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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 tools and financial calculators as well as publishing original and objective content, by enabling users to conduct research and compare data at no cost — so you can make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that compensate us. This compensation may impact how and when products are featured on this website, for example for instance, the order in which they may appear within the listing categories, except where prohibited by law for our loan products, such as mortgages and home equity and other home loan products. This compensation, however, does not influence the content we publish or the reviews that you see on this site. We do not cover the vast array of companies or financial deals that may be accessible to you.
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4 minutes read. Published February 28, 2023
The story was written by TJ Porter. Written by Contributing writer
TJ Porter is a contributing writer at Bankrate with eight years of experience writing about finance. TJ writes about a range of subjects, including .
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to manage their finances with precise, well-studied data that has broken down complex topics into manageable bites.
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As scammers targeted homeowners during the housing downturn and the recession, car loan frauds are now starting to grab the attention of watchdogs from government agencies. The scams vary from illegal financing tricks that force consumers into unfavorable financing agreements to deceptive negative equity deals that put consumers in debt for higher auto loan debt than they anticipated. Often scammers target car owners who need to catch up on their bills and wish to avoid getting their cars taken away. The scams could be costly and you should be aware of the warning indicators to be aware of. The scam of car loan modifications scams. A loan modification scam is a scam designed to take your money without offering a service. Scammers for car loan modification scammers offer to lower your car loan payment. In exchange for helping you accomplish the goal they charge a steep fee in advance. Scammers typically ask for fees upfront or unusual forms of payment. They might also force to sign a contract and will often not even check the credit rating of your. They may also instruct you to stop making auto loan payments as they «negotiate» with your lender. It’s not uncommon for scammers to ask for additional money as they continue their alleged efforts to resolve your case. In some instances the scam firm might require 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 claiming that they can keep their vehicle from being repossessing and they can lower their monthly payment,» says Gregory Ashe, senior staff attorney with the Bureau of Consumer Protection at the Federal Trade Commission. Repossession may occur within 2 or 3 months non-payment. The longer you put off making a call, the fewer options you have. «Auto lenders aren’t typically lowering interest rates or reducing the principal balance on the car,» Ashe says. «If any relief is to be had, it’s typically to extend the length of the loan to reduce your monthly payments or to postpone payments due to late payments until the close of the loan. You’ll pay more during the duration of the loan, so there’s no significant savingshowever, at least you’ll have an opportunity to make car payment.» How can you avoid
To ensure that you do not fall victims of car loan modification fraud to avoid falling victim to a fraud, the FTC suggests that you take action as immediately as you can tell you are susceptible to being a victim. Also, avoid claims of lower vehicle payments from shady companies.
Yo-yo financing scams The seller advertises a low interest rate in front of the buyer, only to yank it back to make the already-committed buyer agree to worse conditions. This is how it works. A car dealer leads the buyer to believe the financing is done, accepts a trade-in or a down payment and allows customers to depart the dealership with a new vehicle. Some days or even weeks later the dealer will contact the buyer and say the financing did not go through. The buyer must come back and sign a new contract generally with less favorable conditions. Sometimes, the dealership has already sold the trade-in vehicle and the buyer is forced to choose between higher rates or no car at all. These scams usually target people with fewer financing options because they do not have . Yo-yo financing is illegal in all states, according to Paul D. Metrey, senior vice president for regulatory affairs at the National Automobile Dealers Association in McLean, Virginia. However, there are other forms of conditional sales and spot deliveries which are legal. They are also legal. FTC is currently writing a regulation for car dealers that includes language to protect consumers from yo-yo financing traps. If enacted, the rule would stop dealers from misleading consumers what the transaction actually finalized. What are the best ways to stay clear of
To avoid a yo-yo scam, buyers can come to 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 with which your account is already open. Plus, walking 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 in the way that dealers handled negative equity. They did not explain to customers that even though they promised to «pay the balance» the outstanding balance to a trade-in but they actually took that negative equity and applied it to the borrower’s new car loan balance. Some customers complained that they didn’t be aware of this until they had signed their new auto financing documents. «Consumers need to carefully read the paperwork before signing it since it doesn’t matter how it’s written. It’s all about the writing,» Ashe says. «If you aren’t sure about something, then don’t write it.» How to avoid
If you go through you loan documents, make sure to make sure the price is what you agreed to pay. If there are additional costs you aren’t sure about, ask the finance department at the dealership to explain them to you. Your trade-in is treated as a separate transaction. Although you may choose to make an existing loan however, the lender needs to be clear about what the implications of this will be for your loan.
Loan packing Dealers may induce you to purchase and from services when you purchase an automobile. These might include an extended warranty, tire rotation, rustproofing and service contracts. Although some of these products may be beneficial, the majority are not. The primary goal of the dealer in this instance is get you to spend more money. But remember that you are in no way bound to any extras. If some of the options interest you, consider negotiating the price for the extra product just like you discuss the price of the car itself. Be aware that when you add it to the loan, you’re paying interest on it. How can you avoid it?
Find out what’s available and then see what you can do on your own or by a store elsewhere. You might find that you can find the products or services at less cost and of superior quality without having to wrap the costs into the loan.
The bottom line Car loan modification scams target vulnerable buyers who have bad credit or are late on their payments. If the offer appears too promising to be true, then it probably is. If you’re having trouble paying your loan, the best thing to do is to contact the lender directly. Most lenders will be willing to work with you when you demonstrate that you’re doing your best to keep making payments.
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Written by the writer who contributed to the article.
TJ Porter is a contributing writer for Bankrate with over eight years of experience writing about finance. TJ writes about a wide range of subjects, including .
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping their readers to manage their finances with concise, well-researched and well-written information that breaks down complex subjects into digestible pieces.
Auto loans editor
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