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How to spot auto loan fraud Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by providing you with interactive tools and financial calculators as well as publishing original and objective content. We also allow you to conduct research and compare information without cost, so that you can make decisions about your finances with confidence. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that are featured on this website are provided by companies who pay us. This compensation can affect the way and when products are featured on the site, such as for instance, the sequence in which they be listed within the categories of listing in the event that they are not permitted by law. This applies to our loan products, such as mortgages and home equity and other home loan products. But this compensation does affect the information we publish, or the reviews you read on this site. We do not contain the vast array of companies or financial deals that may be available to you.
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4 minutes read. Published 28 February 2023
Authored by TJ Porter Written by a contributing writer
TJ Porter is a contributing writer for Bankrate with eight years of experience in writing about financial matters. TJ writes on a variety of topics, ranging from .
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain confidence to take control of their finances with concise, well-researched and well-organized facts that break down otherwise complicated topics into bite-sized pieces.
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When scammers targeted homeowners in the downturn in housing prices and the recession, car loan frauds are now starting to attract the attention of the government watchdogs. These scams range from illegal techniques for financing that force consumers into unfavorable finance agreements, to deceptive negative equity deals that put consumers with more car loan debt than they anticipated. Most scammers target owners of cars who must catch up on their bills and wish to avoid getting their cars taken away. The scams could be costly to avoid, so be aware of the signs to watch out for. The scam of car loan modification scams A car loan modification scam is a scam created to extort your cash without providing a service. Car loan modification scammers promise to lower your auto loan payments. In the exchange for helping you reach their goal, scammers demand a steep fee upfront. Scammers usually demand fees in advance or for unusual forms of payment. They may also pressure you to sign an agreement, and they will usually not even check your credit score. They may also instruct you to stop making auto loan payments while they "negotiate" with your lender. It's also not unusual for scammers to ask for additional money as they continue their"efforts" on your behalf. In certain cases the scammer might ask for you to pay your car directly to them instead of your lender. "The scams are like those of mortgage loan modification scams, with the scammers telling customers that they could prevent their car from being taken away and that they can reduce their monthly payment," says Gregory Ashe, senior staff attorney with the Bureau of Consumer Protection at the Federal Trade Commission. Repossession can occur after just 2 or 3 months not paying. The longer you delay making the call, the fewer options will be available. "Auto lenders aren't typically lowering interest rates or reducing the principal balance of the car," Ashe says. "If there is any relief to be obtained, it's generally to extend the length of the loan to reduce your monthly payments , or to delay payments that aren't made until the finalization of the loan. You'll pay more during the duration of the loan, so there's no significant savingshowever, at least you'll have the chance to pay for your vehicle payments." How to avoid
To avoid being the victim of a car loan modification fraud To avoid being a victim of a scam, the FTC suggests that you take action as immediately as you can tell you will And ignore any too-good-to-be-true promises of lowered payment on your car from companies that are not trustworthy.
Yo-yo financing scams A advertises a low interest rate to the buyer, only to yank it off to make an already committed buyer sign a contract with less favorable conditions. This is how it operates. A car dealer entices a buyer to believe that the financing is complete that they will take a trade-in as a down payment and allows the buyer to leave the dealer with a brand-new vehicle. Some days and even weeks after the dealer will contact the customer and inform them that the financing did not go through. The buyer will have to come back to sign a new contract generally with less favorable conditions. Sometimes, the dealer is already selling the vehicle that was traded in, leaving the buyer to choose between higher rates or none at all. These scams usually target people who have fewer financing options due to the limited options they don't have . Yo-yo lending is not legal in every state, says Paul D. Metrey, executive vice president for regulatory affairs with the National Automobile Dealers Association in McLean, Virginia. But there are also conditional sales and spot deliveries that are completely legal. The FTC is currently drafting a for car dealers that includes language to protect consumers from yo-yo financing traps. If it is enacted, the rule would prevent dealers from misrepresenting what the transaction actually finalized. What can you do to prevent
To avoid a yo-yo scam, buyers can come to the dealership with secured prior to the time. It is likely that you will get a better interest rate through the credit union or bank with which you already have an account. Plus, walking in with financing already locked down can give you .
Negative equity scams The FTC has taken administrative action in connection with Truth in Lending Act violations concerning how dealers dealt with negative equity. They did not inform consumers that although they promised to "pay the balance" the outstanding balance on a trade-in, they actually took the negative equity and put it towards the new car loan balance. Many customers complained that they didn't realize that until they signed their new auto financing documents. "Consumers need to carefully go through the document before signing it since it doesn't matter what's said. It matters what's in writing," Ashe says. "If you aren't sure about something, don't sign it." What can you do to stay clear of
If you go through your loan documents, you should ensure that the amount is what you were obligated to pay. If you find additional charges, ask the finance manager at the dealership for a detailed explanation of these costs. Your trade-in should be treated as a separate purchase. While you can choose to into the new loan but the dealer has to explain how this affects the terms of your loan.
Loan packing Dealers may make you feel pressured to or provide services when buying the car. They could offer an extended warranty, rustproofing, tire rotation and service contracts. While some of these items can be useful, many aren't. The dealer's primary goal at this point is to get you to spend more money. Be aware that you are not required to agree to any add-ons. If some of the options are appealing to you, consider negotiating the cost of the additional item in the same way you negotiate the price of the car itself. Be aware that when you add it to the loan you'll have to pay an interest rate on the loan. What can you do to stay clear of it?
Research what is being offered and consider what you could do on your own or by a store elsewhere. You may find that you can get the services or options at an affordable price and with higher quality, without incorporating them into your loan.
The main point is that loan modification scams target vulnerable buyers who are not creditworthy or are late on their payments. If it appears too appealing to be true it's probably true. If you're struggling to pay your loan, the best thing to do is contact the lender directly. Lenders will often be willing to collaborate with you when you demonstrate that you're making an honest effort to make payments.
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Written by Contributing writer
TJ Porter works as a contributor writer for Bankrate with over eight years of experience in writing about financial matters. TJ writes about a range of subjects, from to .
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers feel confident to take control of their finances by providing clear, well-researched information that breaks down otherwise complex subjects into digestible pieces.
Auto loans editor
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