The 27.9% optional tax you don't know you pay

Where car dealers make their money is not where you think it is ... it's not on the car itself - not by a long shot. Any profit there is pure gravy. The real profit at a car dealership is in the "dealer profit tax" they push on to the deal.

This is the optional "tax" the customer often doesn't even realize is going on - and often doesn't know what the numbers are for either. And the kind of customer who gets charged the most is often a younger consumer who the dealer gets all excited about their new purchase and then smokes them on the sales paperwork (you can see what "smoke" means in our online car dealer dictionary by clicking here).

Here's a good example we just reviewed for a new client who was ripped off and didn't even know it.

A used Chevy Malibu. Price on the paperwork said just over $15,000. The young lady who signed the sales paperwork made a number of mistakes that maybe you can learn from too.

First, she went shopping without her dad or any friend at all. Mistake #1. Car buying can be emotional and if you are all alone, it's easy for an aggressive sales person to pressure you into something you may not be so sure about. Having a friend go with you can help you avoid a pressured decision.

That friend can also be a witness to anything that is said and, believe us, if you are by yourself the salesperson can say anything they want and it's just your word against their's. Promises are nice, but they don't amount to a hill of beans later on when you realize it wasn't written down and no one heard it but you and the salesperson denies ever saying it. They win. You lose. That's mistake #2.

And that 27.9% optional tax? Well, in this case, the lady signed the sales paperwork without realizing the dealer's salesperson had packed into her deal window etching "theft guard" for an extra $100 (it's a waste of your money in our opinion, but you can buy it online for about fifteen or twenty bucks). Then there's the worthless "colander" extended warranty (that's one that won't hold water because it's got so many holes in it that the warranty company doesn't have to do anything they don't want to do for you) from some out of state outfit that requires her to come back to the dealer for future repairs (where they can sell her more when she returns) for $1,300 (oh yeah, and it only covers the car for a year). Mistake #3.

Then there's the GAP "insurance" they packed into here deal that really isn't insurance at all - it usually pays about $2,500 if your car is stolen and your insurance doesn't pay off the whole loan and it cost her $700 (another rip off, given the amount they are charging, the amount paid off, and the infrequency of cars stolen compared to cars being sold). Tack on the dealer's "key care" program, the "dent repair" plan, the credit life insurance, the credit disability insurance, and - for good measure - something new ... "personal assistant" services for an extra $90. Pile them all up and you've got mistake #4.

By the time she was done, or rather by the time they were done with her, that $15,000 car had an "out the door" cost of just under $20,000. Oh yeah, and her interest rate on the loan was 18% (a big chunk of which the lender gave back to the dealer as a kickback for setting it up that way - they call it "dealer reserve").

Before you ever go to a car dealer's lot, if you are going to need financing then go to your bank or credit union and get your financing set up so you know how much you have to spend - and then, whatever you do, don't let the dealer set up the loan for you. They'll promise you they can get you better terms, etc, but it is commonly just a shill game designed to get their hand deeper into your pocket.

You can learn more tips by reading this free legal guide "How to Buy a Used Car and Not Get Ripped Off" by clicking here so you don't waste your money.