Tiana Clewis: Hey Dreamers! Welcome back to my channel where we cover key strategies to getting that money right at home and in business. If we haven't met yet, I'm Tiana B. Clewis, a Financial Lifestyle Coach, and I've made it my business to help women entrepreneurs - and a few men out there - use money as a tool so that they can escape that nine to five grind and build a life that's actually worth living.
Now, today we are deviating from my beautifully crafted game plan because I want to talk about a Wall Street Journal article that came out over the weekend that caught my eye and I was like, I have to talk about this. Now you guys who know me know that when it comes to my podcast, when it comes to my YouTube channel, I like to plan my content in advance and what I've been talking about lately is all about budgeting.
And you know how I am. Budgeting - it's a big deal. Like, it should be your best friend by now. And if it's not, we need to talk for real for real. We need to talk. And if you do want to hear more about budgeting, I have a couple of videos that you can check out all about that, but that's not what we're talking about today.
What we're talking about today is a Wall Street Journal article that is covering a growing problem where shady dealerships are actually encouraging car buyers to stop paying the loan on their old vehicles. Yeah, you heard me right. Car dealerships are telling people, don't pay the loan on your old car anymore.
That's foolishness. It's nuts. It's fraud. Yeah, it's fraud.
And so since knowledge is power, I want to give you the right knowledge, the right information so that you can be empowered and avoid getting caught up as some shady scheme like this your self.
Before we break down this article, I want you to go ahead and do myself and your fellow consumers a favor and like this video because YouTube likes, likes and videos that get likes get shared. And this is something that honestly, the people need to know about. They need to know about what's going on, and they need to know how to protect themselves. So when you like this video, you're actually doing me and you're doing your fellow consumers a favor.
Also don't forget to subscribe to my channel and hit that bell so that you're notified every time I drop more money, tips and strategies each Wednesday and Saturday, because yeah, I want you to enjoy life and I'm sharing the things so you can learn what you need to know. So you can use money to enjoy life. So just subscribe to the channel.
So imagine, if you will, I'm a sitting at my desk. I'm looking through Facebook and I'm actually looking specifically for a post in one of my Facebook groups. Right? Well, my timeline, on my timeline, I see this super duper judgemental comment.
It's the first thing I see. I actually see the comment before I see, I notice the post itself and the comment is super duper judgy because it's saying, "Oh, this Wall Street Journal...Wall Street Journal article is utter trash basically is people are buying things that they can't afford."
I see posts like that all the time. I see comments like that all the time, and part of it is because I, as a financial coach, I'm in a lot of Facebook groups with other people who are financial coaches, and some of them are more judgmental than others. Mmm... mmm mmmm.
Side note: here's the thing that's funny to me. Many of these super judgemental coaches - and some of them are even like Financial Peace University coordinators, I'm in those groups as well. Some of these people are super duper judgmental as if they've never gone through these sort of troubles themselves in the past, and it really bothers me. It's like you forgot where you came from. Like you forgot what even got you to this place in the first place, that you are coaching people, that you are coordinating Financial Peace classes, that you are trying to counsel people on improving their financial situation.
Most of the time people who are doing this stuff, were in some sort of financial bind in the past, and that's what created the passion in them to do this stuff. So when I see these really judgmental comments and posts about people doing stupid things with money, usually I just roll my eyes and keep on going. If I see it from the same person over and over again, I typically will actually just block them where I can't even see their comments anymore.
Well, this one though. It caught my attention because when I looked up, I just kind of looked up curious about, okay, what are they being so judgy about this time? And I see this headline that says, "Dealerships Give Car Buyers Some Advice: Stop Paying Your Loan", and I'm like huh... What? Excuse moi. Why? And so then I see this subline underneath that says "Car sellers are telling hard up borrowers to have their old cars and voluntarily repossessed. Lenders and borrowers are losing out."
As a former fraud investigator, I instantly saw that and read fraud - scam. There is no way that this is possibly legal or okay, or it's something that the banks are finding acceptable to do. There's no way. No way.
And so I had to click on this article and when I started reading through it, I'm going to be honest, I got super duper angry. So what I'm going to do is I'm going to read snippets of the article - the whole article, the entire article is going to be linked and description - but I'm going to read snippets from the article and then I want to start breaking down the pieces of the things I'm seeing from this article, why it's a problem. And then we're going to wrap all this up by talking about some strategies on how you can protect yourselves from these sorts of situations and scams. Okay, so let's do this.
The article opens up saying "Joyce Parks was struggling to afford her Kia Soul. When she says the dealership where she had bought it, pitched her an unconventional idea. Stop making the payments.
