Drive Virtually Free: Smart Used Car Buying Advice

Surely you’ve heard about the “Cash for Clunkers” program which subsidizes the purchase of new cars for those who get rid of their old, polluting gas guzzlers.  I won’t go into the details, but basically, if you purchase a new car that gets a certain number of miles per gallon more than your current car, you are entitled to a voucher worth $3,500 or $4,500, depending on the amount that your car’s fuel economy has improved.  This is basically another form of stimulus from the government to increase new car sales.

Smart is currently advertising a deal with $99/mo payments on a purchase of a Smart ForTwo for 36 months when you get rid of a vehicle which qualifies for the $4,500 “Cash for Clunkers” voucher.  Sounds great, right?  Well, wait until you read the fine print: there is a $6,667 balloon payment due at the end of the loan!

Subject to credit approval by the lender and the terms and requirements of the CARS Program and associated regulations promulgated by the United States Department of Transportation. $99.00 monthly payment based on customer trade-in of an eligible vehicle qualifying for the CARS $4,500 voucher level, a $70.57 combined contribution by Daimler Financial Services and smart USA, and a 36-month balloon loan with $0 cash due at signing and a final balloon payment of $6,667.50 at the end of the loan term and a $ 13,335 MSRP which includes the destination charge and excludes tax, title and dealer fees. 5.9% APR financing for 35 months at $11.30 per month, per $1,000 financed, plus the final balloon payment.

Now, to be fair, if you are able to use this incentive, financially it is not a bad deal at all for a new car (only because of the $4,500 voucher).  My gripe with this is not really about the cost, but about the way that it is advertised.  The $99/mo payments are advertised very prominently to get people in the door, and only when you’re about to sign off on the paperwork so that you can drive home will you find out about the big balloon payment.

This is, of course, similar to how we got into the “credit crunch” that we’re in right now – people getting lured in by initially low payments and getting hit with something they can’t afford a few years down the road in the form of higher interest rates.  Hopefully the finance people at Smart will keep this in mind and properly qualify their buyers.

The moral of the story is this: never, ever make a decision to buy based on monthly payments alone.  Always consider the entire deal – the sum total of the payments.  Never negotiate on monthly payments either, because car dealers will try and put you into more expensive cars with longer loans which still end up with lower monthly payments.  Or, they may try to give you a low monthly payment as long as you give them a big down payment, which still does not end up in a good deal.  Worse yet, they may stick you with a lease which has low payments, but costs you more in the overall scheme of things.

Going beyond just the terms of the loan, before you purchase a car, always focus on the total cost of ownership.  Make sure you have at least looked at what the depreciation, fuel economy, insurance, repairs, maintenance and interest are going to cost you, and that you can actually afford it.  Old supercars, for example, can be had for $20,000 to $30,000, but the fuel, maintenance and insurance costs will be a killer if you aren’t expecting them.  Don’t be caught off-guard.

Selling your car privately is the best way to go, but always remember to be wary of people trying to take advantage of you.  If it’s too good to be true, it usually is.  Here are 4 common scams to watch out for:

Advance-Fee Fraud (Nigerian Scam)

So named because any of those who have attempted this scam in the past are located in Nigeria, this is one of the most common scams to look out for.

The scammer will typically send you an e-mail telling you that they will pay you full price and then some, without ever seeing the car beforehand.  There is often an elaborate story about how the buyer is a powerful foreign leader or businessman working overseas and the e-mails are typically riddled with misspellings and generally poor English.  They will tell you that the extra money is for you to use to ship the car to them, and they trust that you will send them any remaining money once the transaction has been completed.

People who fall for this scam will happily deposit the check, ship the car, and then send the remaining funds back.  Soon after that, they will be notified by their bank that the check they deposited was a fake and the funds are being withdrawn from their account.  At this point, the poor soul will have lost the car along with the money that was sent over to the scammer.

If you spot this scam and you get bored, stringing the would-be scammer along can provide you with a good deal of entertainment.  Otherwise, send these e-mails straight to the trash.

Bad Checks

This is a much simpler scheme: a buyer may come to purchase your car, but write you a personal check.  Even if you say that you want to see the funds in your account before they can take the car, you can still get scammed because while the funds will show up in your account within a few days, it usually takes several weeks for a personal check to truly “clear”.

The best way to avoid this is to never accept personal checks under any circumstances.

Counterfeit Cash

While many suggest that cash is the only way to make sure that you won’t get ripped off, don’t forget that counterfeiters are still working hard to make bills that will fool you.  The easiest way to avoid this scam is to refuse cash payment for the car.  If you decide to accept cash, have the bills inspected at the bank for authenticity or try using a counterfeit detection pen (using iodine solution), which you can buy from drug stores or supermarkets.  If you’re worried about hurting the buyer’s feelings, cite a past incident and tell them that you make it a point to always check for counterfeit cash.

Fake Escrows

An escrow service, which is used to collect the buyer’s payment for the seller, is designed to remove risk from a large transaction.  Unfortunately, scam artists are setting up fake escrow services to lull their victims into a false sense of security.  Typically, the buyer will suggest an escrow service to use to buy your car, often sending a link to a website that may look very legitimate.  Look carefully at the links and the webpage that you have been sent to.  If you have any doubts, go to the official site of the true escrow by typing the address into your browser yourself.  Send the link you have received to the escrow service asking them to validate it.

A sure sign of this scam is a buyer insistent on using a particular escrow service.

The Solution

So, with all of this deception going on, what’s a seller to do?  You have to collect payment somehow.

If you can, go to the bank with the buyer so that you can actually see them having the cashier’s check drawn.  While you can fake any payment method, the cashier’s checks often have security features that are tough to duplicate without a serious effort, and banks can tell you whether they are valid or not.

If you have a bank account at the same institution as they do, ask about having the funds directly transferred from the buyer’s account to your account.  This makes it almost impossible for the buyer to use a fake payment method.

Don’t let this put you off selling privately.  Most buyers are legitimate and the few who aren’t make the problem seem worse than it is.  If something doesn’t seem right, follow your instincts and take a second to check the payment method out.