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How to spot auto loan fraud Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering you interactive financial calculators and tools as well as publishing original and objective content. We also allow you to conduct your own research and analyze information for free - so that you can make financial decisions without a doubt. Bankrate has partnerships with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are advertised on this website are provided by companies that pay us. This compensation may impact how and where products appear on the site, such as, for example, the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our mortgage, home equity and other home loan products. But this compensation does affect the content we publish or the reviews you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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4 min read Published 28 February 2023
Authored by TJ Porter. Written by Contributing writer
TJ Porter works as a contributor writer for Bankrate with eight years of experience in writing about finance. TJ writes on a variety of subjects, including .
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances through providing concise, well-researched and well-organized data that has broken down complicated topics into bite-sized pieces.
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When scammers targeted homeowners in the housing downturn however, auto loan frauds are now starting to grab the attention of government watchdogs. These scams range from shady financing tricks that force consumers into unfavorable financial agreements to deceptive negative equity deals that leave consumers in debt for more auto loan debt than they anticipated. Often scammers target car owners who must catch up on their payments and want to avoid getting their cars taken away. These scams can be expensive and you should be aware of the warning dangers to look out for. The scam of car loan modification scams A car loan modification scam is a scam that is designed to steal your money without offering any service. The car loan modification scammers claim to reduce your auto loan payment. In exchange for helping you achieve the goal they demand an unfathomably high fee in advance. Scammers usually demand fees upfront or unusual forms of payment. They may also pressure you to sign an agreement, and they will usually not even check the credit rating of your. The scammers may instruct you to not make auto loan payments as they "negotiate" with your lender. It's also not unusual for scammers and scammers to demand additional money as they continue their so-called efforts on your case. In certain cases the scam firm might ask you to make payments on your car directly to them instead of your lender. "The scams are like mortgage loan modifications scams and the scammers claiming that they can prevent their car from being taken away and that they can lower their monthly payments," says Gregory Ashe Senior Staff Attorney with the Bureau of Consumer Protection at the Federal Trade Commission. Possession is possible after one or two months non-payment. The longer you wait to call, the fewer options you have. "Auto lenders are not typically offering lower interest rates or decreasing the principal balance of a car," Ashe says. "If you do have any relief that can be obtained, it's generally to extend the length of the loan to reduce your monthly payments , or to postpone payments due to late payments until the end of the loan. There will be a higher cost over the life of the loan, so there's no significant savingshowever at least you'll have the chance to pay for your car payment." How to avoid
To avoid being the victim of a car loan modification scam, the FTC recommends as soon as you realize you are susceptible to being a victim. Also, avoid false promises of lower payment on your car from companies that are not trustworthy.
Yo-yo financing scams A advertises a low interest rate in front of buyers, and then pulls it off to make an already committed buyer agree to lower conditions. This is how it operates. A dealer will lead the buyer to believe the financing is complete that they will take a trade-in as a down payment and allows the buyer to leave the dealership with a brand new vehicle. Some days and even weeks after, the dealer will contact the customer and inform them that the financing fell through. The buyer will have to come back to sign a new contract, typically with less favorable terms. Sometimes the dealership has already sold the trade-in vehicle, leaving the buyer to select between higher rates or no car at all. These scams typically target customers with fewer financing options because they do not have . Yo-yo financing is prohibited in all states, according to Paul D. Metrey, senior vice president for regulatory affairs for the National Automobile Dealers Association in McLean, Virginia. However, there are spots and sales with conditional terms that are completely legal. In fact, the FTC is currently drafting a for car dealers that includes the language needed to safeguard consumers from the yo-yo finance traps. If it is enacted, the rule will prevent dealers from making false representations the fact that the transaction has been completed. What can you do to prevent
To stay clear of a yo-yo fraud Buyers can go to the dealership with their credit card secured before the scheduled time. It is likely that you will get an interest rate that is better through the credit union or bank that your account is already open. Also, bringing in the money already secured gives you .
Negative equity scams The FTC has taken administrative action for Truth in Lending Act violations regarding how those dealers handled negative equity. The dealers did not clearly inform consumers that although they claimed for "pay for" the balance due to a trade-in, they actually took the negative equity and applied it to the borrower's new car loan balance. Many clients complained that they didn't be aware of this until they had signed their new auto financing documents. "Consumers must read the paperwork before signing it because it doesn't matter what's written. It's all about the writing," Ashe says. "If you don't understand something, then don't sign it." How can you avoid
After reviewing you loan documents, make sure to confirm that the loan amount is what you were obligated to pay. If there are additional costs you aren't sure about, ask the finance department at the dealership to explain these to you. Your trade-in should be treated as a distinct transaction. While you can choose to into the new loan, the dealer needs to be clear about what the implications of this will be for the loan.
The loan packing dealer may make you feel pressured to and services when you buy an automobile. These might include extended warranties , rustproofing, tire rotation and service agreements. Although some of these products may be beneficial, the majority aren't. The dealer's primary goal in this instance is convince you to spend more money. However, you're under no obligation to agree to any extras. If some options appeal to you, you can try to negotiate the price for the extra item just as you would discuss the price of the car itself. Be aware that when you add it to the loan, you're paying the interest. How can you avoid it?
Find out what's available and then see what you can do yourself or get done at a shop elsewhere. You may find that you can find the products or services at a lower price and superior quality without having to wrap them in your loan.
The main point is that loan modification frauds target those who have poor credit or who are in arrears with their payments. If it seems too appealing to be true it's probably true. If you're having trouble paying your loan, the best option is talk to the lender directly. The majority of lenders are willing to work with you when you demonstrate that you're making an honest effort to continue making payments.
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Written by Contributing writer
TJ Porter works as a contributing writer at Bankrate with over eight years of experience writing about finance. TJ writes on a variety of subjects, including .
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers feel confident to control their finances through providing clear, well-researched data that breaks otherwise complicated topics into bite-sized pieces.
Auto loans editor
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