Ms. Parks 63 years old, says employees told her that she couldn't trade in the Soul, but that she could buy another car. To get rid of the Soul. The dealership told her she should have the lender repossess it, Ms. Parks said."
As you can imagine, when I read these first few paragraphs in the article, immediate, instant piss-tivity. Like your girl was heated because I'm... All right, your girl has a vivid imagination and so I am trying to visualize this in my head, and sadly it was way too easy to visualize. They're probably doing that kind of buddy buddy thing. I'm on your side. I want to help you, and I see that financially things are tough. You really need to get a new car, or maybe you really want to get a new car.
There's - let's be real. Sometimes we buy new cars and we don't need them. We just want them. But I really want you to have this new car, and so I'm going to do whatever I can to help you out. And in this case, I'm sorry, we're not going to be able to accept your car as a trade in. Or maybe they'll say something along the lines of the amount of money that we can take your car.
Um, the amount of money that we can give you back for your trad-in is not going to get enough. It's not going to be worth it, but blah, blah. So then they sit here and they tell you, okay, here's what we, I want you to do. Go ahead and buy this car. We're going to make sure that you can get that the financing gets straight. I'll get the financing office in the back to help you out, make sure things are good, and then when you go, when you go home, you're going to have both cars. What you'll do is you'll call up your other bank and you'll tell them, Hey, I don't want this car anymore. You guys can come back and take the car.
The problem is, they left out some very key consequences of what that phone call for the old car loan - there are consequences of that phone call. You're not just gonna - they're not going to come get the car and you get off Scott free. There's two very important consequences and I'm like 99.9% sure that these car dealers or people who do this sort of foolishness did not communicate these two key consequences.
The first consequence that they probably neglected to tell Ms. Parks about is the impact to your credit score. I knew as soon as I read those first two paragraphs - hadn't even read anything else in the article - those first two paragraphs told me instantly her credit score was about to tank. It's about to go down. It's about to take a serious hit. Unless her credit score was already in the dirt, already in the ground, she's about to take a major hit and here's why.
Think about what a credit score is about. Banks use a credit score to figure out whether or not you are trustworthy enough for them to give you money. They want to know, if I give you this money, will you pay it back and will you pay back on time? Because that is how the banks and the lenders make their money. When they lend you money to go buy something, they charge you interest, and when you pay back your loan on time, they get that interest. It's very profitable for them.
The problem that we're running into is a big part of making that determination is your payment history. I don't know if I can trust you to pay back the loan that I gave you if I don't know what your history is in the past on actually paying back loans.
Well, when you look at the calculations that they do for credit scores your payment history is 35% of that calculation. That's over one third of the calculation is based on your payment history. And when you're looking at payment history, when banks are looking at payment history, there's this thing on your credit score that's called account status or account condition, and that account status, that account condition tells the lenders and tells the people calculating the credit score - it tells them about your habits on repaying the debt.
So you might see something on your credit score that says "Pays as Agreed". And when they say pays as agreed, it basically is saying that this credit card, this debit, this loan, whatever, is open and they're paying, they're making their payments every month, every week, whatever your schedule was - they're making the payments as we agreed to, and the contract.
You could also see something like "Paid/Closed, Never Late" and what that means is in the mind of the person who lent you the money, you paid back the loan, you paid back the loan on time. We're good. Like, it's - that's perfection and that's the ideal thing that every bank, every creditor wants to see on your credit report. They want to see "Paid/Closed, Never Late".
Now it might not look exactly like that. I pulled this off of Experian's website, so Equifax or TransUnion, they might show something a little bit different, but this is the general concept.
You can also see something on the credit report that says "Settled", and if you, if it says "Settled", that typically means that you did not pay the account in full. You called them or they called you and you guys mutually agreed on some sort of amount that you would pay back and then you paid it back and everything's good. Now "Settle"d is not perfect, so you're going to take a slight hit on your credit score if something is settled because you didn't pay back the loan on the terms that were agreed to.
In the case of Ms. Parks and the other people that were, are identified later on in this article, you're going to see something like "Voluntarily Surrendered" or "Voluntarily Repossessed". Or just straight out "Repossessed," whether it was voluntary or not. That's gonna appear on your credit report. That shows that you did not finish paying the loan.
In fact, even though, even if you called them and said, I'm "Voluntarily giving this back", the fact that you didn't actually - you didn't come up with some sort of settlement when they get some sort of mutually agreed amount of money because you didn't pay it back as agreed - you didn't do any of those things - that's a huge hit. They're like . It's like basically you defaulted, but that's, that's terrible. That's, that's, that is a huge red flag for a creditor.
