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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 choices by offering you interactive tools and financial calculators that provide objective and original content. This allows you to conduct research and compare data without cost, so that you can make financial decisions 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 site are from companies who pay us. This compensation could affect how and when products are featured on the site, such as, for example, the sequence in which they be listed within the categories of listing, except where prohibited by law for our loans, mortgages,, or other home loan products. But this compensation does affect the content we publish or the reviews that you read on this site. We do not contain the vast array of companies or financial offers that may be accessible to you.
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4 min read Published February 28, 2023
Authored by TJ Porter. Written by a contributing writer
TJ Porter works as a contributing writer for Bankrate with eight years of experience writing about financial matters. TJ writes about a range of subjects, including .
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances with precise, well-studied facts that break down complex topics into manageable bites.
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When scammers targeted homeowners in the housing downturn however, auto loan frauds are now starting to draw the attention of watchdogs from government agencies. The scams vary from illegal techniques for financing that force consumers into unfavorable finance agreements, to deceptive negative equity deals that leave consumers in debt for greater auto loan debt than they anticipated. Most scammers target owners of cars who must catch up on their debts and want to avoid getting their cars taken away. These scams can be costly, so understand the indicators to be aware of. Scams involving car loan modifications scams. A loan modification fraud is created to extort your cash without providing a service. The car loan modification scams claim to reduce your auto loan payment. In the exchange for helping you reach the goal they demand an unfathomably high fee in advance. Scammers usually demand charges upfront or other unusual methods of payment. They might also force to sign a contract and will often skip checking your credit score. The scammers may advise you to not make auto loan payments while they "negotiate" with your lender. It's also not uncommon for scammers to ask for more money in exchange for their so-called efforts on your case. And in some cases the scammer might ask you to make car payments directly to them instead of your lender. "The scams are similar to those of mortgage loan modifications scams with the scammers telling victims that they can keep their vehicle from being repossessed and that they can lower their monthly payments," says Gregory Ashe is a senior attorney in the Bureau of Consumer Protection at the Federal Trade Commission. Repossession may occur within two or three months of non-payment. The longer you wait to make a phone call, the less options will be available. "Auto lenders are not typically cutting interest rates or reducing the principal balance of an automobile," Ashe says. "If there is any relief to be obtained, it's generally to extend the length of the loan to decrease your monthly payments or to delay payments that aren't made until the end period of loan. The loan will cost you more during the duration of the loan but there's no significant savingshowever, at least you have a chance of affording your vehicle payments." What can you do to stay out of trouble?
To avoid becoming the victim of a car loan modification scam to avoid falling victim to a fraud, the FTC suggests that you take action as soon as you realize you will And ignore any false promises of lower vehicle payments from shady companies.
Yo-yo financing scams A offers a favorable interest rate to a buyer, then yanks it away to make the already committed buyer agree to lower terms. This is how it operates. A dealer will lead a buyer to believe that the financing is complete and will accept a trade-in or a down payment and allows buyers to walk out of the dealership with a brand new car. A few days, or perhaps weeks the dealer will call the customer and inform them that the financing fell through. The buyer will have to come back to sign a new contract generally with more favorable terms. Sometimes, the dealership had already offered to sell the trade-in vehicle, leaving the buyer to select between higher rates or the car is not even available. These scams typically target customers who have fewer financing options due to the limited options they do not have . Yo-yo financing is prohibited in all states, according to Paul D. Metrey, the senior vice president of regulatory affairs for 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 the language needed to safeguard consumers from yo-yo financing traps. If it is enacted, the rule will prevent dealers from making false representations when the transaction is actually finalized. What can you do to prevent
To avoid being a victim of a yoyo scam buyers should visit the dealership with secured before the scheduled time. You will likely get the best interest rate by using an institution like a credit union or bank that you already have an account. Additionally, coming in with credit that is already locked in can give 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 failed to clearly explain to customers that even though they offered for "pay off" the outstanding balance on a trade-in, they actually took the negative equity and put it towards the new vehicle loan balance. Many customers complained that they didn't realize this until they had signed their new auto financing documents. "Consumers need to carefully study the documents before signing it since it doesn't matter what's written. It's all about the writing," Ashe says. "If you don't understand something, don't sign it." What can you do to stay clear of
When you review you loan documents, you should make sure the price is what you agreed to pay. If you discover additional costs you aren't sure about, ask the finance department at the dealership for a detailed explanation of these costs. Your trade-in should be treated as a separate transaction. While you can choose to into the new loan however, the lender needs to explain how this affects the loan.
Loan packing dealers can be able to make you feel pressured to and from services when you purchase the car. This could include an extended warranty, tire rotation, rustproofing and service contracts. Although some of these products are useful, the majority are not. The main goal of the seller at this point is to persuade you to spend more money. But remember that you are under no obligation to agree to any additional items. If some of the options interest you, you can try to negotiate the price of the additional item in the same way you discuss the price of the car. Keep in mind that when it's added to the loan you'll be paying interest on it. What can you do to stay clear of it?
Find out what's available and then see what you can do yourself or get done by a store elsewhere. You might find that you can purchase the options or services for less cost and of superior quality without having to wrap them into the loan.
The main point is that loan modification scams target vulnerable buyers who are not creditworthy or are in arrears with their payments. If it appears too promising to be true, it's likely to be. If you're having trouble paying your loan, the best way to resolve the issue is to contact your lender directly. Lenders will often be willing to work with you when you demonstrate that you're taking a genuine effort to make payments.
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Written by a contributing writer
TJ Porter works as a contributing writer at Bankrate with eight years of experience writing about finance. TJ writes about a wide range of subjects, including .
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down complex subjects into digestible pieces.
Auto loans editor
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