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Buying a New Car: Know What You're Signing

"The salesman told me that I could bring the car back if I didn't like it, but now he says, ‘Sorry, no refunds.'"

"I thought I signed a paper that let them run my credit report. They say I bought the car."

"I didn't realize that I agreed to a ‘balloon' loan - the final payment is several thousand dollars!"

"The dealer called and said the loan didn't go through, and they'll repossess the car unless I apply for a new loan at 18% interest."

The Consumer Protection Division hears every week from new car buyers who were unhappy with contracts they had signed. Don't let this happen to you. Before you sign any paper involved in a new car purchase, take your time, read every line, and ask questions about anything that is not clear. Otherwise, you could end up owning a car when you didn't intend to, paying more for a car than you planned, or not getting things you thought you were promised.

There are three important steps you can take to avoid many of these problems:

First, understand that there is no three-day "cooling-off" period for car sales during which you can change your mind and cancel the contract. Once you have signed a binding contract, you are bound. Understanding that, you should never sign a contract until you are absolutely certain that you want to be bound by its terms.

Second, make sure anything the salesperson promised you is in writing.

Third, tell the dealer you won't take the new car home or deliver your trade-in until the financing has been approved. That way if the financing is not approved or if the dealer tells you the financing will be at a higher rate of interest than originally promised, you can easily walk away from the deal and look elsewhere.

Here are some other tips for avoiding common problems with the two major documents involved in most new car sales: the buyer's order and the retail installment sales contract.

The Buyer's Order

  • Don't sign a buyer's order until you are ready to buy the car. If a salesperson asks you to sign a buyer's order so you can "try out the car," or so he can run a credit check, don't do it. Tell him to write up a special note that describes those agreements. And never sign a blank buyer's order for any reason.

  • Check, line by line, that every item on the order is accurate and reflects what you negotiated. Is the selling price, the value of your trade-in and the down payment what you agreed to?

  • Make sure that any "accessory purchases" or "dealer-installed items" listed on the contract, such as service contracts or paint sealants, are items you agreed to buy. Consumers are often given a hard sell for these items, many of which are unnecessary. Even if the consumer declined, sometimes they still appear on the contract.

  • Read both sides of every paper. Make sure there are no blank spaces in the contract before you sign it. Draw a line through or write "N.A." on items that don't apply.

  • Make sure the sales manager signs the order. This will protect you from a dealer saying the salesperson made a mistake and they can't sell you the car on those terms.

  • Get a copy of the fully completed and signed buyer's order, along with loan papers and other documents, before you leave the dealership. Even if the dealership says they will mail you your copies or you can drop by in a day or two to get them, don't take the new car until you have the copies.

The Retail Installment Sales Contract

This is the contract used if you are buying your new car on credit arranged by the dealer. You don't have to finance your car through the dealer. Before you begin shopping for a car you should see what loan terms a bank or credit union would give you and, if possible, get pre-approved. Then you'll have something to compare to what the dealership offers.

  • Check the loan terms (the interest rate, number of payments, and amount of monthly payment) carefully. Don't just focus on the monthly payment. Look at all the numbers to understand how your loan is structured. Is there a high final payment? When is the first payment due?

  • Know that credit life insurance or credit disability insurance is almost always an option, not a requirement. If you do not wish to buy this insurance, make sure that you correctly indicate that - some forms ask you whether you accept, others ask whether you decline.

  • Be sure you are signing a retail installment sales contract and not a lease agreement. These two contracts can look similar.

  • Read the contract to find out what will happen if the dealer is not able to arrange credit on the promised terms. This often happens to buyers with weak credit. Don't sign a contract that attempts to obligate you to accept a different loan, which may have a higher interest rate or other terms not favorable to you. Don't leave your trade-in with the dealer or you may be left without a car if the deal falls through. To avoid these problems, tell the dealer you won't take the new car or deliver your trade-in until the loan is approved.

Remember, it's your money. Insist on taking the time to read all documents before you sign them. Don't rely on a salesperson's statement that you can "bring the car back if you are unhappy for any reason" unless that statement is written into the contract. Make sure all the terms of the deal have been finalized and you are happy with them before you take the car.

May 2000

Maryland Attorney General's Consumer Protection Division
Consumer hotline: (410) 528-8662 or 1 (888) 743-0023 toll-free

 
 

Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372
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