So now your credit score is going to go down because this huge glaring red flag has now been put in your credit report. Which means in the future, if she wants to go buy anything - like maybe she wants to go buy a house in the future, -that's going to be hard because this giant red flag is jacking up her credit score.
So that was the first thing I saw that really, really ticked me off because. I bet you they never told her that when you call the other bank and say, "I don't want this car", that her credit report was now going to say "Voluntarily Repossessed", and because it now says "Voluntarily Repossessed," "Voluntarily Surrendered" or just flat out Repossess... um... Just flat out "Repossessed". They didn't tell her, "We gone jack up your credit score by doing this, Boo. Sorry. Not, sorry."
They don't care. They just want her to buy the new car and they were going to tell her whatever it took to get her to buy the new car. So that ticked me off. May me mad. Huge issue. All right.
Now the second, that second problem that I saw was actually specifically addressed further in article. So let's read that.
"When Wendy Davis is Hyundai Sonata was having mechanical problems in 2016 she returned it to the Connecticut dealership where she bought it used. The dealership, told her it would take the car and sell her another one, she said. But after she signed a loan for a used Nissan Altima, she was told she couldn't trade in the Sonata, she said. When she explained she couldn't afford two car loans a employee told her to have the Sonata as lender, take it back, she said.
'He made it seem like it was something they deal with a lot' said Ms. Davis, who is 29 and an office manager.
The Sonata's lender took back the vehicle and soon informed Ms. Davis she still owed nearly $9,000. Her credit score plummeted. "
When you read that, you see the second problem. Not only did their credit score get jacked up, but also these ladies took massive hits when it comes to their actual debt. That debt hole that they're in, it just got bigger. And that's because these dealerships - I'm 99.9% sure - did not explain to these ladies what happens when a vehicle is repossessed. So let me tell you how repossession works.
When the car is repossessed, whether it's voluntary or involuntary, what they do is they take the car into the possession, they'll inspected, they'll clean it up, and then they'll put it on the market and they will try to sell the car. The problem that they, you typically will run into is that as you've been driving the car, you've added miles to the car, or you might've had some minor damage to the car. Um, something may have happened. And when you combine all those things, plus just the age of the car, the value of the car has decreased. And for many people, they are underwater on their car loans at some point in time. Frankly, many people are under water on their car loans for the majority of the life of the car loan, because when you drive your car off the lot, it loses easily 30%, 40% to 50% of it's value just because you drove it off of the lot.
So I buy a $30,000 car that's actually worth... So I, I get a $30,000 loan for the $30,000 car. When I drive it off the lot, it's now worth only $20,000 so I'm instantly underwater on that car loan. Two years later, if I have a six year auto loan, I'm probably still underwater on this thing, but I'm trying to get another vehicle. Right? And so you let it get repossessed. They're trying to sell the vehicle. That vehicles probably at this point worth maybe, I dunno, $12,000. But because you're two years into a six year loan, you may still owe $20,000 on this vehicle that's now worth $12,000.
So then they now take this $12,000 car and they sell it for the $12,000. There's still an $8,000 gap. Guess who's on the hook for that $8,000 gap? You are, because you took out the loan. That's how repossessions work.
So when they're saying, "Hey, just call the other bank and tell them you don't want the car back", they're leaving out the fact that what's about to happen is you're about to still be responsible for this car loan. But those are the types of things that people do not explain, especially at a dealership, because ultimately all they want to do is they want you to walk out the door with the new ve... With the new vehicle. And so it really, really upsets me. When things like this happen, because again, they're trying to be all buddy buddy with you.
They're acting like they're on your side. They want to just make sure that you get this vehicle. They'll even make it sound like, "Oh, what we're telling you to do is completely and utterly normal", and it's just not.
So that being said, we need to go out and we need to protect ourselves. So what I want to do is now I want to walk you guys through some simple, relatively simple things that you can do to protect yourselves from this sort of financial scams with auto dealerships.
The first one is to know your credit score before you even get there. Some of the scams - and yes, they do discuss other scams inside of the article and then when you just do research on the other scams, you realize there's a lot of them out there - if you don't know your credit score in advance, one of the things that they will do is they will - I can't say they - shady auto dealers, one of the things they'll do is they will actually make you think that your credit score is worse than it actually was.
So then they'll offer you a higher interest rate and they're offering you worse terms because they'll can go... they'll use your lack of knowing to convince you that this is as good as it's gonna get. I'm giving you the best option you're going to find out there. So that's one thing. You have to know your credit score in advance.
