on this car through another lender such as a local credit union
    2. Sell or trade in this car and use his improved credit rate to get a better deal on a reliable used car.

    I think getting a lawyer will be a waste of money and I doubt the situation can be escaped without having a charge-off on his credit report. And in some cases a charge-off can be reported to the IRS as income and then he might owe taxes on the money.

  21. My husband did the same thing. I searched at different banks and credit unions for a lower interest rate and transfered the balance into it. Call and ask the dealership wath the full pay off amount is, of course the sooner that you do this the better, since the loans accumulate interest on a daily basis. Then once your balance gets low enough you can transfer that balance into a 0% or the lowest that’s offered to you into a credit card and pay it off. That’s what I’m doing on my car that I bought for $20,000 after paying it for 3 years with a low interest rate of 4.77% from my credit union, I transfered the remaining balance of about $3,000 into a credit card with 0% for a year and am currently paying it off.

  22. Check out your local news stations and see if they have one of the public legal advocate teams (i.e., 5 on Your Side) that uncovers scams and reports them in the news. If a personal lawyer isn’t in the cards, fear of public scrutiny in their local market may entice them to settle and take the car back. Then get a lawyer.

  23. Beyond getting a lawyer to fix things, I’m guessing he got his loan through the dealer. Therefore, he needs to get a loan from somewhere else and pay off the loan at the dealership. If a bank will give me the same amount on a loan at 6% or whatever, then he takes that pays off the other loan, and now has the loan to the bank to pay off. It’s like refinancing your house at a lower rate. Not a problem.

  24. A bad deal does not a legal case make.

    It sounds as though he has a job. Does he belong to a credit union? Most CU’s would be happy to finance a car new or used. Unless there are pre-payment penalties, he should be able to cover most of the onerous 17% loan with a new loan.

  25. If he wants to refinance, find a local credit union. It will be better than any bank. Most of the time, their APR does not depend on the individual’s credit score, so John could get a nice 6% APR loan for 5 years (less than $400/month), with no prepayment penalties and a friendly loan officer.

    My CU offers 5%, so I guess finding 6% will be easy.

  26. hire a lawyer? maybe, but does this guy have a couple grand sitting around to pay one? i’d say seek financing elsewhere. as others have stated, credit unions & online lenders offer the most competitive rates.

    the high-pressure environment of the dealership floor is often too much for many & dealerships count on this intimidation factor to pressure you to buy. just remember, you don’t owe them anything until you pen that paper.

    while it sounds like this guy got hosed, it could be much worse. i’m currently dealing with clients that have been suckered by “we finance anyone” dealerships that require “only a paystub, a checking account & a utility bill”. these scumbags aren’t in the business to sell cars – they’re in the fee & finance business. they set up payments at 20%+ with weekly debits from your checking account. miss a couple payments & they put the car back on the lot & sell it to someone else.

    the “bank managers” at dealerships in general are very good at their job. they can get virtually anyone approved, and are masters at manipulating the facts to get you to sign. i’ve even heard of them “billing” the down payment to reduce the monthly payment. you drive the car off the lot & get a notice in the mail a month later that says you owe them $5000 or more. payup or they report the car stolen.

    it’s not fun to get stuck in a bad finance agreement, but it could always be worse…

  27. I dont think you have enough information here to make any kind of informed decision about this deal. Did the “friend” trade in a car? If so, did he owe any money on it? Did he make any kind of down payment on the new car? If so, how much? What is this person’s credit score like? They may not have been able to qualify for anything better than what was received. Did he shop his car loan around to other banks to find competitive rates?

    It is unlikely that this “friend” will be able to re-finance this car for a better rate, since the car is currently worth quite a bit less than the loan was taken out for. There arent very many finance companies out there that are willing to do this sort of thing. He just needs to drive it, and pay off his loan as quickly as possible.

  28. A lawyer should be able to bring various consumer protection laws into play, whether for predatory lending or used car purchase.

    With such a rotten loan, I bet there’s a pre-payment penalty too, making it difficult to get out of that way.

  29. Unless he is in a state with a specific law providing a remedy or can reach an accommodation with the dealer [which I rate as unlikely if they will sign you to 17% on a 20k car], he is screwed. The 3 day buyer’s remorse is a legend.

