Just Because You're Bad At Math Doesn't Necessarily Mean The Dealer Is Ripping You Off

Illustration for article titled Just Because You're Bad At Math Doesn't Necessarily Mean The Dealer Is Ripping You Off

The mathematical skills of the American population are, for the most part, pretty poor. Dealerships and lenders will often use this as an opportunity to take advantage of people, but sometimes the opposite happens when someone with bad math skills walks away from a good deal because they don’t understand how the numbers work.


We have covered many instances of car buyers who get themselves into bad financial situations because they lack the diligence and/or the ability to calculate the total cost of a loan or lease correctly. However, I’ve also encountered an alarming number of folks that swore they were getting a raw deal simply because they couldn’t wrap their head around how the numbers worked out.

The first instance came from an email conversation I had with someone who didn’t end up buying a Nissan Maxima because they thought the dealer was ripping them off on their trade. Here is how it went down: the car he was buying had a retail price of about $38,000. The discounted price was $32,000. His trade was valued at $10,000 but the loan balance on his current car was $14,000. The dealer presented the deal as $32,000 +$14,000 = $46,000. Then subtracted their $10,000 offer with a remainder of $36,000. For some reason, this person thought that the dealer should have subtracted the $10,000 from the $32,000 then added the $4,000 back in for a total of $26,000. I simply could not convince him that the even though he is buying a car for $32,000 he still has a car with a balance of $14,000 and that needs to be totaled together before any credits were applied. He was adamant that the dealer was screwing him out of his $10,000 trade offer.

Within the same week, I had another back and forth with a young man buying a hot hatchback. He told me that his local dealership offered him a bad price because the payments were too high. After he sent me the quote, I saw that the $5,000 discount on the car was pretty reasonable but even after he factored in the equity on his trade the payments were still about $80 per month higher than his target. But the issue here was not with the dealership, the issue was this person simply cannot afford the car he wants.

My last example doesn’t have has many moving parts, but has to do with not understanding how simple interest works. I was helping an older couple buy a Honda and the total price with all tax and fees was negotiated before they walked into the dealership. When it came time to sign the papers the dealership laid out their loan disclosure and explained to them how much they would be paying for this car over the course of the loan. While they were borrowing $25,000 their total loan cost with the 1.9 percent APR would come to $26,226. I get an angry phone call that the dealer is charging them over $1,200 more than the agreed-upon price. It took me awhile to explain that the negotiated deal has not changed, but rather this is money they are paying to the bank in order to borrow the funds to pay for the car.

What it comes down to is that knowing a good deal from a bad one is directly related to the customer’s ability to understand how the numbers in front of them are calculated. There are all kinds of free applications that will allow you to check the math on a loan, but even those tools are only as good as the person’s comprehension of the basic concepts of addition, subtraction, and interest.


Of course, walking away from a good deal because your computational skills are lacking isn’t nearly as dangerous as signing a contract that will put you in a financial hole. But in either case, if you aren’t good at math and you are shopping for a car, run the numbers by someone who is.

Tom is a contributing writer for Jalopnik and runs AutomatchConsulting.com. He saves people money and takes the hassle out of buying or leasing a car. (Facebook.com/AutomatchConsulting)


As Du Volant

The story about the guy claiming the dealership was out to get him because the payment was higher than he wanted really hits home. When I was on the sales floor we’d run into that CONSTANTLY.

“You guys are terrible. I told you I only wanted to pay $300/mo.”

“Sir, you’re buying a $30,000 car, you won’t put any money down, and you owe more on your trade than it’s worth. The math just doesn’t work out.”

“I think you can get me to $300.”

“No, I can’t. Even if you were getting zero percent interest, $300 at 60 months is only $18,000. We’re over $12,000 away from your payment.”

(getting huffy) “Well if you REFUSE to get me to $300 I’ll find another dealer who will!”

“How did you decide $300 was a reasonable offer for this car?”

“...that’s just what I want to spend.”

And then there were the people who didn’t understand how interest worked. For example... I’d quote someone a $30,000 car at a 3.9% interest rate, which for 60 months is $551/mo. They’d accuse me of trying to scam them because “by their math” the payment should only be $520.

They were taking $30,000, adding 3.9% ($1170) and then dividing the result by 60.