The second thing you need to do is have financing lined up before you even go to the car dealership. The truth is that many car dealerships make most of their money, not on the actual sell the car, but on the financing. It might be kickbacks - which I'm gonna talk about in a minute, maybe kickback from the bank - or it might be that they have their own financing department, which is becoming more and more common. In fact, many times the financing department makes significantly more profit for the business than anything that's happening on the showroom floor for real for real.
And so if you, if you go and you shop around and find your own financing and find your own terms, it's going to do a few things. One, it's actually going to help you know what banks are willing to lend you because there are some scams where when the dealer, when the shady dealerships, the submit your information, they will inflate your income. And when they inflate your income, of course, banks are willing to give you better terms because they think you have more money and you're better able to afford this loan.
So, um, if you know what banks are willing to lend you in advance, then if something comes back and you're like, "Whoa, Whoa, Whoa, Whoa, this is way different from all I saw in my shopping around", you know, that's something's up.
Also, there could be times when, again, if they're acting like, "Oh, you know, your credit score is worse than we thought. This deal I'm offering you is as good as it's going to get." They may have done something like, they may have padded the interest rate. So maybe the, financing group was going to offer you 6% but then they write up the loan with 8% so they can take that extra 2% from themselves. Or they may actually go out and just straight up hide better offers and have you, and presented to you, like, the most financially inconvenient offer for you.
Or they may do something like present you only the offer that's for a certain bank, even if it's not the best for you because they get a kickback from that particular bank. Um, so in this case, get your financing lined up in advance and then only take the dealership's financing if it's better terms than what you were able to get on your own outside of their office.
Another thing you want to do is make sure - before you even walk in the doors - that you're walking into the doors of a car dealership that has a good reputation. Do your research. Look at Yelp reviews. Um, look and see if these dealerships have had any sort of legal trouble and what does the, what do those legal troubles look like.
One off lawsuits that given, we live in a very litigious country, so of course they're going to have one off lawsuits here and there. But if you keep seeing a lot of different, a lot of lawsuits with the same sort of problems, especially related to auto financing, you probably want to avoid them.
The other thing that you can consider doing is just selling the car yourself before you even go. You can...in many cases, depending on where you go, you typically are going to be able to sell your car privately for more than you would get for a trade in. So if you're able to do that, you have the time of the interview to be able to do that - because it can be a bit of a hassle. My husband sells all of our cars himself - it can be a bit of a hassle, but it's worth it because you end up getting more money. So on average, my husband is able to get $2,000 to $3,000 more selling the car himself than what he is offered for our trading. That's just the trend that we've seen. So if you want to make more money and you have the time available to do so, just sell the car yourself before you go.
Another thing, don't shop with anyone that won't accept your trade-in. So if you didn't sell the car before you went don't deal with anyone who's not going to accept your trade in and make sure that the terms for accepting the trade in are built into the documents that you're signing. Remember in the article, one of the ladies specifically said that it was after she signed the loan for the the new car that they said, "Oh, we're not going to take your trade in". Which means that the trading was not included in those loan documents. Typically, somewhere on the loan documents it's going to specifically outline how much money they're giving you for your trade in. If that information is not there, then that means they're not accepting the trade in, so you don't want to sign the documents. So yes, read the documents and make sure that they're accepting the trade in.
So one, if they don't accept the trade in outright, they just tell you "We're not accepting the trade in," walk away. And two, when you're signing the documents and make sure the doctor was actually show that they accepted the trade in so you don't get caught up like the young lady did.
The sixth thing is knowing your trading value before you go. If you know your trade in value before you even get to the dealership, it's really difficult for them to low ball you. And most importantly, they'll try to use this excuse of, "Well, we won't make any money off of the car if we buy the car for specifically what it's worth." That's a lie. Yes, they will. Because if they do their own in house financing, again, I've already told you they're going to make more money off the financing than they're gonna make off the sell the car anyway.
So if your car is worth $12,000 don't sell it for anything less than $12,000. Or if you sell it for less than $12,000 let it only be like a $1,000 difference, because ultimately they're not going to make their money off of selling that car anyway. They're gonna make their money off of the financing.
Finally, if they do something like they call you later and tell you that the financing was denied, just give them back the car. Seriously.
So this is actually called a yo-yo financing scam. So what'll happen is that. You'll sign the loan for, but what guys agreed on.
You'll drive the car off the lot. You'll go home and they'll say, "Hey, we'll call you, once everything has gone through, let's you know everything's good. Well, they don't call you and say everything's good. They call you and they say, "Hey, the loan was denied. The loan was denied for ABC reason", but they will, they'll also tell you on the phone, is that "Well we did manage to get you financing with ABC company."
