Used cars and scams go together like old bread and mold: You have to be vigilant to avoid problems.
That's why most buyers take test drives, and smart ones ask a mechanic to give their potential purchase a once-over to be sure the vehicle is what they're expecting. However, the usual precautions won't catch a title washing scam. "It is a paper scam that has physical consequences," said Chris Basso, public relations manager of Carfax.com, in an interview with DailyFinance. "Con men are altering vehicle documents and taking advantage of state laws that differ when it comes to branded titles."
You Say 'Salvage'; I Say 'Rebuilt'
At the heart of the issue are cars that have taken major damage, like being flooded or rebuilt after a major accident. When a car has such significant issues, its value drops, often to half of what an unharmed vehicle of the same mileage, age, model and apparent condition would be worth. To clue buyers in, states have created so-called "branded title" documents that include on them terms such as "salvage," "flood" or "rebuilt." When you buy a car, look at the title for such a status.
Title washing works like this. First, the con artists either physically alter the first title (i.e., good old fashioned forgery), use stolen blank titles to forge a non-branded title (more forgery) or simply move the car to another state that does not use the same branding language.
Next, the cons, often using false identities, register the car in the second state. The new registry either doesn't know about the problem as reported in the first state, or it literally can't use the same branding language (because of differing state regulations) and so leaves it off the new title.
Voila! A car that was clearly branded as damaged goods in one state is taint-free in another.
The Damage Is Hidden
"[States] process so many [titles] in one day that some of these can easily sneak through," Basso said. "[The crooks are] able to get a clear title, and they're selling those cars to buyers [who are] are unaware the vehicle had major damage in the past."
By changing the apparent status of the car, the fraudsters effectively double its value. Some unsuspecting victim then pays too much. And there are a lot of potential dupes. As Edmunds.com notes, 18,722,399 used cars were sold in this country the first half of 2014 alone.
Carfax traces the history of titles by vehicle Identification number, so its reports can register the transition from a branded to a clear title. About 800,000 vehicles -- found in every state -- have titles that have likely been washed, mostly by individuals, according to the company. Although some people may have washed titles unintentionally, the "overwhelming majority" are the result of someone trying to fool a buyer.
To avoid a title wash scam, insist on looking at the physical title. "You want to see if the seller's name on the title matches the [name of the person] selling it to you," Basso said. "Oftentimes these people aren't the registered owners of the car." By creating false identities, crooks make it impossible to trace the transaction back to them. Basso also suggested using a used car information service (Carfax charges $39.99 for one version) to discover any indications that a title has been washed.
8 Reasons You'll Overpay on Your Next Car
Title Washing: Sneaky Used Car Scam Could Cost You Thousands
When you get into that back office and start signing all the paperwork, the topic of extended warranties will come up pretty quickly. Ellie Kay, an author of 15 finance-related books, notes that such warranties are negotiable.
"Before you sign on the dotted line, check out other sources of extended warranty pricing," she says, such as those provided by your bank or insurance company. "Then either use this lower price in the financial and insurance office for negotiation to get them to match the price, or buy it from the other source."
A scenario from Kay during her last car purchase: "The dealer quoted me $4,200 for a three-year extended warranty for my 280SLK Roadster Mercedes that included a $250 deductible. USAA -- my insurance company -- gave me a three-year warranty for $3,200 with zero deductible. I've used the new warranty once already. The bill was $1,100 and I paid nothing because of the zero deductible."
Bottom line: The default extended warranty is almost always the worst deal.
You may have a monthly payment figure in your head when shopping for a new car, but your interests are better served when you focus on the out-the-door price instead.
"A sales rep can often trick you by offering a lower monthly payment, but [one that] will stretch out the terms of the loan," says David Bakke, a car buying expert at MoneyCrashers.com.
You can reduce the overall cost of the car via negotiation and by skipping accessories and add-ons. "Things like navigation systems, rims, floor mats or car audio/entertainment systems can be purchased from a third party vendor, usually for less."
All our experts agree: Don't even mention your preferred or maximum monthly payment price.
If you decide to trade in your current vehicle for another, Kay says to negotiate this apart from the price of the new car and only after you've negotiated everything else. You can learn the full value of your car by going to Edmunds.com or kbb.com. Once you know what the car is worth, don't settle for anything less. Kay also advises you to seriously consider selling your old car yourself, and applying what you get toward the principle of your loan.
It may be tempting to just head to one local dealership, take a test drive or two, and walk out the door with a new car, but you'll save yourself a lot more money by doing a little pre-shopping research.
"Once you have your choices narrowed down to a few makes or models, contact the Internet sales manager of a few dealerships," suggests Bakke. "These folks can often offer better pricing than what you'd find dealing with an on-site sales person. Plus, you save time."
In addition to, or in lieu of, e-shopping, Joshua Duvall of Capital Financial Services says to "find a few vehicles from different manufacturers and pit them against one another." He explains that the car buying market is based on quantity and the fact that dealers want to move cars. "Force them to compete for your business."
"Dealerships often employ hard-sell tactics that can be overwhelming for a first-time buyer, so it is a good idea to go with someone who has been through the process before," explains John Ganotis, founder of CreditCardInsider.com.
Granotis also says that if you're buying a used vehicle, it's wise bring along a friend who knows his or her stuff when it comes to car health. For example, a mechanic who can peek under the hood, or recognize if something subtle is wrong during the test drive, would be especially handy.
You've likely heard it before, but we have to repeat this fact: Buying a used car is almost always a better value compared to buying new. If you like a particular model, buy the same car, but a year or several years older. Unless there have been major body changes, you'll hardly be able to tell the difference.
OK, so sometimes ol' Sally breaks down, and you need to get a new set of wheels, stat. If you don't fall into that category, though, our experts recommend choosing your purchase date strategically, such as during a major sale. Better yet, wait for theend of a promotion.
Dealership salespeople often receive a bonus if they meet their targets during a promotion. Even if they lose money on a vehicle at the end of a promotion, they typically make up for the loss with their promotion target bonus.
Erin Konrad of CouponPal suggests buying near the end of the month. This is when salespeople are trying to meet monthly quotas and are more likely to negotiate.
Be familiar with common strategies employed by dealerships and sellers. For example, MSN Money warns against the "four-square" trick. (I've had this one used on me.) In this trick, the salesperson draws four boxes with a number in each: your old car's trade-in value, the new car's price, the down payment, and your monthly payment. "From there, the salesperson begins crunching numbers -- most likely making it too hard for you to follow," writes MSN. He or she will shift your focus to the monthly payment, which can result in a longer loan and a higher interest rate.
Another common trick is to heighten your sense of urgency, says Business Insider via Gregg Fidan, founder of RealCarTips.com and the author of "Honest Guide to Buying a Car." For example, the dealer may tell you "that color is not available; there's only three left statewide; the price is good only for today; someone else is interested in the car, better decide quickly, etc." In this case, be patient and courteous, but remain level-headed and never rush to buy. Study up on Fidan's list of 112 car-buying scams.
To sum up the list: Don't let yourself get too caught up in the excitement of shiny metal, and remember that in six months that "new car excitement" will have faded, and you'll be due for an oil change.