  30. Let me first start off by saying that I am a finance manager at a dealership in the state of Washington. I am not a lawyer.

    That being said, everything depends on the state of purchase, and the timing. In Washington, there is no rescission. Once you sign the contract, it is binding. The only recourse is if the dealership cannot find a bank to take the loan as contracted. Then they will call you and try to get you to re-contract at the terms you are approved at. My guess is that the “friend” did not tell the author of this article for a few days. This is more than enough time for the dealer to get the loan funded. Once the bank gives the dealer its money, the dealer does not care about the car or the loan because the loan is now between the customer and the bank. Someone suggested that he leave the car at the dealership. That is probably the worst thing that he could do because if the dealership got the loan bought by a bank, he will end-up with a repo on his credit. The dealer is just going to call the bank and tell them that there is an abandoned vehicle on the lot.

    If the buyer got signed at 17%, there is a reason for it. He either has bad credit, small down payment, no credit, or a combination of all three. 17% sounds high to people with good credit (probably most of the people that read this blog) but it is not that high if the buyer deserves it. I have had to write contracts at 29.99%, not because I want to, because that is what the only bank that would loan to the customer would allow. The dealership can usually make more money by finding most customers a lower interest rate. The reason is this: Most customers are payment buyers. If the customer will only pay $400/month, the dealer has an opportunity to make a profit if they can get the person a better interest rate because they can finance more money with that same payment. Due to the various states cracking down on dealer rate mark-up, it does not make sense for dealerships to write the contract higher than is necessary.

    Suggestions:
    1. If your credit sucks, you are probably going to have to take your lumps and pay a high rate. Buy a less expensive vehicle. If you are going to pay a high percentage, you can keep the total interest paid down buy doing this. Customers often would rather buy the car they want, than buy the car they can afford, which may be why this guy already has bad credit.
    2. There were some good suggestions about getting the loan out of the buyer’s name. Look into it. He probably cannot refinance to a better loan, or he would not have paid 17%.
    3. Some dealerships offer customers the option of switching cars if they do not like the one they bought. That way they do not lose the customer. Look into it.
    4. Threaten to contact (and follow through if necessary) the attorney general’s office in your state. Even if the dealer didn’t do anything wrong, sometimes they might work with you a little more to avoid AG heat. Most businesses (especially dealers) don’t really care about the BBB.

    Some dealers are “swine”, but remember to get any promises in writing. A lot of times a salesman will promise something and the people that actually print up the terms of your loan will not know anything about it. Most dealerships have forms that say “nothing else promised” or something to that effect. If anyone promised a 24-hour return, it was probably the salesman. The salesmen will say anything to sell the car; try to talk to a desk manager, or the finance manager when discussing the final details of the purchase.

    Last but not least: Adults in this country need to be responsible for their actions. Unless someone forged your signature, it is no ones fault but your own. You went to the dealership to buy a car; they didn’t come to your door and hold a gun to your head.

    Maybe I am biased because I make a living in the car business. I welcome any of you to try it; it is not easy to do your job when everyone hates you. However, I conduct business in an ethical manner. I know that most peoples minds are already made up about car dealers, but when I read this post I felt the need to respond from the other perspective.

  31. Something that might be helpful would be to review the Truth in Lending Act. From the 1/29 case on an appellate decision blog (http://law.enotes.com/decision-blog):
    “The TILA imposes disclosure requirements on lenders and gives certain types of borrowers a three-day grace period in which they may rescind their loans. Moreover, if lenders do not disclose the three-day grace period, a borrower gets three years to rescind the transaction.” That would imply that you DO have 3 days to change your mind when financing a vehicle and this friend could have 3 years to ream these jerks. I’m no legal person and I’m not familiar with the TILA or what types of borrowers qualify, but it could prove helpful.

    Good luck to this guy… this situation sucks.

  32. I would write a letter to his local newpaper detailing how terrible his experience was. Bring it to the dealership, have them read it, and tell them if they don’t work with him he will send it off. Hopefully the threat of bad publicity will outweight the $ they will “lose.”

  33. This might be an American thing, but in Australian I’d say don’t bother with a lawyer.

    Just sit down, do the math and see what your REAL solutions are. If you can’t get a better deal put it down to a lesson learnt. Pay the amount, like Jenny said don’t EVER be late on a repayment.