But the longterm still going to be different. More often than not, the interest rate is going to be higher than what it was that you originally agreed to. So you come back in and you signed the new papers for the worst loan rates, and then you drive home.
Yeah, that's how that works. It's a really crappy scam.
So if they give you a call and they say that the financing was denied, I'm just going to say, give them the car back. Don't put yourself through the hassle. Just say, "That's fine. You can keep the car. Bye bye."
If it just so happens that you do come across one of these scams or you feel like there's been some you've been scammed or there's been some sort of issue, there are some things that you can do.
So one of them is to report the auto dealership to the Federal Trade Commission by filing a complaint. You can go to FTCcomplaintAssistant.Gov, the link isn't description. You can go there and you can file a complaint to let them know," Hey, this car dealership is doing this thing that is probably illegal."
You also should contact the Attorney General for your state. Now the link to the National Association of Attorneys General is also in the description in the comments, and that is www.naag.org. And your state attorney general is able to take some action and do something if this dealership is functioning in a potentially fraudulent manner.
So those two things you want to do, whether you were scammed or notif you just suspect that they're running scams, do those two things.
If you're actually scammed, the last thing I want you to add is go get a lawyer. One of the ladies in the article noted that the dealership did take the car back once she got a lawyer involved. If that's what you gotta do. That's what you gotta do.
It sucks because it's going to cost you a little bit of money to get the lawyer involved, but if it works, it works and it's better to be saved... It's better to avoid the hit your credit score and to, you know, maybe only have to pay a $1,000, $2,000 versus the $10,000, $20,000 $15,000 that might be the difference or the gap or whatever ends up being the ultimate consequence. Had you gone through the entire scam. Okay?
So there you go. File with the ...file a complaint with the Federal Trade Commission, contact your Attorney General's office of your state and if you actually did get scammed, contacted a lawyer because they might be able to help you get out of the situation for a lot cheaper.
One more thing. You can always avoid this entire scenario simply by saving up your money and paying for a new vehicle in cash. And yes, I know there's a lot of places where you're advised not to buy a car in cash, and there are some reasonable acceptable arguments for that.
But if you want to be completely sure that you're avoiding financing scams. Walk up a cash. Cash is King. In fact, some car dealerships will actually sell a car near cost, if you're going to buy a pay for the car in cash. Seriously, you can reduce the amount of money that you actually have to pay for the car if you just buy it in cash.
If you're sitting here like "Tiana, there's no way that I can save up money and buy a car in cash cause my money is out of control," one of the things that you definitely need to do is you need to implement a budget in your life. I told you, I've been talking about budgets for a while and you need one in your life, if you want to get in a position where you can save up money and start buying things in cash to avoid these sort of crazy, crazy scams that are out there when it comes to these shady car dealerships.
If you don't feel confident in your budgeting ability to worry, I've got you covered. My Beginner Budget Checklist is a step-by-step guide that I use with my clients to help them to save money, to do things like go on vacations and pay off debt and launch businesses - whatever it is they want to do with the saved money. Okay? Cover emergencies. I don't care. It's whatever you want to do with the save money.
So if you need help creating a realistic budget, that's actually going to help you to reach your goals, save money to do whatever it is that you want to do, head over to TianaBClewis.com/BeginnerBudget. Let me know who you are and then the checklist will soon be in your inbox. Naturally, the link to that is also going to be in the comments and the description.
Now that you know what's happening with this growing financial scam and how to protect yourself, I realized that I need to do a video on credit scores. So even though this video was a little bit longer in my mind, it didn't make sense to split that video up into two parts. So what I'm going to do for you is I'm going to drop a bonus video on Saturday explaining what credit scores are, just in case you don't know.
So be sure to subscribe to my channel and hit the bell so that you're notified when that bonus video drops this Saturday. And if you haven't already, make sure you liked this video and share it so that we can get the word out about this foolishness.
Finally, if you're looking for more strategies that will help you get in a position to save money for your next major purchase, like a car, and avoid these financing situations altogether, I have two videos that you definitely want to watch because they're going to help you get in the right position and on the right path. Well with that, I guess I'll see you on Saturday. Bye bye.
Read the article from The Wall Street Journal here:
Found a car financing scam while buying a car from a dealer, report the dealership to the Federal Trade Commission (FTC) and the Attorney General of your state through the National Association of Attorney’s General:
Budget like an expert so you can save for your next car (and pay in cash) by downloading the BEGINNER BUDGET CHECKLIST here:
Get more tips and strategies on creating a stellar budget here:
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