YSK about payment packing, an illegal tactics car dealers use to circumvent trust in lending act
Why YSK: Spotting payment packing can save thousands of dollars if financing a car at a dealership.
What is payment packing?
Say you go into a dealership to buy a car and decide to finance a car for 40K for a 60 month term. The finance guy comes back and offers a loan at 6%. The actual monthly payment for this loan is ~$774.
The people at the dealership however might deliberately lie and quote a higher monthly (say $825) than the actual $774 number. It's hard to spot this inflation since calculating monthly payments is not easy mental math.
They then pitch you add ons like extended warranty and added protection at a slightly higher number than $825 (like $850). The value proposition seems feasible since it seems like just $25 extra on the monthly. However in reality it's an extra $76 per month from the actual $774 number. Which comes out to ~$4500 over the full term of the loan.
How to spot payment packing?
Always use an online auto loan calculator to verify the monthly payments quoted by a dealer.