Packed Payment – The Dealership Scam

You don’t like visiting car dealers, you don’t understand the process, and you don’t trust the staff… and justly so.  The car business has taken one of the most exciting purchases one can make, and turned it into something virtually impossible to enjoy.  All businesses must adapt to changing times and the car business is no exception.  Unfortunately, as time progresses, the car business adapts by becoming more deceitful in its practices.  In this article, we’re going to explain the primary tactic that dealers use to defend themselves against the information available to their customers in the Computer Age.


In the past, customers had no idea what the dealership owned a car for or what their trade might be worth.  Unless they had a friend in “the business”, they were at the mercy of the salesman or manager to tell them what the best deal was.  As you may have guessed, in most cases, they took advantage of the situation; maximizing gross profit regardless of the effect their actions had upon the purchaser.

As the internet developed, customers not only became aware of what was going on, they found themselves staring at endless resources for information about their purchases.  Trade values, used car values, and even invoice prices became available, the customers found themselves armed with knowledge and the ability to spot the dealerships’ attempts to rip them off.

Not to be defeated the dealers came up with new ways to maintain their excessively greedy lifestyles.  The primary means of doing so? The Packed Payment. 

What Is It?

Packed Payments, Padded Payments, or simply “leg”; they all mean the same thing.  A Packed payment is quoting the customer a payment, at a higher interest rate than they qualify for, in order to increase profit on the “Back End”. (Interest Rate Profit and After-sale Products such as Gap Insurance and Extended Service Contracts) The idea being that if you can’t make the profit on the sale, you can make it in the finance office. 

There are two things that you need to know before we look at an example:

  1. Many lenders allow dealerships to “mark up” your interest rate, and will pay them a percentage of the profits for doing so.
  2. While, in many cases, products such as Gap Insurance and Service Contracts, may be beneficial to the customer, they are always extremely pro table to the dealership. That’ why the customer is told that they need these things regardless of whether or not they’re beneficial in their specific circumstances.



You’re being quoted payments on a $25,000 auto loan for 72 months.  You have excellent credit and the dealer will be getting a “buy rate” of 2.99%.  They can mark that interest rate up 2 points to 4.99%.  Their profit on that markup is (for example) 70% of the difference in interest paid. Meaning, in this example, the dealership would receive a profit of about $1,160 for marking up the interest rate.  Your payment, at the marked up rate, would be $403 monthly. (With No Money Down)  Unfortunately, this isn’t the big secret.  The secret lies in how the Sales Manager will print the quote for that loan.  Here comes your quote:

With $2,000 down, your payment is to be $476 per month for 72 months.  Perhaps you haggle and happily get the payment down to $450 for 72 months; maybe even $425 because you got up to walk out.  You’re proud of yourself for bargaining them down fifty whole dollars a month! Even at that fifty dollar “discount”, you’ve been quoted at an interest rate of 9.99%! That’s five percent higher than the interest rate they can contract you at after marking it up two points for profit. They do this because you already know what their car invoices at and what your trade is worth, so they can’t manifest their greed at the salesman’s desk. 

Not to worry! When you get to the finance office, the manager there tells you that you need Gap, Warranty, Maintenance, Road Hazard Insurance, and Paint protection, but he “got you a better interest rate” from the lender so your payment will only go up five dollars, with these things included, if you extend the term of your loan by three months. 

In reality… you’re paying around five or six thousand dollars for these things, but because you were quoted such a high payment, to begin with, it seems like a small price to pay for all of the benefits you’re getting. 


How do you beat it?

The workaround for packed payments is simple, once you know what they’re doing.  You can download a hundred free apps for your smartphone to calculate a car payment.  Negotiate the “out the door” number on the car and calculate the payment based on your own research.  If the dealership isn’t close enough to the interest rate that you should be getting, simply decline to sign the paperwork and arrange your own financing or shop elsewhere.

One last thing: Most dealerships have access to multiple versions of each credit report, meaning that they can see and print up to six different credit scores to show you.  It’s common practice to show the customer the lowest of scores in order to justify higher rates.  While there is some variation between a consumer credit score (such as you get from sites such as Credit Karma) and an “Auto Buying” score, if you find the dealer presenting a score drastically different than what you think it should be, take a step back and consider your options.  There’s a good chance they’re justifying interest markup for profit.

See Also: 5 Car Buying Myths From So-Called Car Buying Experts

If you enjoyed our article about packed payments, share, comment, and subscribe.  Stay up-to-date on information about car buying.  Subscribe Below!

Tampa Deal Pros in an all-inclusive auto buying concierge in Tampa Florida.  We handle your entire car buying process including planning, shopping, negotiating, paperwork, and delivery.  All without ever setting foot inside of a dealership.  More Info

Disclaimer: The example in this article is fiction. Names, characters, businesses, places, events, and incidents are either the products of the author’s imagination or used in a fictitious manner. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.