    In the short term, it might be expensive, but in the long run the lesson learnt is cheap.

    HTH

  34. Consult a lawyer quickly and re-read the contract. If there is a minimal (or zero) penalty for early payment, get in touch with another lender (try your bank or credit union) to transfer the loan to a lower rate.

    Regardless, if you can’t afford to buy that much vehicle, get a reliable used car next time. Many can be found for under $5K.

    Also, regarding post #32, I would take it a step further and send a letter to local newspaper/TV news companies (many of them have “helping the common people” segments) and send a copy to the dealership – included with a list of all recipients. Explain that he tried to return the vehicle within 24 hours but was brushed off. If the story is newsworthy, they may run it.

    My college roommate and I exposed an awful landlord who neglected us tenants after a huricane flooded us out of our homes. Local media picked up on it and we were quickly taken care of after that. Our lease wasn’t renewed at the end of the year, but at least we were able to get something done.

  35. As Jenny (3rd reply) mentioned it’s better not to get into late payment and yes lenders have rights to take the vehicle anytime for any reason because of the agreement which one makes with the lender. Everyone makes mistakes but one will be a successful if he/she tries to get rid of it and fixes the problem ASAP.

  36. There’s nothing to be embarrassed about getting ripped off. At least you’re seeking solutions.

    No problems are being solved by living in fear or fear of judgment

    I’ve made some bad purchases in the past but just learn from the mistake and do your best.

  37. Everyone should re-read comment #30. The “friend” is getting a 17% loan because he probably deserves it.

    Trying to make some sort of grandstand play in the local media over this is silly.

  38. The Truth in Lending Act only applies to Financial Institutes. They disclosed the information to the Auto Dealership which was a third party acting in behalf of you. This regulation was not violated unless you can prove the lender did not disclose the information to the auto dealership.

  39. A few years back I was involved in a car accident with my brand new car. Sadly, it wasn’t my fault but the other people fled the scene. Insurance wriggled out of paying so I was stuck with a repo on my credit.

    Last year I went to buy a new car. I work for a mortgage bank so I know how financing worked and did my homework.

    The very best interest rate they’d give me was 22.9% and this was after checking a number of dealers. I make good money and while I wasn’t happy about that rate I didn’t have a lot of choice…I needed a car.

    Six months later I refinanced and dropped my rate to 13.9%. I also overpaid every single month to get my principal down. High interest on low principal is a lot less painful.

    In this case the gentleman who made the mistake and bought his car at a high interest rate is stuck. If they gave him a 17% interest rate they didn’t do it because they make more money. They did it because that’s what he qualifies for based on his credit.

    As was mentioned above when the dealer gets paid on financing it’s a lump sum and the actual interest rate on the loan doesn’t matter as much. The loan amount does.

    Without knowing more we don’t even know if this guy got a bad deal. He may have horrible or no credit and that could explain the 17% interest.

    All he can do is go to his credit union or apply for a car refi online. There is almost certainly no prepay on his existing loan since nearly every dealer uses a simple interest loan.

    If he did get ripped off the only way to help himself is to refi that loan at a better institution. If he can afford it returning the car should be a last resort because (from personal experience) I can tell you it will shatter his credit. It’s taken me a good 3-4 years to recover mine.

    I do find it sad that most people suggest going after the ‘shady dealer’. No one forced him to sign, and in all likelihood 17% is about right based on his credit.

    Sure, he could call media attention to this. But this was his mistake…not theirs. Why penalize the dealer unless they broke a promise to him?

    Of course, if they did, that’s a whole other story.

  40. He should read ‘Influence – The Psychology of Persuasion’ by Robert Cialdini so he would never make such a mistake again.

  41. This is simple. I’m kind of surprised no one has mentioned this…but in our society today it’s just accepted that people will always have car loans.

    Sell the car! You may be upside down on it so get a loan from a local bank or CU to cover the difference. And most importantly…drive a car you can afford. If you are making monthly payments, you can’t afford it! Ever heard of Dave Ramsey? Radio talk show host who gives very good advice on these areas of personal finance.

  42. Paying with cash if possible is almost always the way to go!

  43. Yea, paying in cash is the best way to go. PEOPLE- LIVE WITHIN YOUR MEANS. If you can’t afford a car, rough it for a bit without one. Or use a zipcar if you are in a city.